tag:blogger.com,1999:blog-84945774535351449932024-03-12T20:50:44.944-04:00The Timberland BlogExamining the changes in timberland ownership and what those changes might mean.Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.comBlogger99125tag:blogger.com,1999:blog-8494577453535144993.post-44149052126822733322011-12-28T12:26:00.000-05:002011-12-28T12:26:01.359-05:00CellFor Files for BankruptcyCellFor, a producer of varietal loblolly pine showing impressive gains in growth, straightness and disease resistance, has filed for bankruptcy in Canada and for protection from creditors in the U.S.<br>
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The housing decline has resulted<br>
<a href="http://thetimberlandblog.blogspot.com/2011/12/cellfor-files-for-bankruptcy.html#more">Read more »</a>Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com18tag:blogger.com,1999:blog-8494577453535144993.post-72262874789097402972011-10-30T20:50:00.000-04:002011-10-30T20:50:19.600-04:00Some Timberland Transactions and Other StuffI've had several requests for an update on issues surrounding timberland investments and transactions to date for 2011 so I am posting a chart of the transactions of which I am aware. I will also make a comment or two on conservation easements and on who is <br>
<a href="http://thetimberlandblog.blogspot.com/2011/10/some-timberland-transactions-and-other.html#more">Read more »</a>Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com8Summerville, SC, USA33.0185039 -80.175648132.965247399999996 -80.2546121 33.0717604 -80.0966841tag:blogger.com,1999:blog-8494577453535144993.post-38587421935153389162011-03-28T11:52:00.002-04:002011-03-28T11:55:35.212-04:00More Thoughts on Foreign Investments in TimberlandMy last post generated a couple of comments that referenced FIRPTA (Foreign Investment in Real Property Tax Act) and the likely impact that the law would “keep Asian demand in U.S. timberland muted”. The law has been around since 1981 so I thought that I would take a look at what the impact of foreign investment on timberland has been to date.<br />
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At last weeks Timberland Investment Conference, Stephen Schrock with Manning, Morris & Martin, discussed the Agricultural Foreign Investment Disclosure Act which requires “Foreign investors who buy, sell or hold a direct or indirect interest in U.S. agricultural land must report their holdings and transactions…” Agricultural land includes timberland as well. Penalties for not reporting can be very severe (25% of the fair market value of the land). The USDA Farm Service Agency compiles the data and produces an annual report summarizing the data.<br />
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Two comments from the summary of the current report:<br />
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<ul><li>“Forestland accounted for 59% of all foreign held agricultural acreage…”</li>
<li>“Foreign holdings of U.S. Agricultural land were relatively steady from 1999 through 2006; between 2006 and 2007, there was a significant 3.6 million acre increase and between 2007 and 2008, there was an increase of 1.4 million acres. Between 2008 and 2009, there was an increase of 1.3 million acres.”</li>
</ul><br />
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The total numbers can somewhat mask what has happened with timberland alone but the graph below tells the story pretty clearly.<br />
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<b><i>Trends in Foreign Holdings of Agricultural Land by Type of Use For the Period 1999-2009</i></b><br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3EPIPENb4fJkra1TfGqd4DBynJ8L6nAZfVwsTMiLoza3PR0P3k202tQ8Ii9AD4iQ6DhLgHbpgM0G2vGTdwUrHiC3XDoDI5IcClhljjgKNMFzx6CVhO6TC_gBozuiq47e5rGxbSjU0VVk/s1600/ForTimbOwnership.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3EPIPENb4fJkra1TfGqd4DBynJ8L6nAZfVwsTMiLoza3PR0P3k202tQ8Ii9AD4iQ6DhLgHbpgM0G2vGTdwUrHiC3XDoDI5IcClhljjgKNMFzx6CVhO6TC_gBozuiq47e5rGxbSjU0VVk/s400/ForTimbOwnership.jpg" width="340" /></a></div><br />
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I have to interpret the graph as saying that FIRPTA may have an impact but that it certainly does not prevent foreign investment in U.S. timberland. You can <a href="http://www.fsa.usda.gov/Internet/FSA_File/afida_2010.pdf">read the entire report here</a>.<br />
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So that’s the past. What does the future hold? <br />
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From my own personal experience, I can assure you that there remains a strong foreign interest in U.S. timberland by both European pension funds and Asian investors. I suspect that the acquisition of pulp and paper mills by the Chinese will continue and I suspect a few sawmills will get thrown into the mix too. And I can’t imagine that the option of vertical integration of pulping operations is not on the table and that timberland ownership will not be the result. Is that good or bad for us? Ask the employees of the pulp and paper mills in Woodland, Maine, Halsey, Oregon and Potsdam, New York. The Asians supply the capital and the markets and we get the jobs. It might not set well at first blush but that’s a reversal of the way things have been and that’s not such a bad thing.<br />
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And remember, as we have seen domestically during the past year, all investors are not institutional or industrial! There are some very large investments coming from the high net worth individuals and families that have changed the market. We MAY be on the edge of another significant change in the ownership of U.S. timberland and whatever implications that may bring. --Brian<br />
<div style="text-align: center;">*****</div><div style="text-align: center;">Visit my <a href="http://www.timberlandstrategies.com/">Timberland Strategies</a> web site</div>Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com7tag:blogger.com,1999:blog-8494577453535144993.post-21366429890225057722011-02-09T11:18:00.000-05:002011-02-09T11:18:57.595-05:00Will the Chinese Start Buying Timberland?In a conversation surrounding timberland investments with Steve Wilent, editor of <i>The Forestry Source</i>, a couple of days ago, the subject of foreign investment in timberland came up. It's pretty well known that there are significant investments being made by the European pension funds. But what about the Chinese that are going all over the world tying up commodities. The Chinese have put a very high priority on vertical integration to assure they have the raw materials necessary to supply their industries.<br />
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It is estimated that the gap between China's domestic wood supply and total demand will reach 150 million cubic meters (roundwood equivalent) by 2015. For perspective, that is more than the entire Canadian harvest. Where will the wood come from? They have greatly expanded their domestic paper mill production but where will the pulp come from? We ship them a lot of waste paper but that is not going to do the job.<br />
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So..., will they move production to the U.S. and vertically integrate their operations (paper mill to pulp mill to timberland)? If so, when does it start? Just in case you were not watching, it already has begun! Following are extracts from three news releases. --Brian<br />
<div style="text-align: center;"><span class="Apple-style-span" style="font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 18px;">*****</span></div><span class="Apple-style-span" style="font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 16px;"></span><br />
<div style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: black; font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 18px; margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-align: left; vertical-align: baseline;">From the Bangor Daily News, Dec. 21, 2010: </div><div style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: black; font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 18px; margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-align: left; vertical-align: baseline;"></div><h1 class="storyHed" style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: 'trebuchet ms'; font-size: 34px; letter-spacing: -1px; line-height: 38px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 5px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">New Woodland mill owners investing in facility’s future</h1><br />
