Evaluation of the Current Nursery Marketplace: 8-8-2012

Nursery Market Evaluation 8-8-2012 Gene Redlin Expert Horticultural Evaluations You received an update on the wholesale nursery marketplace this spring.  After in depth visits with nurseries around the nation I am reporting the following as of this date: Spring Season Better Dry Weather hurt sales, helped construction Short Dig Season spot shortage Cities struggle to buy Dead Tree Landscapes Gator Bags Everywhere...helping/? Future death loss from the drought Low growth liners from 2012 Doughnut Hole Availability Shortages spotted Specific Spot Market Analysis Good Fall Sales Coming The Election and Spring 2013 implications Liner Purchases Delay Weather Pattern affects Housing and Commercial Construction Starts Change Change Change Full comments on all these issues follow: Spring turned out better than expected.. Sales were up…somewhat, not extraordinary, but better. Extreme dry weather in many parts of the country slowed summer sales, but the offset is that a great deal of construction that drives sales has been completed in the dry weather creating new demand.  The short dig season from the early spring has created spot shortages in certain categories.  The perennial "longages" continue.  Red Maple (other than Autumn Blaze) has continued to be weak. Cities are trying hard to plant within a shorter palate which now excludes ash trees of all kinds.  YET, there seems to be a hesitancy to use up the maple surpluses.  I have been reviewing bid lists and see over and over again the specification of trees that just aren't there.  Tree form Japanese Lilac is a continuing battle.   There are a large number of dead trees in landscapes and streetscapes.  They are everywhere you look.  It's a sad sight.  YET…they are not  being replaced at a reasonable pace.  Even the cost of removal has become prohibitive.  At some point wind will do the job.  It's unsightly, but It belies a difficult economic climate.  I am told by foresters that they would plant, but the money available isn't there. Ten years ago they would all be replaced by now. Gator watering bags are everywhere.  I see water trucks nursing them. It is questionable that this is doing as much good as people hope.  I know it has done great things for the Tree Gator company.  The death loss from the drought and heat this summer will be greater than we believe.  We are beyond permanent wilting with a large portion of recently planted landscape.  Even with a good wet fall it won't be enough to save many of the trees planted in the last few years and that have languished in the drought. Spring planted liners are slow. Unless they were on a drip irrigation system, in nurseries, they didn't put on much growth.  We can expect the doughnut hole of availability to continue and even grow to 1"-1 ½" and 3" Plus.   Not many middle ground sizes.   The continued reduction in nursery acres and reduced lining out is beginning to create shortages.  This won't be the bonanza some hope, this will be spotty.  I don't expect the nursery industry to respond quickly to this situation.   Many have been fooled once too often to go overboard.  Money has been short and sales uncertain.  We are in very conservative times. The market buzz for fall looks like the fewer survivors will see better sales then they thought.  Buyers will have to become more flexible in their demands.  Much of what is being specified by architects is vapor stock.  Plants pulled from a plant guide book and placed on a job by an architect without knowledge of the industry availabilities.  Substitution will be the word of the day. However, those nurseries who insist in growing fewer and fewer varieties are finding themselves unable to respond to even basic quote requests.  This will reduce sales. As a result of all of the above, Some nursery stock values are firming…slowly.  Some species more quickly than others.  A demand and price evaluation on evergreens shows the following: Spruce Firmer Pine Neutral Douglas Fir Weaker Concolor Fir Firmer Hemlock Firm and holding Arborvitae continues weak, no hope in sight Yews Steady in a quiet market Boxwood…steady to a bit weaker Rhododendron steady to firmer Upright Junipers steady to firmer Spreading junipers weaker There are niche markets that continue to hold up Hydrangeas Some of the sculptured and shaped evergreens Japanese Maples, particularly the Red Leafed I forecast a pretty good fall season, driven however by availabilities.  If you don't have them to sell, no matter how good your demand flow is, you won't sell as much.  There is enough economic activity to keep things going into winter.  It will be equal to fall 2011 (or a bit better).  You must have something to sell to be part of this. Spring 2013's market will have a linkage to the fall elections.  If conservatives capture the senate or senate and presidency, there will be knee jerk reaction  optimism driven solely by hope and change.  It's not about politics, people are hungry for better in governance. If the current administration survives and the house and senate remain as they are, there will be a greater headwind to any recovery so needed to build back.  The tax increases and implementation of difficult policies already online to come into being will take a hard toll on the marketplace.  Optimism is low now.  This will drive it lower.  That will be a demand driver. This fall's election is a harbinger for 2013.    I suspect that many people will hold off buying liners and expanding further without some assurance that the government is not going to become even more intrusive and oppressive.   Nurseries are by nature conservative;  No matter your politics. Weather patterns nationally are not driven by global warming (when it's hot it's global warming, when it's a cold winter it's just weather according to the experts), but by a shifting el Niño - la Nina pattern in the ocean.  It has been difficult but we have seen this before.  Actually we have seen worse.  This too shall pass.  Climates change.  Shift.  It all has an effect. An economic impact.  Evaluating and apprising the net effect of  the change is what I do. Housing starts, construction starts and other indications point to a decent fall coupled with less supply from fewer acres then a year ago and could point to a decent 2013 but there are many uncertainties.  It is best to have all the tools at your disposal as you consider actions to be taken in your business over the next year or two. This much is certain, there is nothing as certain as change right now.  Not all change is considered improvement. Psychology tells us that most change is perceived as LOSS.  Yet there can be no improvement without change.  Knowing which is which is critical in the years to come. The  next evaluation of the state of the Nursery Economy will be end of year, after the election which will inform our 2013. To contact me for assistance in the appraisal, evaluation and  economics surrounding your exposure in this marketplace--  Gene Redlin CAGA (Conducting Certified Appraisals) Expert Horticultural Evaluations St Charles IL Phone 630-513-5105 (Byron Nursery Phone) Fax 630-513-5127 Email generedlin@att.net You are receiving this because at one time I have conducted an appraisal for you or your company, been consulted for or are a known part of the wholesale nursery marketplace.  These observations result from daily involvement in the nursery trade on a national level as a broker and evaluation expert.  They are my own observations informed by not only experience, education (BS Horticulture/ BA Botany) but by the Sr Executive level positions I held before I came into the business in 1991. This background has helped me understand long range supply / demand cycles which trained my eye to spot business trends and place proper values on inventories.

