"I'm a tree farmer in Southern Indiana and Central Kentucky. I think that one of the biggest problems that the NRDC and other environmental groups have in understanding forests is that they think of timber as being a natural resource instead of a agricultural crop. The only real difference between raising a crop of timber and a crop of corn is the length of time to maturity. By classifying timber as a natural resource instead of a crop, they set it up for being idolized instead of being used.
Markets for hardwood timber stumpage in my area are so bad, and have been for a long time, that I am starting to think that long-term timber management is not economically possible and is purely pie-in-the-sky. Stumpage prices for timber in Indiana and Kentucky are the same as they were 30 years ago, and inflation has increased more than 100%.
I'm in the process of seriously considering liquidating my holdings and putting my investment elsewhere. Even if wood demand tripled over night, I'm not sure if I would begin to get back what I've lost to inflation. What is your opinion as to what is going on in the marketplace, and is my assessment of timber economics correct?
Thanks..."I pondered it for a couple of days, and when I got back in my office this morning I sent him the following reply...
"Hey, ..., thanks for sharing. I think you're right on, both with respect to what the environmentalists are missing and to timber markets.
If it is true that you couldn't make back your forest investment even if lumber prices tripled, then I can understand how liquidation would be tempting. Before you do, though, a couple of thoughts...
There is no doubt that the Chinese economy has begun to improve our timber markets dramatically, and will continue to do so over the next decade. I have data that suggests that thus far, Chinese involvement in our markets has had the same relative impact [on lumber prices]as one million additional housing starts here in the U.S. True, the impact has been most dramatic on structural lumber, but we know that hardwood follows those price trends eventually. Our local hardwood sawmills (the ones that are still running) had good to excellent years last year and markets just seem to keep improving, slowly but surely. I think the pendulum is swinging back from a "biomass" outlook of forestry investment (one that would never pay, for the landowner) to a "sawlog" economy, as the Chinese pipeline becomes more and more established. So, things are looking brighter for our timber landowners, and companies marketing logs and lumber. Not so, unfortunately, for our secondary wood industries, which now have to compete against the giant purchasing (and manufacturing) force called "China" which seems to be able to buy anything it wants.
Second thought is, what other investments are out there that are so sure a thing that you can justify getting out of good timberland? Even James Grant, widely respected publisher of James Grant's Interest Rate Observer, startled the investment world last year when he suggested that a black walnut plantation would out-perform US Treasuries over the next thirty years. Most observers thought he was kidding, but in a shaky world, at least you know your trees are always adding capital. Which is better than what you can say about practically all other currency-based investments.
So if you can, hang on to your timberland. Better days are ahead."And, I would add for you industry readers of Go Wood, my time on the road at mills and conferences in the last couple of months suggests that things are, in fact, beginning to look up. Our American economy seems to be as much about attitude as anything, and we're beginning to come to grips with certain new realities. And as we do, we will do what previous generations of Americans have always done...deal with it, and get on with business.