<div style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: black; font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 18px; margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-align: left; vertical-align: baseline;">WOODLAND, Maine — The new owners of Woodland Pulp LLC, formerly Domtar, are investing in new energy efficiencies at their pulp mill using state and federal funds, Gov. <a href="http://new.bangordailynews.com/people/john-baldacci/" style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: #3b5a7a; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-decoration: underline; vertical-align: baseline;">John Baldacci</a> said Tuesday.</div><div style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: black; font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 18px; margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-align: left; vertical-align: baseline;">Baldacci stopped in to visit the mill Tuesday morning, and offered whatever assistance the state could provide to assist the new owners, IGIC of China and Taiwan, to ensure the mill’s security and expand.</div><div style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: black; font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 18px; margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-align: left; vertical-align: baseline;">The facility’s director, Bert Martin, said the company’s future was finally secured with the change in ownership. “Christmas actually came here on October 1,” he said, referring to the date the mill was sold.</div><div style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: black; font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 18px; margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-align: left; vertical-align: baseline;">“We now have an owner that wants this mill,” he said. “This lets our people know they will have a job next week, next month and next year. I think the mill today is in a very good position.”</div><div style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: black; font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 18px; margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-align: left; vertical-align: baseline;">Martin said 300 people now work at the mill and that up to 10 more people will be hired at the start of the new year.</div><div style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: black; font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 18px; margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-align: left; vertical-align: baseline;">“This mill was in jeopardy of closing,” Baldacci said after a private meeting with company officials. “Domtar had made it very clear the mill was not part of their core mission and had been actively pursuing other investors and new owners.”</div><div style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: black; font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 18px; margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-align: left; vertical-align: baseline;">Baldacci called the mill “the lifeblood of Washington County” and said that each mill job represents another three or four jobs in the region, such as clerks, waiters and bank employees. “The ripple effect is huge,” he said, noting the mill has an annual payroll of $20 million to $25 million.</div><div style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: black; font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 18px; margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-align: left; vertical-align: baseline;">Martin said that the mill is using 1.5 million tons of fiber annually, pulled from every region of Maine and New Brunswick. “We generate jobs all over the state,” he said.</div><div style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: black; font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 18px; margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-align: center; vertical-align: baseline;">*****</div><div style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: black; font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 18px; margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-align: left; vertical-align: baseline;">From OregonLive.com, Feb 4, 2010</div><div style="background-attachment: initial; background-clip: initial; background-color: transparent; background-image: initial; background-origin: initial; background-position: initial initial; background-repeat: initial initial; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: black; font-family: georgia, tahoma, verdana, arial; font-size: 14px; line-height: 18px; margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; text-align: left; vertical-align: baseline;"><span class="Apple-style-span" style="color: #444e5c; font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 13px; line-height: normal;"></span></div><h1 style="color: #293546; font-size: 17pt; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 10px; padding-left: 0px; padding-right: 0px; padding-top: 10px;">Hong Kong corporation buys Oregon pulp mill</h1><div> A Chinese company hoping to expand into the North American forest products business has purchased Cascade Pacific Pulp, LLC, a pulp mill at Halsey in the lower Willamette Valley. <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />The sale to Hong Kong-based International Grand Investment Corporation could be a first in Oregon, which has not seen many foreign owners in the wood products industry. <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />The Halsey mill had been owned by one of Oregon's most storied forest products companies, Pope & Talbot, which went bankrupt in May 2008 after 160 years. <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />"I'm not aware of any other mill with owners in China," said Ray Wilkeson, president of the Oregon Forest Industries Council, an industry trade group. "It would not be surprising to see more of that in the future." <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />The purchase of the mill, for an undisclosed price, is also a first for the Hong Kong company. It mainly has acted as a trading company, buying pulp from all over the world to sell to customers in China, Wayne Henneck, president of Cascade Pacific Pulp, said Wednesday. <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />It could signal a new shift in the industry as China's growing demand for paper products fills a void left by a shrinking market in the United States. Sales to Asia now make up about one-half to two-thirds of the Halsey mill's business, Henneck said. <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />"The (Hong Kong) company is integrating vertically," said Henneck, who will remain president. "The Asian markets have been very hot. This is the first mill they'll own in North America. It may not be the last." <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />International Grand Investment Corporation was just incorporated in Delaware in December 2009. <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />In the past two years, the Halsey mill has gone through a roller coaster of ownership changes, creating uncertainty for its 170 workers in an area with some of the state's high unemployment. In Linn County, the jobless rate was 13.5 percent as of December 2009. <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />But Henneck says he sees the sale as providing some stability for the mill, which is seeing an uptick after spells of downtime during the recession. The mill produces over 180,000 tons of bleached and unbleached pulp per year for use in various paper products and building materials. <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />The mill's previous owners, a Minnesota private equity firm called Wayzata Investment Partners, won the mill for $31.2 million in an auction in June 2008. But it refused to recognize the union for months, creating workplace tensions. <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />"The private equity firm always intended to buy distressed companies, get them on their feet and sell them," Henneck said. "They were not interested in pulp and paper. These are strategic owners who are interested in what we do." <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />Union leaders said no workers will be affected by the ownership change because of a protective clause in their contract. Rumors had been flying for months that a new owner was on the way. <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />"Everyone's feeling good," said Ernie Lamoureux, a staff representative for the United Steelworkers. "The pulp market is still pretty good. They're selling a lot of it to China." <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />Wilkeson said that China's continuing growth will likely shape the forest products industry in Oregon and the United States for years to come. <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" /> <br style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: bottom;" />"There's no question they're going to be a big dog," Wilkeson said. "It's a competitive world, but there's another side to the coin. There's also a lot of demand."