PLANT MARKET
UPDATE
By Timothee Sallin
April 2015
President, Cherry Lake Tree Farm
A
s the housing market has recovered, the growth in demand for ornamental trees, palms and shrubs has outpaced the growth in supply. This has
led to rapid escalations in plant material prices, limited availability and smaller
specifications.
Today, as we take stock of the current market conditions and look forward to the
next 12 months, it appears that the plant material shortage will continue to be
felt throughout 2015 and will be more severe in its impacts as we move through
Spring and into the Summer.
CHERRY LAKE TREE FARM PLANT MARKET UPDATE 2015 |
1
HOUSING STARTS
The key driver of demand for plant material is new construction and
in particular new housing starts. Florida housing starts have been
recovering since 2010. In 2013 Florida housing starts were 124%
higher than 2011. 2014 starts remained steady at 85K units, and
the first quarter of 2015 indicates that more growth can be expected
this year.1
Texas, likewise, has been experiencing strong housing growths since
2010. Housing starts in Texas have grown from 83,840 in 2010 to
130K in 2012, 147K in 2013 and 165K in 2014.2
Globally, the same pattern of housing recovery can be seen at the
South Census Region level, which represents the majority of the market for Florida grown nursery trees, palms and shrubs.3
South Census
Region States
Units on graphs expressed in monthly totals.
1
US. Bureau of the Census, New Private Housing Units Authorized By Building Permit for Florida [FLBPPRIV], retrieved from
FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/FLBPPRIV/, April 14, 2015.
2
US. Bureau of the Census, New Private Housing Units Authorized By Building Permit for Texas [TXBPPRIV], retrieved from
FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/TXBPPRIV/, April 14, 2015
3
US. Bureau of the Census, New Private Housing Units Authorized By Building Permit for the South Census Region [CSOUBPPRIV],
retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/CSOUBPPRIV/, April 14, 2015.
2 | CHERRY LAKE TREE FARM PLANT MARKET UPDATE 2015
IMPACTS ON PRICING AND SPECIFICATIONS
The plant material demand associated with
these housing starts is driving nursery
sales and leading to rapid escalations in
plant material prices. The price of a 30
gallon Live Oak has increased from a low
of $31 in 2011 to a current price of $107.4
Despite these major price increases, nursery supply is still unable to keep up with
demand.
Nurseries are selling out of inventory and
releasing crops early to fulfill excess demand. This leads to smaller specifications
as trees are sold before they are able to
reach maturity. In the case of the 30 gallon Live Oak, trees were commonly sold at
2.75” - 3” caliper in 2011 due to the oversupply at the time- this was an inch over the
industry standard of 2” caliper for a 30 gallon Live Oak.5 Today, due to the shortage,
the same 30 gallon Live Oak is being sold
at 1.5” - 1.75” caliper. In other words, the
market is paying 245% more for a tree that
is 50% smaller in 2015 compared to 2011.
EVOLUTION OF PRICE FOR 30 GALLON LIVE OAK
Year
2011
2012
2013
2014
2015
Price
$31
$40
$68
$86
$107
Caliper
2.75 - 3” 2.75”
2.5”
2”
1.75”
119%
177%
245%
% Price Increase
0%
since 2011
28%
EVOLUTION OF PRICE FOR 3” CALIPER CONTAINER LIVE OAK
Year
2011
2012
2013
2014
2015
Price
$31
$40
$96
$149
$222
Contianer Size
30g
30g
45g
45g
65g
28%
206%
374%
609%
% Price Increase
0%
since 2011
4
All Nursery stock pricing in this report is based on Cherry Lake Tree Farm average annual net sales price.
5
A 3” Caliper 30 Gallon is considered an overgrown tree and does not meet the Florida Grades and Standards. Nevertheless, the severity
of the recession resulted in many overgrown trees making their way to market between 2010 and 2013.
CHERRY LAKE TREE FARM PLANT MARKET UPDATE 2015 |
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To better understand the full impact of the plant material shortage on prices, we
need to compare the price of trees of equal caliper. To source a 3” caliper Live
Oak in 2015, one must purchase a 65 gallon size container.6 The current price of
a 65 gallon Live Oak is $222. Thus the price of 3” container live oak has increased
from $31 in 2011 to $222 in 2015 which is over 600%.
The price of 3” container live oak has increased from
$31 in 2011 to $222 in 2015 which is over 600%.
INDUSTRY IMPACTS
Our industry is dealing with a historic shift in supply and demand. This shortage
will likely persist for several more years as nursery stock cannot be produced at
a faster rate than nature allows. Our prediction is that the shortage will become
more severe over the next 12 months and last at least through the end of 2017.
