Timber Land Investment – Now May be the Time
Since the recent depressed housing market started around 2007, timber prices have been declined and demand for standing timber has been depressed. Most of our high-value hardwood in Pennsylvania goes into making cabinetry, furniture and flooring. Fashion trends in cabinet styles pressures the demand for certain species of timber in our woods. Prices go up and down depending on orders for particular species that the mills obtain.
At present, due to the pent up demand, uncut timber that has been left in the woods, and the rarity of high quality logs (due to the over-harvesting of quality timber since the 80s) and the coming inflation due to the government churning out billions of green backs, now may be a perfect time to invest in timberland.
Timberland has historically out-performed the stock market over the long-haul, and in inflationary times, it has done far better than other investments.
Consider the following:
- In the modern era, inflation has never been a match for timber, which has risen faster than overall prices for more than a century. During America’s last major inflationary period – from 1973 to 1981, when inflation averaged 9.2% – timberland values increased by an average of 22% per year. On average, the price of harvested lumber itself has risen more than 5% annually over the past 100 years.
- Since 1910, the value of timberland as an investment has risen faster – and with less volatility – than stocks as measured by the Standard & Poor’s 500 Index . Since 1987 alone – in spite of minor losses in 2010 due to the U.S. housing slump – the Timberland Index maintained by the National Council of Real Estate Investment Fiduciaries (NCREIF) has risen roughly 15% per year, compared to an annualized return of just 9.61% for the S&P 500.
- Timber investing has proven to be particularly alluring during bear markets. During the Great Depression, when stocks plunged more than 70%, timber gained 233%. And timber easily outperformed the S&P 500 during the 20th century’s other major bear-market periods. Most recently, in 2008, when the S&P 500 lost 38%, the NCREIF Timberland Index gained 9.5%.
- Timber is a valuable tool for portfolio diversification since its price movements have a very low correlation with most other asset classes – less than +0.1.
- In spite of the glass-and-steel towers dominating the globe’s urban landscapes, demand for timber is now higher than ever. The U.S. is the world’s No. 1 consumer of wood products, using 27% of the timber harvested each year. The average American uses the equivalent of one 100-foot tree per year, and the rest of the world is quickly catching up. In fact, the United Nations now predicts demand for wood will double in the next 30 years, with China – already No. 2 in wood consumption – pacing the growth. As evidence of that demand, lumber exports from Canada to Asia have nearly quadrupled in the past five years alone.
- Although timber is considered a renewable resource and new trees are planted each year to replace a growing portion of the annual harvest, the world’s wood supply is steadily shrinking (by an estimated 2.4% annually in the 1990s). In tropical regions, about 130,000 square kilometers (50,193 square miles) of forest is being destroyed each year. Roughly half of the forests that originally covered 46% of the earth’s land surface are now gone, and 56% of North America’s coastal rain forests have been destroyed. This is yet another persuasive argument that timber investing represents a significant long-term profit play.
Add to that the long term potential for gas and oil plays in Pennsylvania, there is a significant upside to investment in timberland in the right places in our state, and surrounding states.
And, like I always said – you can’t go hunting on your stocks and bonds.