</div><div style="text-align: center;">*****</div><div style="text-align: left;">From northcountrynow.com</div><div style="text-align: left;"><span class="Apple-style-span" style="color: black; font-family: arial, sans-serif;"><h5 class="news-title" style="color: #000066; font-family: Georgia, serif; font-size: 22px; font-weight: 500; margin-bottom: 15px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">Potsdam paper mill exporting products, technology</h5><div class="news-date" style="font-size: 10px; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;">Tuesday, August 3, 2010 - 12:01 pm</div><div class="content"><div style="font: normal normal normal 13px/normal arial, sans-serif; margin-bottom: 20px; margin-top: 2px;">By CRAIG FREILICH</div><div style="font: normal normal normal 13px/normal arial, sans-serif; margin-bottom: 20px; margin-top: 2px;">UNIONVILLE – Potsdam’s century-old paper mill is working to develop new technology that its owner may use in paper plants in China.</div><div style="font: normal normal normal 13px/normal arial, sans-serif; margin-bottom: 20px; margin-top: 2px;">Meanwhile, Potsdam Specialty Paper General Manager Ron Charette says the plant worked through a drop in sales that swept the whole industry, and is now back to pre-2008 production levels running three shifts with four crews.</div><div style="font: normal normal normal 13px/normal arial, sans-serif; margin-bottom: 20px; margin-top: 2px;">Seafront Specialty Paper, which bought the mill from MeadWestvaco two years ago and dubbed it Potsdam Specialty Paper Inc., is a holding company based in the British Virgin Islands. Seafront has offices in Hong Kong, New York and Toronto, and is chaired by Kenny Chang, also a major stockholder. The Potsdam mill is on Sissonville Road along the Raquette River.</div><div style="font: normal normal normal 13px/normal arial, sans-serif; margin-bottom: 20px; margin-top: 2px;">One of Seafront’s major aims is to develop products and procedures that would be put into use in paper mills it plans to acquire in China.</div><div style="font: normal normal normal 13px/normal arial, sans-serif; margin-bottom: 20px; margin-top: 2px; text-align: center;">*****</div><div style="font: normal normal normal 13px/normal arial, sans-serif; margin-bottom: 20px; margin-top: 2px;">Visit me at <a href="http://www.timberlandstrategies.com/">Timberland Strategies</a></div></div></span></div>Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com3tag:blogger.com,1999:blog-8494577453535144993.post-48473531897756621992011-02-04T10:49:00.000-05:002011-02-04T10:49:46.178-05:00Weyco Earnings and Timberland SaleWeyerhaeuser finally announced the results of the sale of the 82,000 acre block in SW Washington. The buyer is HTRG which payed about $200 million or $2,439 per acre. Weyerhaeuser says<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"> "<span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 1px; -webkit-border-vertical-spacing: 1px; border-collapse: collapse; line-height: 18px;">While the land sold is high-quality, productive timberlands, it no longer fits our long-term strategic plan." Apparently the the species composition is low to Doug Fir, which is managements focus, and that is why this particular block was selected for sale. I suspect that the fact that the sale brought in $200 million with $150 million going to the bottom line was the real critical driver behind the sale. It has been a tough time for Weyco and they need to convince investors that they can pay a consistent and reliable dividend. <a href="http://investor.weyerhaeuser.com/phoenix.zhtml?c=92287&p=irol-newsArticle&ID=1524622&highlight=">Read the news release here.</a></span></span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 1px; -webkit-border-vertical-spacing: 1px; border-collapse: collapse; line-height: 18px;"><br />
</span></span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 1px; -webkit-border-vertical-spacing: 1px; border-collapse: collapse; line-height: 18px;">Weyco also posted earnings this morning. Net earnings for Q4 were $171 million which illustrates just how significant the $150 million gain on the land sale is (note that the gain will not show up in the financials till Q1 of 2011). Earnings for the year were about $4.00 per share but a full 83% of that came from tax adjustments resulting from the conversion to the REIT. </span></span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 1px; -webkit-border-vertical-spacing: 1px; border-collapse: collapse; line-height: 18px;"><br />
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<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 1px; -webkit-border-vertical-spacing: 1px; border-collapse: collapse; line-height: 18px;">It looks as if Weyerhaeuser has turned the corner. It has been hard to analyze the numbers due to all of the asset sales, charges and REIT conversion but it does seem that they are now actually profitable. The timberland segment is slowly improving - mainly from improved stumpage prices in the Northwest. Wood products remain the major earnings drag but losses have been reduced somewhat. They have contained the bleeding from the Real Estate segment and are producing solid profits from the Cellulose Fibers group. Here are links to the <a href="http://investor.weyerhaeuser.com/phoenix.zhtml?c=92287&p=irol-newsArticle&ID=1524623&highlight=">earnings announcement</a> and some <a href="http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzY1MjQwM3xDaGlsZElEPTQxMjM4NHxUeXBlPTI=&t=1">supporting slides for the conference call</a>.</span></span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 1px; -webkit-border-vertical-spacing: 1px; border-collapse: collapse; line-height: 18px;"><br />
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<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 1px; -webkit-border-vertical-spacing: 1px; border-collapse: collapse; line-height: 18px;">Land sales will remain the ace in the hole to assure dividends but I am going to guess that Weyerhaeuser will play it sparingly. --Brian</span></span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 1px; -webkit-border-vertical-spacing: 1px; border-collapse: collapse; line-height: 18px;"><br />
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<div style="text-align: center;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 1px; -webkit-border-vertical-spacing: 1px; border-collapse: collapse; line-height: 18px;">****</span></span></div><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 1px; -webkit-border-vertical-spacing: 1px; border-collapse: collapse; line-height: 18px;">Visit me at <a href="http://www.timberlandstrategies.com/">Timberland Strategies</a>.</span></span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 1px; -webkit-border-vertical-spacing: 1px; border-collapse: collapse; line-height: 18px;"><br />
</span></span>Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com1tag:blogger.com,1999:blog-8494577453535144993.post-1109040032015448942011-01-25T11:03:00.002-05:002011-01-25T11:08:07.453-05:00A Big Conference and a Big Timberland Transaction<b><span class="Apple-style-span" style="font-size: large;">The Conference:</span></b><br />
Every other year the University of Georgia's Warnell School of Forestry and Natural Resources hosts, what in my opinion, is the best conference out there that deals with timberland investment. The speakers are always excellent and represent the full spectrum of views and perspectives on the future outlook for timberland investments. This year's<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"> <span class="Apple-style-span" style="color: #181818; line-height: 18px;">conference will focus on global wood markets and trade and the opportunities that have been created for both international and domestic timberland investment. Another focus will be the impact of the domestic housing market.</span></span><br />
