Industry Shortages Coming?

I always knew that the decline of the housing market was going to hurt/effect our industry for years.

It’s a true game changer and there are going to be losers and survivors. I doubt there will be many outright winners.

So . . .  I was reading through my ANLA forum and this letter showed up from John Barbour the head honcho at Bold Springs Nursery. John is a very reputable guy in the Nursery business with over 25 years running Bold Spring along with it’s now 1,200 acres.

1st Crash

Prices dropped off from everyone involved and buyers/consumers squeezed hard knowing that folks were desperate for business, and these actions are going to cost us in the long run.

Please read over and respond here or directly. I am interested to hear your take on Mr. Barbour’s forecasting on prices for nursery stock.

Slow Recovery

I continue to see nothing but bad news about housing numbers and recovery. Including crazy numbers about the amount of empty houses in America which all add up to lost work and income for us.

We need to be smart, and clever, and resilient in the coming years. I think we’re in for a long bumpy, uncomfortable ride.

WHY TREE PRICES WILL INCREASE

John H. Barbour, President, Bold Spring Nursery

Price increases are a sore topic. In our current economic climate, cost cutting has become a way of life as businesses fight to conserve cash and preserve margins. The unwelcome news of a price increase from a supplier is usually the last thing a buyer wants to hear. The ornamental tree business has been no different. Growers have suffered a crushing over-supply of trees which was, in fact, developing 6 -7 years ago, but was masked by the frenetic pace of construction through the middle part of the decade. When the bubble burst in 2007-2008 the demand for trees was reduced dramatically, beyond what few of us have ever witnessed. Since that time, growers, desperate to maintain a market share, have reacted by cutting prices for each of the last 3 years to the point where prices, on some items, have reached 30-year lows.

Unlike many businesses, tree growers cannot simply downsize their company to a scale that matches their sales. Existing inventory requires upkeep and that costs money. Like everyone else, growers have aggressively cut costs to try to staunch the negative flow of cash. That is a tall order in a world where the costs of raw materials such as burlap, diesel, and plastic have only increased. So, in many cases, fertilizer, pesticides, pruning, and staking have gone by the board. The results of excessive cost cutting are evident in the marketplace this year and many growers are simply not capable of supplying trees of adequate quality. For most growers, even the cost of culling bad trees is daunting when cash is tight and so the trees sit around, on display in the fields or, in the case of containers, growing increasingly pot-bound.

The other major area of cost cutting has been a sharp decrease in tree-planting in nurseries. Many cash conscious growers have realized that if they cannot afford to maintain what they have, then there is little point in putting more trees in the ground. As a result, tree planting has declined 70-80% over this period. This reduction occurred progressively: first by about 20% in 2008-2009 and then an additional 30-40% in each of the two following years. This trend has only just begun to become evident, with many smaller-sized trees and evergreens becoming scarce this spring. Over the next two years the breadth of shortages will increase dramatically and progressively, as more gaps appear while the old inventory outgrows the market, becomes ruined from neglect, is sawed down to increase spacing, or grubbed out entirely to prepare fields for re-planting.

Growers are watching carefully to see which items are selling out and they will raise prices whenever market conditions allow. This is not a matter of greed as much as survival. Most nurseries are just hanging on and absorbing losses, if they are even doing that. We are all watching while prominent nurseries fail, unable to continue in an economic meltdown that was nearly impossible to predict.

The shock waves from the sub-prime melt-down will continue to be felt, but will soon be felt in different ways. The crash of demand will be followed by a crash in supply caused by a reduction in the number of nurseries that have been willing and able to continue to risk investment in the planting and maintenance of quality inventory these last three years. And just as the construction boom masked the over-supply of trees 5-6 years ago, the construction bustis masking the currently developing shortage. When we experience even a modest resumption in new construction, the shortages will be difficult to manage.

It is important for businesses to educate their customers for what is coming. There is a special challenge for those who are bidding projects that are further out. There is a shocking gap between the desperate pricing of 2010-11, and the prices of, even, the over-supplied market of 2007. But when scarcities become prevalent, prices will return to their former levels, and eventually go higher still. That market of shortages may be much closer than you realize. Buyers should be prepared for price increases in fall 2011 and very large increases in 2012 and 2013.