North American Softwood Lumber and Panel Price Methodology
RISI publishes three separate weekly market and price reports and two weekly market and price updates under the Crow's banner. For over 80 years, Crow's has been publishing market analysis and pricing information for the softwood lumber and panel markets in North America. Crow's reports have found widespread acceptance in the industry.
Crow's Industrial Lumber Report is used by subscribers worldwide to check on Ponderosa Pine, Radiata Pine, Douglas Fir, and White Fir- moulding and shop, blocks and blanks, FJ moulding, selects and commons both domestic and imported. Crow's Canadian Panel Report contains market intelligence and prices for Canadian softwood plywood, Douglas Fir plywood, OSB and Veneer. Crow's Weekly Market Report contains prices and information on lumber products, species, and mills from across North America as well as market coverage and prices on Southern Pine and western species of sheathing, sanded plywood, underlayment, concrete form, siding and veneer and oriented strand board, particle board and medium density fibreboard. Crow's Midweek Update and Canadian Panel Update are two single page reports that give a brief look at the markets midweek. This document describes the methodologies used for these reports.
Next, the unit consumption levels are multiplied by unit costs (at prevailing market rate in each mill's geographic region) to produce a cost per ton for each natural expense category. Sources for unit cost data include government reports, wage and benefit data, supplier technical information and industry publications. The data is then reviewed to compensate for production variations, for example:
Determination of Price
Each week Crow's reports over 1800 price points. These price points are reported to Crow's editors through telephone surveys and email and fax questionnaires.
All price surveys, no matter how statistically rigorous they claim to be, run the risk of being "gamed" or undermined by survey responders, through means such as selective reporting of transactions or misreporting of prices. Even a survey that is based on actual invoice prices can be manipulated if respondents selectively report transactions.
Crow's price survey methodology addresses this problem in two ways. First, prices are collected from both buyers and sellers to balance out potential bias from respondents. Second, our price methodology allows the editor who is doing the survey (hereafter, "surveyor") a degree of latitude to supplement the price survey results with other information in order to derive the price that best represents the market conditions at any point in time. The surveyor can use his best judgment in assigning more weight to responses from those who have been the most reliable sources for pricing in the past. Application of expert judgment based on years of studying the market has been one of the keys to the success and acceptance of Crow's price information.
For this reason, prices in Crow's reports are not arrived at using a fixed calculation or weighting scheme. Larger transactions are given more weight than are smaller ones, however, which is consistent with the concept of a weighted average.
Where survey information is limited due to small size of the market, or when there are substantial conflicts in the information provided by survey respondents, the surveyor will factor non-survey information into the final price assessment. Such information can include current supply and demand fundamentals and historical relationships between product prices over time.
Revisions to the prices are made infrequently. In the event of new information becoming available or when there is an incorrect number published, a correction will be sent out to inform the subscriber of the correct information. The window for price corrections is one day after the publications release.
Survey Procedure
Survey respondents are asked to disclose the specification of the products that they actively buy or sell, the volumes involved, the nature of the transactions that they engage in (spot or contract, indexed or open market), and whether any special terms or conditions must be considered in comparing his or her reported prices to others collected in the survey. This information is used by the surveyor to put the responses into perspective.
The mid-week updates surveys are conducted at the beginning of each week and are completed by Tuesday evening or Wednesday morning. The information gathered from these surveys is used in the mid-week updates. Additional surveys are conducted in the latter part of the week and this information is used in the three main Crow's reports. Most contacts with survey respondents are made by phone. Some are made by fax and email. Participants in the survey include both buyers and sellers of lumber and panel products.
The amount and type of information that a respondent provides each month varies across individuals and companies. In the ideal case, the respondent provides prices for transactions that occurred during the previous period for the products the respondent deals with, along with the volumes involved and possible special terms. Others report prices for products they bought or sold as well as prices quoted but that did not culminate in a sale. A small minority reports only changes in levels from the past period's prices. All of these responses are considered by the surveyor.
The mix varies by product, but there are usually buyers in the survey as well as sellers. The number of respondents varies by product but is sufficient to get an accurate reading of the price of a given product in the marketplace.
Transaction Specifications
Only transactions between non-affiliated parties are included in the survey. Another way of saying this is that to be included in the survey, a transaction must be conducted at "arms length." Prices for internal transfers between units of a company are not included in the survey. Prices are for open market sales from producers to wholesalers and are usually quoted fob mill unless otherwise noted in the report. Where delivered prices are indicated, delivered prices were given by the respondent using industry standard freight rates. Any surcharges that a customer pays for additional freight because of his location or drop-off requirements are not reflected in the price. Contract sales and special terms sales are not included in calculating the price for a given product.
Prices reported in Crows are time of sale, regardless of shipment date. However, because of the often fast moving nature of commodity markets, Crow's prices, which are "historic" in nature, may at times be different than current market prices.
All prices are invoice prices and do not reflect discounts for quantity, payment terms or other special considerations beyond the stated invoice price.
Circularity
Respondents and others within the industry are discouraged from using Crow's reports to set prices for contract transactions in which both parties choose to tie the transaction to an index. Crow's is aware that a fraction of transactions in the market are tied directly to its price reports. In theory, this raises concerns about circularity of the survey process.
For this reason, Crow's policy is to survey only for transactions that are conducted in the open market; i.e., that are not tied to the price index itself. Some respondents are involved in both open market and "indexed" transactions. In these cases, information is collected only for the open market transactions.
Continuity
The number and type of participants has changed since the inception of the Crow's surveys. However, Crow's has strived to maintain a consistent methodology in its price and information gathering. Consequently, older data is directly comparable to the numbers in the current Crow's surveys. The surveys are continually being expanded to include a broader range of products as well as buyers and sellers.
Auditing
Because the survey involves confidential sources and requires the judgment of the survey or be applied to arrive at the reported price, the surveys are not audited by an outside party. RISI relies upon internal management controls to check on adherence to our survey methodology and to maintain standards of accuracy.
Non-Disclosure of Information
All RISI price surveys are confidential. Names of individuals and companies participating in the survey are never disclosed to the public or to other survey participants. RISI's policy is to neither confirm nor deny either directly or indirectly the participation of any individual or company at any time. Confidential or proprietary information that is collected as part of the survey process, including prices reported by individual survey participants, is not shared with the public or with other survey participants.
Absence of Financial Interest
RISI recognizes that in the normal conduct of their jobs, its employees may have access to confidential or proprietary information regarding companies or markets. RISI has a "Code of Conduct" that prohibits employees who conduct price surveys from having a financial interest in companies whose values are directly and substantially affected by prices they report. Excluded from this prohibition are holdings in mutual funds or other diversified portfolios that might include financial assets related to such companies. Also prohibited is a financial interest in any financial instrument that derives its value substantially from the reported prices of products included in the survey.
Commercial Usage
Price surveys published in Crow's Industrial Report, Crow's Canadian Panel Report, Crow's Weekly Market Report and Crow's Midweek Update and Canadian Panel Update are copyrighted information. Any commercial use, including hedging or settling of contracts, requires a subscription to the appropriate report. For more information, please contact us at 781.734.8934.
Disclaimer of Warranty
Though RISI collects price estimates from sources that are believed to be reliable, RISI does not warrant or guarantee the accuracy or completeness of is price estimates. Actual transaction prices will often vary from the reported level.