<span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 1px; -webkit-border-vertical-spacing: 1px; border-collapse: collapse; color: #333333; line-height: 18px;"></span><br />
<ul style="margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><div style="margin-bottom: 10px; margin-left: 0px; margin-right: 0px; margin-top: 10px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><b style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Topics for this year's Timberland Investment Conference include:</span></b></div><li style="list-style-image: initial; list-style-position: initial; list-style-type: square; margin-bottom: 3px; margin-left: 18px; margin-right: 0px; margin-top: 3px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">The Affects of the Housing Market Recovery on Wood Demand</span></li>
<li style="list-style-image: initial; list-style-position: initial; list-style-type: square; margin-bottom: 3px; margin-left: 18px; margin-right: 0px; margin-top: 3px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Global Timberland Investments & Markets</span></li>
<li style="list-style-image: initial; list-style-position: initial; list-style-type: square; margin-bottom: 3px; margin-left: 18px; margin-right: 0px; margin-top: 3px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Back to Basics Timberland Management</span></li>
<li style="list-style-image: initial; list-style-position: initial; list-style-type: square; margin-bottom: 3px; margin-left: 18px; margin-right: 0px; margin-top: 3px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Timberland Appraisals Issues</span></li>
<li style="list-style-image: initial; list-style-position: initial; list-style-type: square; margin-bottom: 3px; margin-left: 18px; margin-right: 0px; margin-top: 3px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Legal Considerations for Forestland Ownership</span></li>
<li style="list-style-image: initial; list-style-position: initial; list-style-type: square; margin-bottom: 3px; margin-left: 18px; margin-right: 0px; margin-top: 3px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Global Trade Developments</span></li>
</ul><div><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">The conference dates are March 23 - 25 with an optional tour to be held on Plum Creek's land on the 22nd. If you are interested in attending, information on speakers, etc. and registration info <a href="http://www.ugacfb.com/timberlandasset">can be found here</a>. I hope to see you there.</span></div><div><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br />
</span></div><div><b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif; font-size: large;">The Timberland Transaction:</span></b></div><div>Maine's "Bangor Daily News" is reporting that the 900,000 acres of former I-P land that went to GMO is getting ready to change hands again. The reported buyer is BBC Land LLC which is controlled by <span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; border-collapse: separate; color: black; font-family: georgia, tahoma, verdana, arial;">John Malone of Englewood, Colorado. He is</span><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; border-collapse: separate; color: black; font-family: georgia, tahoma, verdana, arial;"> "chairman of Liberty Media, an Englewood-based company with diverse media interests that include the cable channel QVC, the travel website Expedia.com, the Atlanta Braves baseball team and Sirius XM satellite radio."</span></div><div><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; border-collapse: separate; color: black; font-family: georgia, tahoma, verdana, arial;"><br />
</span></div><div><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; border-collapse: separate; color: black; font-family: georgia, tahoma, verdana, arial;">He reportedly already owns 1.2 million acres of which 68,000 acres is in Maine. The deal is expected to close on Feb.1. <a href="http://new.bangordailynews.com/2011/01/24/news/media-mogul-to-buy-swath-of-forestland/">Read the entire story here</a>.</span></div><div><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; border-collapse: separate; color: black; font-family: georgia, tahoma, verdana, arial;"><br />
</span></div><div><span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; border-collapse: separate; color: black; font-family: georgia, tahoma, verdana, arial;">Best Wishes. --Brian</span></div>Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com1tag:blogger.com,1999:blog-8494577453535144993.post-18533483520338538092010-07-18T21:28:00.000-04:002010-07-18T21:28:15.820-04:00Seeing the Forest for Its HedgesUnder the category of shameless self promotion, here is a link to an article in last Sunday's New York Times written by Tim Gray and entitled <a href="http://www.nytimes.com/2010/07/11/business/mutfund/11land.html?_r=1&dbk">"Seeing the Forest for Its Hedges"</a>. It discusses different options for investing in timberland (TIMOs, REITs, ETFs and direct investment of smaller tracts). --Brian<br />
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<h1 class="articleHeadline" style="color: black; font-size: 2.4em; font-weight: normal; line-height: 1.083em; margin-bottom: 8px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><br />
</h1>Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com3tag:blogger.com,1999:blog-8494577453535144993.post-71646223771785866582010-07-01T11:22:00.000-04:002010-07-01T11:22:36.743-04:00A BRIEF TIMO BACKGROUNDER<!--StartFragment--> <br />
<div class="MsoPlainText">In discussions with newcomers considering investments in timberland or the publicly traded timber REITs, I frequently find that there is substantial misunderstandings about what a TIMO is and what the TIMO role is in the investment community. This backgrounder is intended to answer those questions. For a much deeper understanding of TIMOs, here is a <a href="http://thetimberlandblog.blogspot.com/2007/05/timos-and-reits.html">link to an outstanding and in depth report prepared by Cliff Hickman</a> with the U.S. Forest Service. It was prepared in early 2007 so some of the numbers are out of date but, other than that, it is the best researched report on TIMOs and REITs that I have seen. </div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText"><b>What is a TIMO?</b></div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText">A Timberland Investment Management Organization. Note that the first word is timberland, not timber as it is so often written. There is a big difference. Timber refers to trees, timberland is land with trees on it! Many news articles in well-known financial news publications (WSJ, Barron's) have confused the two in recent years, which has led to significant confusion surrounding pricing and values of timberland. The second key point is that TIMOs do not own land; they buy land, manage it and sell it for their clients. They have teams experienced in both forest management and portfolio management. For this advice and service, they charge a fee.</div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText"><b>Some history…</b></div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText">During the 1980’s, institutional investors began recognizing the value of adding timberland to their portfolios. By the early to mid 1990’s, there was a call by many analysts in the investment community for the pulp and paper companies to monetize their timberlands to reduce debt. More favorable federal income tax rates and accounting policies applied to the TIMO’s clients than the pulp and paper companies, which made the timberland more valuable for the former compared to the latter. Growth of the TIMOs was rapid as investors sought to acquire timberland and the pulp and paper companies sought to dispose of it. The companies that did not sell their land generally converted to the REIT form of corporate structure to provide higher after-tax returns for their shareholders.</div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText"><b>Who are the TIMO’s clients?</b></div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText">They are large institutional investors with a focus on financial objectives, many of which are tax exempt. Specifically:</div><div class="MsoPlainText"></div><ul><li>Pension funds</li>
