Friday, October 30, 2009

Timberland Transaction Update

Major timberland transactions have slowed considerably but some continue to close. I wrote an article for Forest Landowners Magazine (THE TREND IN TIMBERLAND PRICES) that was supposed to be published in October but the publishing date was postponed until late November so I thought I would do a little update on transactions to date for this year. From the list below, you can see that there are quite a few transactions but relatively few large ones.

Here is an insightful comment from Plum Creek's 3rd Quarter Earnings Conference Call.  "We have not noted any significant changes to our rural land markets since the last quarter's call. In general, rural land values were off approximately 25% in higher value regions such as Florida, portions of Georgia, and Montana. Rural land sales in lower priced markets such as Mississippi and Northern Wisconsin remain fairly active. Prices in these markets have been more resilient and appear to be off 15% or less from their peaks." The comment is supported by the Rayonier sale above for $1,200 per acre which is a conglomerate of sales showing that Florida is definitely a soft area. Some of the other companies are reporting very little decline in the rural/recreational market.

In spite of these stated declines, there remains little sale activity supporting significant declines in institutional timberland values. Several of the larger timberland sales were at a solid price but there are too few to say prices have not declined. Perhaps the most interesting thing about this list is the names of the sellers. They are almost ALL public companies selling land to try to protect their dividends (or in Forestar's case, the entire company!). The one TIMO sale was at a very good price.

If I have missed any sales, and I probably have, send me an email to As always, comments and differing opinions are appreciated (especially if supported by facts).

My last post had an error in a link. Click here if you would like to see the PDF of the presentation The Forest Industry of the Future: What will it look like. . --Brian

Thursday, October 22, 2009

The Future Forest Industry

I was recently asked to speak at the North Carolina Forestry Association’s annual meeting in Myrtle Beach. The topic was to be “THE FOREST INDUSTRY OF THE FUTURE, What will it look like?” Before agreeing to the talk, I had to think about it for a while. The quote “Its tough to make predictions, especially about the future.” Attributed to Yogi Berra (as most quotes are) hung in my mind for a few days. But I agreed to take a shot at it and gave the talk earlier this month. I thought I would share a few of the points with you.

First, there has to be a basis for the prediction. The basis that I chose was to look at the changes occurring in the forest industry and to look at what I thought the future economic environment might look like.

The Three Key Changes in Progress

• Changing Timberland Ownership
  • Shift from forest industry to institutional and other owners
  • Well under way and well documented
• Biomass for Energy
  • Not a new thing but impact is changing
  • Sourcing moving from residue to pulpwood
  • Sheer magnitude is not well understood
• Global Industrial Revolution

The shift in timberland ownership is well documented so I didn’t spend any time on that whereas the magnitude of the biomass issue is not universally well understood and merited significant discussion. Slides focused on the biomass drivers, sources (Residues or pulpwood? Answer: pulpwood), nationwide energy sources and biomass utilization examples. There is also one slide on the cost of alternative transportation fuel costs (including cellulosic ethanol) relative to the cost of oil. It is a somewhat complex slide but the story it tells is that as oil goes up in price and as research brings costs of alternative fuels down, demand for biofuels grows in leaps. When I gave the talk less than two weeks ago, oil had settled into a trading range around $70. It is now approaching $80.

My view of the drivers behind the economic future looks like this:

• Social drive for renewable energy, energy self-sufficiency and climate change
• High energy costs- The key cost escalator
• High Inflation Rate (perhaps hyperinflation) Driven by:
  • Very high government spending
  • High oil prices
• Declining Dollar
• Global Industrial Revolution
• Commodity Shortages (natural resources)

There is a series of slides supporting my economic assumptions followed by a series painting my opinion of the future for sawmills, pulpmills, the wood supply chain and the future forest. A brief synopsis follows:

•Biomass/Power companies will be a key part of the industry.
•There will be more “in-woods” operations (chippers, biomass harvesting, biochar, and perhaps mobile methanol).
•A smaller pulp and paper industry will survive and exporting will play a larger role.
•Sawmills: Demographics still favor housing and lumber export market will become significant. Imports less competitive.
•Logging contractors will have a more stable operating environment. Annual production contracts.
•Stumpage market will be more competitive and more stable.
•Plantation establishment will consider energy market.
•Timberland ownership will be a good place to be!

If you would like to see all of the slides, you can go to and navigate to the “Articles” page. The presentation is in html format, which destroyed the “Build” on a key slide (oil prices). I will be adding that one slide as a Powerpoint presentation with the build to make it easier to understand. Run slideshow. Objective is to show how oil prices and cellulosic ethanol (and, by inference, other wood based transportation fuel) costs are converging. Comments, thoughts and differing views are welcome. --Brian