FutureMetrics paper discusses model for forecasting pellet prices

By Erin Voegele | October 04, 2018

FutureMetics LLC has published a new white paper discussing the model it has developed for estimating the cost of producing and transporting wood pellets from major producing regions to the foreign ports of major industrial end users.

“Our model provides valuable insight into the future costs and prices for industrial wood pellets and potential cash flow risks associated with the uncertainty of those costs,” wrote authors William Strauss, president of FutureMetrics, and Seth Walker, senior analysis, in the white paper. “It is important to analyze pellet supply chain cash flows and costs to better understand the price dynamics in long-term offtake agreements. FutureMetrics’ model provides insight into the components of the total cost of industrial wood pellets delivered to a foreign port.”

Within the paper, Strauss and Walker describe FutureMetrics’ new model and some of the insights its analysis can offer.

FutureMetrics uses historical prices for delivered pellets as a baseline for calibrating the model. The white paper notes that the “goal of the model is to replicate the estimated delivered price of pellets and then, based on commonly forecasted macroeconomic parameters, forecast future prices.” The cost of diesel is one of the significant drivers of forecast estimates.

The methodology used by FutureMetrics uses sub-models for the main components of pellet costs, including the cost of wood delivered to the pellet mill, pellet mill conversion costs plus margin, inland transportation, and shipping.

A full copy of the white paper can be downloaded from FutureMetrics’ website