<ul><li>Public retirement systems (CalPERS, the California public employee retirement system, was one of the first and largest timberland investors). European pension funds invest in U.S. timberland also and U.S. funds own timberland in other countries.</li>
<li>Corporate pension funds</li>
</ul><li>University endowments (Harvard and Yale were among the first institutional timberland investors)</li>
<li>High net worth individuals and families</li>
<li>Hedge funds</li>
<li>Foundations</li>
</ul><br />
<div class="MsoPlainText"> </div><div class="MsoPlainText">Note that the clients are all large investors.<span style="mso-spacerun: yes;"> </span>The largest clients generally acquire land in separate accounts while some of the smaller clients participate in accounts with commingled funds. TIMOs are not structured to accommodate most individual investors (there are other good options for individuals though). </div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText"><b>How do TIMOs differ from the so-called Timber REITs?</b></div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText">TREITs, or Timber Real Estate Investment Trusts, own the timberland, TIMOs do not. The publicly traded TREITs are Plum Creek (PCL), Potlatch (PCH), Rayonier (RYN) and soon to be Weyerhaeuser (WY). The tax structure for REITs allows the profits to be passed through to the shareholders avoiding the double taxation associated with the C corporations. That tax efficiency is why Weyerhaeuser is converting to a REIT.</div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText"><b>How much timberland do the TIMOs manage?</b></div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText">The TIMOs manage approximately 25 million acres worth more than $30 billion. The three REITs (not counting Weyerhaeuser) own about 11 million acres worth about $15 billion. Including Weyerhaeuser, the REITs own about 17 million acres worth about $28 billion. </div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText"><b>Who are some of the TIMOs?</b></div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText">Below is a list, in alphabetical order, of some of the largest TIMOs. All of them have web sites that you can google to get additional information about them.</div><div class="MsoPlainText"></div><ul><li>Conservation Forestry</li>
<li>Forest Capital Partners</li>
<li>Forest Investment Associates</li>
<li>Forest Systems</li>
<li>Global Forest Partners</li>
<li>GMO Renewable Resources</li>
<li>Hancock Timber Resources Group</li>
<li>Lyme Timber Company</li>
<li>Molpus Woodlands Group</li>
<li>ORM/Pope Resources</li>
<li>Resource Management Services</li>
<li>RMK Timberland Group</li>
<li>The Campbell Group</li>
<li>The Forestland Group</li>
<li>Timberland Investment Resources</li>
<li>TimberVest</li>
<li>Wagner Forest Management</li>
</ul><br />
<div class="MsoPlainText"><b>Are there differences between TIMOs?</b></div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText">Yes. They have different investment philosophies that appeal to investors with differing objectives. For example, The Forestland Group invests primarily in natural forests, particularly hardwood. The Hancock Timber Resources Group puts an emphasis on forest technology to improve timber yields and financial returns. Some TIMOs focus on acquiring “conservation land” or land that can have “conservation easements” quickly sold and separated from the fee ownership. Some TIMOs have good information systems with strong financial controls and some do not. Some conduct field audits, some do not. Some have outstanding technical groups in-house, some contract it outside. Some manage the timberland themselves and some contract with consulting foresters. All of these issues should be weighed by investors and the right TIMO selected based on the objectives of the investor.</div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText"><a href="http://www.timberlandstrategies.com/Articles/tabid/55/Default.aspx">This post can be downloaded as a pdf here</a>. Visit the <a href="http://www.timberlandstrategies.com/">Timberland Strategies web site here</a>. --Brian</div><div class="MsoPlainText"><br />
</div><div class="MsoPlainText">Email: jbfiacco@gmail.com</div><!--EndFragment--> <br />
<!--EndFragment-->Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com9tag:blogger.com,1999:blog-8494577453535144993.post-74057799447139479842010-06-21T17:06:00.000-04:002010-06-21T17:06:41.150-04:00New Timberland Transaction UpdateThe pace of timberland transactions is still pretty slow but they are occurring (about 500,000 acres since my update last fall) and prices do not appear to have dropped below those of late last year. I think the 10% - 15% decline estimate (from the peak) is still pretty solid. In some places it is more than that, some locations, less. The NCREIF index continues to show declining timberland values but the total decline from the peak is only about 7% as of the end of Q1. The capital appreciation component of the index, which measures change in market value, fell 6.17% last year and another 0.84% in Q1. Given the lagging and "smoothing" nature of the index, we will probably see it continue to decline modestly.<br />
The list below represents the significant transactions since my last update.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjrfDjmJ1Ov4PypebW5MwAC4Pwnupg9Pnl_R9eVqxob2TR6dGPNLsvrhbBkJHYyGGq1N0Kx73TrPhaNG4H4l_6i1MbrqQmewSeJp2zHT0MmM2umU_vEYB5TQTnprzxQ9K69PCRpi1Cdn4/s1600/10+Q1+trans.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="251" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjrfDjmJ1Ov4PypebW5MwAC4Pwnupg9Pnl_R9eVqxob2TR6dGPNLsvrhbBkJHYyGGq1N0Kx73TrPhaNG4H4l_6i1MbrqQmewSeJp2zHT0MmM2umU_vEYB5TQTnprzxQ9K69PCRpi1Cdn4/s400/10+Q1+trans.jpg" width="400" /></a></div><br />
<span class="Apple-style-span" style="font-family: inherit;">Changing discount rates used by buyers and sellers are the key to changing timberland valuations. As discount rates go up, valuation goes down.</span><br />
<span class="Apple-style-span" style="font-family: inherit;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: inherit;">The 2009 Q4 Brookfield Global Timberlands Research Report, distributed by Forestweb, stated that "Most appraisers are currently applying discount rates of + 6.0% (real) ... This represents an increase of 25 - 100+ bps Y/Y which should equate to a 4 - 15 percent reduction in timberland values when using a discounted cash flow analysis." </span>In a presentation earlier this month by Plum Creek at the NAREIT Institutional Investor Forum, they estimated that discount rates have increased by about 1% which would put it right at the 15% reduction. On the other hand, a recent article discussing office building REITs suggested that discount rates were actually beginning to move down!<br />
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<span class="Apple-style-span" style="font-family: inherit;">The graph below, which shows the relationship between discount rates and timberland prices, was produced by Jim Rinehart with R&A Investment Forestry.</span><br />
<span class="Apple-style-span" style="font-family: inherit;"><br />
</span><br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtCRsrs0694Gl_hQ0P7ckAYAmCPEt12tBj05FfRCF4hWjdPR_cpr8eStdx5scs0sS5AQfAn0059oahH7IYys4KVcgAj1bN5wir1BGmCUTw_ugx5RMK0ZDzMHKGyPMv8WM9SrgfviAKqfw/s1600/PriceVsDiscountRate.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="316" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtCRsrs0694Gl_hQ0P7ckAYAmCPEt12tBj05FfRCF4hWjdPR_cpr8eStdx5scs0sS5AQfAn0059oahH7IYys4KVcgAj1bN5wir1BGmCUTw_ugx5RMK0ZDzMHKGyPMv8WM9SrgfviAKqfw/s400/PriceVsDiscountRate.jpg" width="400" /></a></div><span class="Apple-style-span" style="font-family: inherit;">Jim cautions that there are some inherent weaknesses in the individual data points due to the way the data was constructed. Be that as it may, the value of the graph is in the trend lines. And the trend is clear. The graph was taken from a paper titled "U.S. Timberland post-recession. <i>Is it the same asset</i>?" The paper is well worth reading and <a href="http://www.investmentforestry.com/research/research.htm">can be downloaded from his web site here</a>.</span><br />
<br />
<span class="Apple-style-span" style="font-family: inherit;">The clear point is that there remains uncertainty in the market about discount rates and the direction of timberland values. My personal opinion is that we will not see big shifts in either direction in the short run but you had better pay attention to what is happening. Remember, timberland is not a very liquid investment as has been borne out by the limited transactions being reported.</span><br />