Sometimes Bad News is just BAD...that's why they call it BAD

The other day I was traveling to a nursery.  Driving thru the country I saw the corn dwarfed and drying out.  I know enough about agriculture to tell you, this isn't going to be good.

I also saw a lot of dead trees, in the landscape, in the nursery.  Drought had taken them. 

There are a large number of dead trees in the landscape.  Anything planted in the last 3 years that is not well rooted in is dying.  The heat and drought is taking a huge toll.  Add to that the devastation of the Emerald Ash Borer and we have a denuded landscape in many places.

This is causing many to say, what does this mean.  Some try to put a happy face on all this and claim that it means we are about to see a huge increase in sales because of replacement.  The question is by who?  I live near a commercial complex well planted with now dead trees in the landscape.  Mostly ash.  They were mature.  They will be cut down.  Will they be replanted?  I don't know.

The problem is, who is going to pay for this?  The landlord of the property? 

The street trees dead up and down our streets will be very expensive to replace.  The municipalities don't have the money its going to take to replace them right now.  This problem isn't going away easily. 

I am not sanguine about this.  We don't have a good market, money is short, governments are pinched and like a hurricane, much has been destroyed by the heat and drought. 

Sometimes bad news is just bad.

State of the Nursery Industry June 1, 2012

Gradual Climb out of a deep Hole Things Seemed to turn last fall Early Spring, boon and bane Quick Dig left some holes Demand is OK, but not strong except regionally Closed Nurseries and smaller pie, bigger slice Conifers Maintain some demand Pricing challenges in the Macro and Micro economic market Economic Challenges on the horizon Maybe contrarians will win this time Gradual Climb out of a deep Hole The last year has been a gradual climb out of a deep hole for many in the industry.  A year ago, if you had asked some engaged in wholesale nursery trade they would have spoken of a dire future. Things Seemed to turn last fall Last fall turned out to be better than many thought it would be.  Business showed a glimmer of hope.   Things seemed to turn. Early Spring, boon and bane Spring 2012 has been good but not great for many nurseries.  Those committed to big box stores are finding themselves with surplus inventory at the end of the year. The exceptionally early spring was helpful for an extended selling season but many were set back on their heels by the suddenness of bloom and bud.  This has resulted in some fire sale mentality. Quick Dig left some holes The early year caused many nurseries to hustle early digging to put a great deal above ground.  Unfortunately the balance in variety is not as it should have been.  The early flush with the resultant termination of digging plants like Red Maples and Flowering Pear has caused some pressures.   There are a lot of trees above ground but too many of the wrong kinds in some cases.  For those wise enough to have dug well and wisely this will be rewarded in a good market demand cycle. There will be pressure to summer dig many trees.  Some unwisely.  Demand is OK, but not strong except regionally While demand is holding up and business is good generally here are specific observations about the marketplace. New home construction is increasing but it is so much smaller in relationship to what was the case in the roaring years of the mid 2000's.  Those times are not coming back, perhaps in our lifetime. There are regional pockets of new construction and they are active.  An example would be western North Dakota where big oil is fueling a boom in demand not only for new homes but all forms of commercial and multifamily. Looking at broader markets however we see much more spotty demand.  There are pockets of activity. Closed Nurseries and smaller pie, bigger slice One offset to much of this is while demand has not recovered anywhere near the level it was several years ago, supply has been greatly reduced.  Production at nurseries nationwide is far under what it once was.  In some states almost a third of acreage and production has disappeared from a few years ago.  This means the survivors are facing a smaller demand pie but the potential for a larger slice. It also means that fine tuning has to take place to properly capture market share.  Bread and Butter nurseries growing a few dozen key plants are sometimes blindsided when the market demand shifts away from the historical core production profile.  The threats of disease, insect destruction and disuse of varieties because of classification as invasive by authorities looms as external to market forces that influence future production and inhibit sales of existing production. Perennials continue to be a growth component...but the low barrier to entry in production and the quick turn means that it is multiplied in volatility in comparison to trees and shrubs. Conifers Maintain some demand Coniferous evergreens have held value in comparison to the broader market.  Broad-leaf evergreens haven't been so fortunate.  Certainly they are strong but there are constant threats to the market by alternatives.  