Oregon Farmers See Christmas Tree Shortage
As the 2017 Christmas tree season approaches farmers are beginning to see that the over abundance of Christmas trees is no longer on issue. In fact, it is quite opposite. Farms are now seeing a shortage in trees faster than they had thought. Here is an interesting article discussing the Christmas tree shortage in the upcoming years.
2017 Christmas Tree Forecast
We just returned from a week long journey through the Pacific Northwest Christmas tree growing region. Much of our time was dedicated to visiting with our current, loyal farms. We also made sure to allocate plenty of time searching for other farms that may be in a position to take on more customers. We returned with some great insight about the 2017 Christmas tree forecast, but did not find any other farms that could take on new business.
The 2016 Season marked the beginning of an overall shortage of Christmas trees. 2017 inventories will be tighter than 2016. In addition, many growers oversold in 2016 and were forced to cut into portions of their 2017 inventories to honor their commitments, increasing their shortage.
Big box retailers still appear to be the primary market for big farms. They are relying heavily on smaller farms to sell them the trees they need to complete their orders now. Big farm’s buyers are prepared to offer other growers whatever price is necessary to acquire their trees. It looks like most mid sized farms prefer to keep their relationships with their regular customers, however. Big farms were not able to acquire all of the trees they promised the big boxers in 2016. Maybe the retailers are finally gaining some ground on them.
In light of these and other changing conditions, growers are now weighing against many factors when determining the worth of their regular customers. We speculate that mid sized farms 2017 prices will increase again about as much as in 2016. Several mid size farms will likely eliminate some problem and late paying customers, freeing up some inventory for the rest.
In an effort to counteract an ever increasing shortage of labor, and rising freight costs, many farms are reshaping their trees to become narrower and lighter. This will reduce labor costs and increase the quantities that can fit in a van. We expect this to be the beginning of a trend that may eventually become the norm for them. Handle sizes are increasing to 10 -12 inches.
A few farms are out of the commodity market altogether. They are mostly family farms that cultivate premium trees on a small scale. By focusing entirely on quality and continually meeting their customers needs, the demand always exceeds their supply. We expect their prices to increase modestly, and their inventories to remain the same.
One can only speculate as to how this will all trickle down. We have been assured that our normal quantities of trees will be reserved for us. However, allocations of some popular sizes will be reduced and substituted with what is left. One farm that we buy many trees from will be down 40% on 7/8 Noble, 50% on 7-8 Douglas, and has no Nordmann over 8ft. Farms normal practice of outsourcing from neighboring farms to supplement and correctly fill their customer orders may not be much of a possibility in 2017. We think that premium big tree inventories 14 ft and up will decrease in 2017, and continue to diminish in future years. We expect tree quality to improve now that growers have more dollars to put into them. Some farms are still working through a bit of distressed inventory left over from the drought. Retailers may have to deal with them the best they can again since substitutions may not be available. Growers don’t want to be first to release their prices. They will likely wait as long as possible to release them.
Our strategy of getting orders to the farms early has helped us stay a step ahead of others so far. One would expect that some of our customers will contact other farms and shop for comparable options. We do not want to rush them through their normal decision making process. However, we are strongly encouraging these customers to perform their due diligence ahead and get the results of their comparisons early. We need them to be ready to make their educated purchasing decision early, since supplies are limited.
Although most retailers started the 2016 Season with a lot to overcome, most all sold out, many earlier than expected, and most reported an increase in profits over the 2015 Season. We don’t anticipate the 2017 Season to be much different for most retailers.
The costs of purchasing trees are on the rise. I spoke with a grower to learn firsthand about his costs of growing trees. I hoped to gain an understanding of his need to increase prices. This is a small family farm that we have been purchasing trees from for over 30 years. Following are just a few of the surprising things that I learned from the conversation we had:
- Overall, all of his trees over 7 ft. are still priced the same as 2005.
- Wages have risen $3.00 per hour since 2005.
- The Affordable Health Care Act increased their insurance premiums $5000 per year.
- Operating costs, such as fuel, chemicals, and fertilizer have continually increased substantially. For example, the cost of diesel was below $2.00 per gallon in 2005, and has risen as high as $4.00 per gallon in recent years. Over the 7 to 9 years that it takes to grow a tree, that is a considerable expense.
- Goods such as supplies, tree tags and top tie tape have also increased substantially.
- Seedlings have gone up 50% from 30 cents to 45 cents, if you can find them.
- Farm Insurance has risen.
- As trees grow and use minerals out of the ground, they need to be added back after a couple of rotations. The cost of lime rose from $120 per ton to $230 per ton in one year. To keep the trees in the healthy condition that his customers expect from him, he also adds potassium, phosphorous preplant, root dip, and nitrogen fertilizer. The cost of new pre-plant fertilizer alone increased $2000 on top of the already $5000 annual bill.
- Maintenance and repair of equipment costs continually increase. For example, an unexpected but necessary $11,000 repair bill on a tractor occurred this month.
- The Pacific Northwest Tree Association imposed a mandatory 15 cent fee for every tree harvested, to advertise and promote the value of real trees verses artificial, which amounted to a $1500 expense to the grower.
- Bookkeeping costs for payroll, etc., have risen over 40%.
The grower also explained that in the last few years over 1/3 of tree farms in the Pacific Northwest have gone out of business. This was because of the steady increases in costs, and not having the ability to sell their trees at a high enough price to cover those costs.
I also spoke with a retailer in Southern California. He has built a successful retail business lasting over 30 years. Top quality trees topped with excellent service is the business plan. He know his customers and finds the ways to meet their needs. “None of our customers NEED Christmas trees however, all of us NEED our customers to be successful”.
Having been through these up and down price cycles before, he plans on sticking around. He will stay with his normal proven business plan, and focus on meeting his customer’s needs. Lowering the markup on trees will be necessary to avoid having to “stick it” to his customers with a disproportionate sudden price spike . “Raising retail prices too fast would be detrimental to the industry. It would encourage some customers to switch to an artificial tree. Some may abandon their tradition of kicking off the Holiday Season with the family trip to the local tree lot altogether, and buy their tree from the big box retailer down the road”.
Home Depot and Lowes are his 2 closest competitors. They sold trees at his cost for several years. This forced him to lower his markup. In addition the costs of goods such as stands, flock, etc. has risen significantly. Also, competition from wholesale Christmas tree accessory suppliers has forced him to lower it.
In the long run, by keeping his customers loyal and happy he will again survive this cycle of rising costs. The farms will be able to sustain themselves. The laws of supply and demand will determine what the market will bear. Eventually, the supply will again exceed the demand. A new buyer’s market will born.
SILVERTON — Christmas tree growers in the Northwest say the business looks a little greener this year after a slump that drove out a substantial number of producers. http://www.bendbulletin.com/localstate/1285916-151/some-christmas-tree-farms-are-oversold#