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<span class="Apple-style-span" style="font-family: inherit;">If I have missed any sales, or have any errors, please send me an email at jbfiacco@gmail.com. As always, comments and differing opinions are appreciated (especially when supported by facts!). --Brian</span><br />
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</span><br />
<span class="Apple-style-span" style="font-family: inherit;">Visit my web site at <a href="http://www.timberlandstrategies.com/">www.timberlandstrategies.com</a></span>Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com0tag:blogger.com,1999:blog-8494577453535144993.post-64383469313494595472010-06-16T20:53:00.001-04:002010-06-20T12:56:50.186-04:00A Matter of PerspectiveForestweb reported today on some new statistics from the UK Statistics Authority/Forestry Commission. The total area of woodland in the UK is 2.85 million hectares.<br />
<br />
To put that in perspective, the total woodland area of England, Wales, Scotland and Northern Ireland is roughly the same size as Plum Creek's timberland holdings in the U.S.<br />
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Think about that from the perspective of where the wood will come from in the future. --BrianBrianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com3tag:blogger.com,1999:blog-8494577453535144993.post-68521427285354437622010-02-18T11:29:00.002-05:002010-02-18T11:38:00.634-05:00National Forest Timber Management: Problems and Solutions Today's post is by a guest author who will expound upon my last post concerning the management of our National Forests. Mac McConnell is an "old time" forester who graduated from Penn State/Mont Alto back in 1943 (not a typo) and spent the next 30 years with the U.S.Forest Service, working in the southeast and specializing in timber management. Following his retirement, Mac got a couple of advanced degrees (Urban and Regional Planning and Sociology) and spent time with the Peace Corps in South America. As a consultant in Energy Biomass Management, he maintains his interest in Forest Service doings and considers himself a "constructive critic" of that organization. --Brian<br />
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<div style="text-align: center;">**************************</div><div style="text-align: center;"><b>National Forest Timber Management Problems and Solutions</b></div><div style="text-align: center;">by</div><div style="text-align: center;">W.V. (Mac) McConnell, U.S. Forest Service Ret. (1943-’73) </div><div style="text-align: center;"><br />
</div>This website’s recent comments on t<a href="http://thetimberlandblog.blogspot.com/2010/01/national-forest-harvest.html">he drastic decline in National Forest (NF) timber harvesting</a> over the past 30 years has raised a few eyebrows and prompted some of us to look at what’s happening in our own backyards. For those of you who missed that post, here’s the graphic showing the NF harvesting record. <br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjVU7QqZwqb81es-69zS88vdHG3OYnKYFgTOVo_7R0dBZPfoNzjFDxSi5GZPOzoN8mICe6_NkqHF44Ipeo3KxbvUZ_DWuXaVpA-Z66d0ez0d4MtjVpIblRvJd6IC-EvFE6fD0Tl7MqWcAU/s1600-h/NationalForestHarvest.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="253" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjVU7QqZwqb81es-69zS88vdHG3OYnKYFgTOVo_7R0dBZPfoNzjFDxSi5GZPOzoN8mICe6_NkqHF44Ipeo3KxbvUZ_DWuXaVpA-Z66d0ez0d4MtjVpIblRvJd6IC-EvFE6fD0Tl7MqWcAU/s400/NationalForestHarvest.jpg" width="400" /></a></div><br />
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My “home” forest, the Apalachicola NF, is the largest (576,000 ac.) of the three National Forests in Florida, and timber management problems are typical of those in the entire NF system. They include insufficient funding and manpower, endangered species concerns, excessive environmental studies, and over-detailed environmental assessments. Unlike many forests, they have a solid market for all products (including 2 operating biomass-fueled power plants), an extensive prescribed burning program (947,000 ac. in the past 10 years), and cordial relations with the environmental community. With these favorable conditions, you’d expect at least modest timber production. Not so! Here’s what happened during the ten year planning period that just ended.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdx1qekPsWX-peAdwYo17LtY7_tU9wHI_roPILiQWexO68eco33eQqu-cGxG2aRjKTsPbjkL-oT5DYibk0R9WTuTNGz1dUKQpPMcefIe1wVuvUUFwRh0AWUA4CDrbwIPWLplg6bLPAnXs/s1600-h/mac2.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="376" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdx1qekPsWX-peAdwYo17LtY7_tU9wHI_roPILiQWexO68eco33eQqu-cGxG2aRjKTsPbjkL-oT5DYibk0R9WTuTNGz1dUKQpPMcefIe1wVuvUUFwRh0AWUA4CDrbwIPWLplg6bLPAnXs/s400/mac2.jpg" width="400" /></a></div><br />
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This failure to perform has had many of the expected social and economic impacts: stressed local governments and schools, jobs lost, and families disrupted. Silvicultural impacts have been significant; timber stand mortality has increased and quality growth has decreased.<br />
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One unexpected environmental effect has been the decline of the endangered red-cockaded woodpecker. This bird requires open park-like stands of older pine trees. The imbalance of growth and harvesting shown in the previous graphic has resulted in increasing stand density and an estimated decrease of some 67,000 acres of high-quality habitat. Here’s what the record shows.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxU1DD2Gazd9GW8uqD-DFKDuw5fPpH338rCfj-m928BfUPjwAZwQerX-GyQRPekyxsApPTWtzWGnYpKY1w0WUPs8tyKRSFeUDTRpvc3atYv22HNO6gyv_6Z-vnGrNHytjiYAPx86qqycs/s1600-h/mac3.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="297" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxU1DD2Gazd9GW8uqD-DFKDuw5fPpH338rCfj-m928BfUPjwAZwQerX-GyQRPekyxsApPTWtzWGnYpKY1w0WUPs8tyKRSFeUDTRpvc3atYv22HNO6gyv_6Z-vnGrNHytjiYAPx86qqycs/s400/mac3.jpg" width="400" /></a></div><br />
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<br />
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Other forests have had similar problems with endangered species and other valued wildlife. On The Ocala NF, failure to harvest has resulted in a 10,000 acre decrease in early successional habitat in the sand pine type. This habitat is critical to the nesting of the scrub jay, an endangered species found only in Florida and especially on the Ocala. In North Carolina, on the Pisgah and Nantahala NFs, ruffed grouse populations have declined as habitat has dwindled, (see graphic).<br />
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<div class="separator" style="clear: both; text-align: center;"></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLtueB5js5t3lJMSkh16qXtEcH1l6fw6-GKJy8UXMjPh-S3uN1te2Ozg7q2y5YmQWyFO9mxw4S8LMZSIu1Ae_ajtwhYRrqj7_tIb1ol5i-9A3Ms3dlLZ0B7K2F60JN_idUcOCIe3Zs-0Q/s1600-h/mac5.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="235" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLtueB5js5t3lJMSkh16qXtEcH1l6fw6-GKJy8UXMjPh-S3uN1te2Ozg7q2y5YmQWyFO9mxw4S8LMZSIu1Ae_ajtwhYRrqj7_tIb1ol5i-9A3Ms3dlLZ0B7K2F60JN_idUcOCIe3Zs-0Q/s400/mac5.jpg" width="400" /></a></div><br />
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<b>What to do?</b> Here are some suggestions that could help solve the problem. <br />
<br />
<ul><li>Simplify Environmental Impact Statements (EAs). (probability of success - excellent)</li>
<li>Outsource field work and writing of EAs and sale prep. (prob. - good to high)</li>
<li>Reorder forest priorities and shift funds. (Prob. - unknown) </li>
<li>Secure Congressional approval for NFs in Florida and other selected forests to test the feasibility of timber program self-financing as is now done on DOD land (Title 10, USC 2665.) (Prob. unknown) </li>
<li>Secure adequate congressional funding. (prob. - zero to very low)</li>
</ul><br />
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<b>When all else fails: </b><br />
<b><br />
</b><br />
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<ul><li>Transfer/sell manageable timber land to other federal, state, NGO, or private entities with restrictive covenants and convey the balance to the State or U.S. Park Service. </li>