That is not the case with pine and spruce trees that are far more difficult to displace.  Arborvitae of all kinds continue to be weak.  Yews show upticks in demand but without breadth.  It is almost a static demand. Pricing challenges in the Macro and Micro economic market In general pricing returns are driven by demand.  Those things that are high demand and short demand a better price.   Those things that are still seen as surplus in the marketplace have not recovered as much.  The capacity to be nimble in pricing by staying ahead of the demand curve will reduce inventory bubbles that can be avoided with a good ear to the ground.  Nursery pricing and production is like the stock market, it requires timing, but it needs to be well analyzed for trends and reversals.   There are mega trends caused by macro economic influences like the economy and major supply changes.  There are micro economic influences like the early spring and dry weather.  There can be no generalized statement that prices are UP or DOWN.  Each category, each product group, each market has specific vagaries that must be taken into consideration as I do when I do an analysis of an inventory for valuation. Economic Challenges on the horizon There are critical changes ahead for the industry.  Some are economic.  IF the current "Recovery" continues or expands that will auger well for the nursery industry.  People feeling a little richer will spend a bit more money and that washes down to demand..  Gasoline prices are a harbinger of how rich people feel.  On the other hand, this is a very fragile time in the economy and any reversal would once again freeze new construction and discretionary buying. Government purchasing of nursery stock for highway and streets is directly related to the future economy.  Austerity of necessity by governments could cause many state and municipal governments to freeze new purchases.  The stimulus spending that drove many highway projects is running it's course and will be unlikely to be extended. Maybe contrarians will win this time The nursery market is better today than is was a year ago, there is reason to hope it will hold and yet caution that it may not.  Yet, there is an adage in the nursery business... when everyone is not planting, you should be.  When everyone is going crazy planting, back off.  Be a contrarian. That takes faith, wisdom and capital.  Not everyone has all three. I will offer a fall forecast in August as I discern what is happening around the marketplace. Gene Redlin Expert Horticultural Valuations St Charles IL 630-513-5105

From Bo Tidwell... a nursery myth

Back in the day, when visiting another growing operation, you could always count on seeing a handful of particular items framed and hanging 0n the office walls: a nursery license, photos of the wife and children, some older photos showing early stages of the nursery, and possibly a photo of Shug Jordan, Bear Bryant, Vince Dooley, Bobby Dodd, or Woody Hayes, depending on your collegiate affiliation. But the one thing that you would see with about as much certainty as the nursery license and the family, was a framed quote that stated the following:

 "If people only knew how much work, how much sweat, how much water, how much fertilizer, how much risk, & how much know-how went into the production of these plants, they would gladly pay a fair price." 

Just for the record, I beg to differ. I did not agree with this thirty years ago and I most certainly do not agree with it now. If there is anyone out there who ever did or does now believe this, it is time you wake up and smell the baloney! Phoney Baloney I wish it could be that simple but the plain, cruel fact is that the market does not work this way. And as we spiral more and more rapidly into the age of instant information (QR Codes) and price shopping on steroids (Bar Code Scanners), the real truth is that the retail customer could give a rat's behind who grew it, how hard you worked, how kind and generous you are to your employees, how many Little League teams you sponsored, or how much you gave at the blood drive last week. The 2012 retail consumer is after only one thing and that is "bang for the buck" or put more simply: value. And the key is that the consumer's view of value is not based on ANYTHING the grower did on his end, but rather on EVERYTHING the consumer perceives that he will get out of the deal. This does not mean that you have to be the cheapest guy on the block, but for every dime that you are higher than your competition, there needs to be a clear justification for how this extra cost will benefit the buyer. And what about loyalty? That bus left the station a long time ago. Greenhouse Plants Light years ago in economic terms, H. L. Mencken was quoted as saying, "No one ever went broke by underestimating the intelligence of the American people." That was then; this is now. While this may hold true in some markets today, it certainly doesn't apply to the typical customer in the green industry. Our end consumers today are smart, well informed, and particularly in this economy, brutally callous about where and how they spend their money. And by the way, if you still want to continue to cling to the old myth, please contact me; I don't have time to debate the subject but I do have a great deal for you on some beach front property in Arkansas.