Spatial and cross-product price linkages in the Brazilian pine timber markets

The South of Brazil is one of the most attractive regions for timberland investments in the world. High productivity and relatively attractive timber prices have gained attention from timberland investors. However, as in most emerging countries, it is not very clear how prices are transmitted across products and markets. Having this information is essential to strategic planning as well as understand the market structure. We investigate market linkages of the stumpage price of five products (fuelwood, pulpwood, sawtimber, veneer, and special veneer) in the three main pine producing states in Brazil (Paraná, Santa Catarina and Rio Grande do Sul). We use linear and regime shifting models and check the effect of external shocks on price transmission. The nonlinear process is observed main on high-grade timber (veneer and special veneer), possibly driven by their price recovery after the recession. Our results show that the spatial and between product price ratio converges back the market equilibrium within 10 months in the pine stumpage market in Brazil. This outcome indicates this market is efficient with small opportunities for arbritage profits.