<li>In my opinion, the most promising long-term solution lies in the 4th bullet above: a system of self-financing for the timber sale program. Here are some Pro and Con arguments that have been advanced. Remember: These are arguments. They may or may not be factual. They may or may not be relevant.</li>
</ul><b> Pro</b>-<br />
<ul><ul><li>Will provide the means, not now available, for the U.S. Forest Service to follow Congressional direction for resource management as expressed in the National Forest Management Act of 1976, the Endangered Species Act of 1973, and related legislation.</li>
<li>Will help insure continued economic survival of N.F. dependent counties after the expiration, in the year 2011, of the Secure Rural Schools and Community Self-Determination Act of 2000.</li>
<li>Will create jobs and stimulate the economy.</li>
<li>Will allow increased local participation in decision making through Resource Advisory Councils.</li>
<li>Will provide an incentive for efficient management and will be budget neutral or positive.</li>
<li>A trial run of the program on selected forests will allow an assessment of its impacts on the Federal budget and returns to the treasury, on the social and economic condition of counties, communities and forest industries, and on the quality of resource management. </li>
<li>The concept is simple, easy to apply, and has been thoroughly tested on timberlands managed by the Department of Defense.</li>
</ul></ul><b> Con</b> –<span class="Apple-tab-span" style="white-space: pre;"> </span><br />
<ul><ul><li>Will reduce Congressional oversight over National Forest management and control over the expenditure of federal monies. </li>
<li>Will result in negative “scoring” in returns to the treasury and in an increase in the public debt.</li>
<li>Will encourage continued dependency of Forest Counties on the Federal Government and discourage self-sufficiency and problem-solving through private enterprise.</li>
<li>Will promote unrestrained, irresponsible logging and massive resource damage. </li>
<li>The concept is non-traditional to and untested by the Forest Service. </li>
</ul></ul><br />
<br />
<i>In conclusion: </i><br />
While conditions on the Apalachicola National Forest are representative of the National Forest System and the basic management principles involved are applicable nationwide, the adverse economic, social, and mortality (fire and insect) impacts of under-management on Western National Forests have been much greater than on those in the East.<br />
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For those wishing to research conditions on their local Forest, growth and mortality data for all National Forests are available on-line from the <a href="http://fia.fs.fed.us/">U.S.F.S. Forest Inventory and Analysis program</a>. Your local Forest Supervisor can provide information on planned and harvested volumes.<br />
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This post is a condensation of <a href="http://www.timberlandstrategies.com/Articles/tabid/55/Default.aspx">Timber Resource Management: A Look at the Record a presentation that can be downloaded here</a> in Powerpoint format.<br />
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</div>Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com10tag:blogger.com,1999:blog-8494577453535144993.post-79172579132110703672010-02-04T09:37:00.001-05:002010-02-04T09:42:20.322-05:00THE FOREST INDUSTRY OF THE FUTURE: What Will It Look Like?The following post was originally published by Timber-Mart South 4th Quarter 2009 -- Vol. 14, No. 4, January 2010<br />
<div style="text-align: center;">*****************************</div>I was recently asked to speak at the North Carolina Forestry Association’s annual meeting in Myrtle Beach on the above captioned topic. 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 took a shot at it and later agreed to share some of those thoughts with TMS readers. <br />
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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.<br />
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The three key changes in progress are:<br />
<br />
1. Changing Timberland Ownership<br />
2. Biomass for Energy<br />
3. Global Industrial Revolution<br />
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<i>Timberland Ownership</i>: The shift in ownership (from forest industry to institutional) is well documented and well underway so there is no need to spend time on it (maybe a couple of comments!). Due to the housing/lumber market collapse, timberland owned by the sawmill industry is following in the footsteps of that formerly owned by the pulp and paper industry. This is illustrated by the timberland ownership shifts of Allegheny Wood Products and Anthony Forest Products to TIMOs. Survival can be tough. The second point is that the institutional owners have no allegiance to a mill so the wood will flow to the highest bidder.<br />
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<i>Biomass for Energy</i>: This is not a new thing but its impact is changing and the magnitude of the issue is not universally well understood so it merits significant discussion. There are three drivers pushing the biomass market shift.<br />
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<ol><li>Renewable Energy: The desire to shift to energy sources that we cannot “run out” of. Many states already have legislated renewable energy targets and biomass, particularly in the Southern states, is playing a key role toward the advancement of those goals.</li>
<li>Climate Change: The desire to shift away from energy sources that add to the perceived problem of man caused global warming. Burning wood is carbon neutral when viewed from a carbon cycle perspective. This appears to be more of a political issue than a scientific one but that is irrelevant to the outcome. Pellet exports from the U.S. to Europe increased over ten fold last year fueled by carbon taxes in EU countries. If Cap and Trade is passed here, expect to see an even greater shift from coal to biomass by utilities.</li>
<li>Energy self-sufficiency: This is the most important concern from my perspective. It is significant from both national defense and economic security points-of-view.</li>
</ol><br />
So where will this biomass come from? The primary sources of woody biomass are manufacturing residues, harvest residues, urban waste (construction, etc.), pulpwood and short rotation crops grown specifically for biomass. I have looked at available manufacturing residues for multiple clients and there is just not a significant amount available. It is virtually ALL being used and most of it is used by the forest industry to produce products or energy. Harvest residues are there BUT, as the pulp and paper industry knows, harvesting residues is expensive, they have a negative impact on mill processing and they produce a product of inferior quality and value. These traits are equally true for pellets and pulp. I don’t know much about urban waste but there is less of it with the housing market decline. So that leaves pulpwood and that is where the bulk of the woody biomass resource will come from. <br />
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To better understand the magnitude of potential biomass demand, let’s look at some of the new facilities.<br />
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A Pellet Mill: The pellet mill in Cottondale, Florida started up in April 2008 as the largest pellet production facility in the world. One hundred percent of the plant’s production is for export to Europe where the pellets are mixed with coal to reduce carbon emissions in the production of electricity. The driver behind it is the European carbon tax applicable to coal but not the carbon neutral wood pellet. The plant produces 560,000 tons of pellets annually and consumes about 1,000,000 green tons of wood. The resource used is not “residue” - it is pulpwood. This facility is the equivalent of a new pulp mill.<br />