Nurseries have been the first to respond to these market transformations as they
have been the first to feel the impact of these changes in their businesses. Most
nurseries have new stricter selling policies to better manage their inventory. These
include limiting access to their inventory to select customers, cutting off smaller accounts, limiting credit availability, imposing minimum and maximum quantity limits on orders, and insisting that orders ship immediately, limiting customers’
ability to hold inventory for future projects.
Our prediction is that the shortage will become
more severe over the next 12 months and last at
least through the end of 2017.
Landscape contractors have, in turn, had to make changes to their bidding and
procurement strategies, incorporating plant material escalations into their bids
and qualifying proposals to protect them against availability and pricing risk. Savvy
landscape contractors are seeking to procure plant material as early as possible
and securing material before committing to a project.
6
Today some crops of 65 gallon live oaks are selling at 2.5-2.75” caliper and it is likely that 3”
caliper live Oaks will become scarce even in the 65 gallon container size.
4 | CHERRY LAKE TREE FARM PLANT MARKET UPDATE 2015
CONSTRUCTION PROJECT IMPACTS
Plant material shortages pose serious threats to construction projects
affecting budget, schedule and quality.
Landscape installation is typically at the end of the
construction schedule and one of the last items to
be completed before a project can obtain a certificate of occupancy. The plant material shortage
can affect the schedule in several ways. Generally,
longer lead times for materials increase the risk of
schedule delays. Difficulties sourcing material can
prompt the contractor to request approval of alternates which cost time and may in turn require that
plans be re-submitted for permitting. Additionally, there are greater chances that material will fail
mandatory inspections due to specification or quality causing further delays.
Project quality is also at risk. By definition, the shortage means there
are fewer sources of quality plant material. Projects will be impacted
as contractors and architects compromise either plant material quality,
specifications or design intent in order to source plant material during
the shortage. Furthermore, hard bid contractors facing severe price escalations will be under greater pressure to reduce quality in order to
preserve margins.
Projects will be impacted as contractors and
architects compromise either plant material
quality, specifications or design intent in order
to source plant material during the shortage.
In order to mitigate these impacts to project schedule, budget and quality, it is recommended that project stakeholders increase planning and
flexibility. The more flexibility the project stakeholders allow for plant
variety and specifications, the more options will be available to achieve
project goals. Early planning and procurement can also help mitigate
risk. By defining plant material requirements early, selecting a contractor early, and working closely with nursery suppliers, project planners
can mitigate some of the risk associated with the shortage.
LOCAL GOVERNMENT IMPACTS
The final test of the industry’s ability to respond to the shortage will be
whether or not local government codes, ordinances and inspections will
adapt. As plant material specifications get smaller, it will be more and
more difficult to meet all the minimum specification requirements of
some local ordinances. Will local governments accept smaller specifications or will they insist on enforcing their ordinances without regard to
changing market conditions? Ultimately it is in the best interest of the
CHERRY LAKE TREE FARM PLANT MARKET UPDATE 2015 |
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local government to promote quality plant material over size. Healthy
plants will grow and ultimately reach the desired specifications. Low
quality plants are more likely to fail in the landscape, and create persistent maintenance issues. Most importantly for local governments,
poor quality plant material can be structurally unsound exposing people
and property to risk.
It is better to insist on healthy, high quality plants than to insist on specifications. Given the state of plant supply, local governments will most
likely need to choose one over the other. We recommend local governments focus on quality. This may be accomplished by providing training
to inspectors on plant material grades and standards, as well as promoting other independent quality standards such as ACT (Association of
Certified Container Grown Trees).
We are entering uncharted territory for the nursery and landscape industry. It is our hope that we can contribute to creating a dialog with
industry stakeholders, to educate the marketplace and help propose
solutions to the new challenges before us.
For more information on this topic please refer to past articles linked
below. We welcome your comments and encourage you to share your
experiences and outlook with us on this important topic. Please send
your comments to [email protected].
ADDITIONAL ARTICLES
STATE OF THE INDUSTRY: ITS ALL ABOUT SUPPLY & DEMAND
GrowerTalks Magazine, July 2014
THE TREE SHORTAGE IS NOW
Cherry Lake Tree Farm, February 2014
MISSING
Nursery Management Magazine, January 2014
SOLD OUT
Landscape Architecture Magazine, June 2013
LANDSCAPE TREE MARKET OUTLOOK
Cherry Lake Tree Farm, April 2013
Cherry Lake Tree Farm
7836 Cherry Lake Rd.
Groveland, FL 34736
www.cherrylake.com
6 | CHERRY LAKE TREE FARM PLANT MARKET UPDATE 2015
TREE SHORTAGE ON THE HORIZON
Lawn & Landscape, December 2013
WHY TREE PRICES WILL INCREASE
John Barbour, Bold Springs Nursery, 2011