At the end of February the University of Georgia Center for Forest Business held its prestigious timberland investment conference on Amelia Island, FL, which happens every two years.
Subject matter and attendance ranged from timber and lumber finance to tree breeding, from appraisers of all kinds to land investors, and everything in between. Timber-growing regions globally were well represented in the 500-plus crowd, although heavily weighted to the US south.
US Economic Outlook
Always worthwhile at these events is a macroeconomic perspective, this year provided by the very insightful Mark Vitner, Managing Director and Senior Analyst at Wells Fargo, who provided a “U.S. Economic Outlook.”
“The economy should weather the recent slide in oil prices and turmoil in Europe,” said Vitner. “Look for real US GDP to rise 3.1 per cent in 2015 and 2.9 per cent in 2016.”
However, “Single-family homebuilding could be an upside surprise this year, as stronger job growth boosts household formation. Apartment construction is close to peaking,” he detailed.
Madison’s got its finance geek on with the session on economics: “How Different are Timberland and Timberland Markets?”
How Different are Timberland and Timberland Markets?
The common conversation among the three presenters was the question of if timber and lumber are commodities. First to tackle this was Jon Caulfield, Director of Research at BTG Pactual.
“Timber and lumber price changes exhibit low linkages with each other,” explained Caulfield in explaining that these are neither asset classes nor commodities. “However timberland is similar to agriculture and real estate.”
Next up, Jack Lutz, Principal and Forest Economist at Forest Resource Group, tackled the question “What Makes Timberland Different?”
Lutz pointed to the “limited mobility of logs” and that “trees are the both the producer and the product” in defining timber, lumber, and timberland.
“Timber and timberland variability are too great for the commodities markets. Southern pine plantation site productivity varies by property,” said Lutz. “Plus there is no futures marketplace for these. Regional variations in timber prices lead to regional variations in timberland returns.” Which means they can’t be classified as commodities.
Is Timber a Commodity?
In a lively talk Jacek Siry, Professor at UGA’s Harley Langdale, Jr. Center for Forest Busines, directly addressed “Is Timber a Commodity?”
Siry defined commodities as “marketable goods (and services) supplied without qualitative differentiation across a market or as basic resources and agricultural products produced in large quantities by many different producers.”
Siry then compared US southern sawtimber long term prices against usual commodities like gold, copper, crude oil, natural gas, and agricultural items like soybeans, coffee, and corn with amazing results. Timber had absolutely no correlation at all with any of the others.
A Look Forward at North American Timber Demand and Supply
Another very interesting session was: “Investment Outlook”, specifically speaker Rocky Goodnow, VP North American Timber Service at Forest Economic Advisors, who took “A Look Forward at North American Timber Demand and Supply.”
“There will be a 25 per cent increase in total softwood sawtimber demand in the US south from 2014 to 2020,” said Goodnow. “Which will lead to increasing log prices.”