Price dynamics of the woody feedstocks used for wood pellet production in the US South
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The US South has recently experienced a rapid expansion in wood pellet production. The growth of this industry within the context of international export markets and the existing US fiber markets is examined. As raw material inputs represent the highest variable cost component of wood pellet production, flexibility in the strategic sourcing of woody feedstocks can hedge against volatility in the fiber markets and allow for the cost minimization of raw material inputs. Time series modeling tools were employed to explore the various price relationships among four common woody feedstocks used in the production of wood pellets. The feedstocks were found to be cointegrated. A Vector Error Correction Model (VECM) was used to provide the structure through which impulse response functions and forecast error variance decompositions were analyzed. The results of these price dynamics indicate a production preference of residuals over pulpwood.