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Cogeneration: This is certainly not new in the forest industry as our pulp mills have been doing this for a long time. What is new is the magnitude of the projects. Industry is expanding the use of cogeneration, schools are installing the systems and one village in Pennsylvania is building a system to use the steam to heat all of the houses in the village as well as supplying the electricity to them. An industrial example is the Sonoco / Peregrine Energy Corporation plan to develop a new $135 million woody biomass-fueled cogeneration plant in South Carolina. Plans are for Peregrine to construct a new 50-megawatt capacity facility that will be capable of generating enough electricity to power approximately 14,000 homes. The new biomass-fueled cogeneration facility will replace Sonoco's existing coal-fired boilers. Peregrine intends to sell the entire electrical output and all renewable energy certificates associated with the plant to Progress Energy Carolinas, Inc., and low pressure steam from the plant to Sonoco for use in the manufacture of recycled paperboard and other converted products. “The project would benefit the regions' forestry industry by utilizing pre-commercial thinnings and waste logging residues as the woody biomass fuel for the project.”<br />
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As a rule of thumb, a 100-megawatt plant will consume about a million green tons so this facility will consume about one-half of that but that is still a lot of precommercial thinnings!<br />
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A Coal Fired Power Plant: This one really caught my attention. The power companies are struggling with the renewable energy standards. In the East, there is limited opportunity for wind, solar or geothermal so biomass is about the only alternative left (hydro is out for a multitude of reasons). FirstEnergy at Shadyside, Ohio has announced its conversion from coal to biomass. The largest proposed development to date had been Yellow Pine Energy's 110 MW project in GA, a million-plus ton/year wood consumer. FirstEnergy’s is 312 MW and will consume 3 million green tons! This is on a par with the South’s largest pulp and paper mills.<br />
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The sheer quantity and magnitude of the announced facilities similar to the examples above is staggering from a resource consumption viewpoint. Not all of them will come to pass but it is very clear that enough of them will reach production levels that will greatly impact the future supply/demand picture for forest products.<br />
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<i>Global Industrial Revolution</i>: The third key change, the global industrial revolution, is well under way but it may never be realized. All of the developing nations have ambitions to reach the standard of living with which we are blessed but the commodities, the natural resources, are just not there to reach that level on a global basis. Commodity shortages, particularly oil and other transportation energy sources, will prevent the world from reaching the level that we have obtained and, more than likely, those same shortages will prevent us from maintaining that level. Escalating transportation costs will cause us to revert back to a society much more dependent on manufacturing. It is significantly less expensive to ship dried lumber than logs.<br />
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The three key changes mentioned above combine with a couple of additional economic factors to create the drivers that define my view of our economic future. The drivers are:<br />
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<ul><li>Social drive for renewable energy, energy self-sufficiency and climate change</li>
<li>High energy costs- The key cost escalator</li>
<li>High Inflation Rate (perhaps hyperinflation) driven by:<br />
* Very high government spending<br />
* Very high oil prices<br />
* Commodity shortages, including timber</li>
<li>Declining Value of Dollar (see Figure 1)</li>
</ul><div class="separator" style="clear: both; text-align: center;"></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhiEikSckgdGzN5hC4YXJ0ttG3Yr8eLWmVPduFTYFsq9_A5o4iwUxVaAtEl1GnvErXGtnY24he5dWcu5hrlLvg5dXfsTn4hi8pXtVdPft88zuxXerYb6pKRb4N0k8CUmWPGfhJaEcfzuds/s1600-h/USD+Index+j.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="257" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhiEikSckgdGzN5hC4YXJ0ttG3Yr8eLWmVPduFTYFsq9_A5o4iwUxVaAtEl1GnvErXGtnY24he5dWcu5hrlLvg5dXfsTn4hi8pXtVdPft88zuxXerYb6pKRb4N0k8CUmWPGfhJaEcfzuds/s400/USD+Index+j.jpg" width="400" /></a></div><div style="text-align: left;">Source: fxstreet.com</div><br />
<i>The Future of the Pulp Mill</i>: Domestic paper demand will continue its downward trend but I am not as pessimistic about the industry’s future as most people are. The continuing decline in the dollar, although very bad for the consumer, will have a positive impact on the pulp and paper industry. The export market will be much brighter. A great deal of capacity has already been taken out of the market. Although bio-refinery economics are very unclear at this time, more capacity may come out as some mills are converted from pulp to production of “of ultra-clean, renewable motor fuels”. As the energy transportation costs rise, it may be cheaper to burn pulpwood for energy and to convert black liquor to transportation fuels. The key driver is the future price of oil and that may be considerably higher than the current consensus. The major downside for the pulp and paper industry will be the competitive demand for wood. Wood is both its raw material and its energy source and the power companies are going to be very tough competitors.<br />
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<i>The Future of Sawmills</i>: Despite the doom and gloom about future housing, domestic lumber demand driven by housing demographics still looks good after the excesses have been worked off. The Global Industrial Revolution combined with a weaker dollar will create a very positive manufacturing and exporting environment for sawmills. Global housing and lumber demand will be high and the U.S. will be one of the key suppliers. Very high energy costs make it more cost effective to ship lumber than logs to export markets, reversing the current norm. There will be a much more competitive market (higher prices) for mill residues. Consistent and steady demand from biomass consumers will provide a steady supply of logs from producers. Things couldn’t look much better assuming there is a mill somewhere that survives the current crisis! It’s always darkest before the dawn.<br />
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<i>The Future of Biomass Consumption</i>: Biomass utilization is a game changer in the forest industry because of the sheer quantity of biomass that will be utilized. Many schools in cold climates are heating with wood chip boilers today and they are saving money without any subsidies (and this is spreading to the warmer South as well). European villages have moved in that direction and some Canadian and U. S. villages are capitalizing on their experiences. The developing demand by the power companies seems so huge as to be unsustainable. Transportation cost increases will work against the large biomass programs such as the 3 million G ton Ohio facility. Power facilities with less output and shorter haul distances will be more cost effective (diseconomies of scale). If the “man-caused” global warming issue does not result in tax legislation, if consumers scream too loudly about electrical cost increases, government may back off and the power companies will be able to revert to coal to produce electricity more economically. That would take the pressure off biomass and still provide energy self-sufficiency to a degree. But even that scenario will not change the shift to biomass for energy. Oil is a finite resource and more energy must be expended to get each additional barrel. Like it or not, oil prices are on the wrong end of the power curve and that means that transportation costs are too. There WILL come a point, I don’t know when, where cellulosic ethanol (or one of the other wood-based transportation fuels) is less expensive than oil. When that happens, the forest industry is changed forever.<br />
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<i>The Future in the Forest:</i> Recent economic drivers supporting longer rotations are creating a “wall of wood” in the sawlog size class. Institutional investors have lengthened rotations from the pulpwood size-class to the sawtimber size-class to capitalize on the price differential. Sawtimber sales have been deferred as a result of poor markets, so harvest followed by planting has slowed (Figure 2). <br />
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The graph shows a significant decline in planting, which is troubling to some folks, but more likely reflects increased thinnings and significant reductions in clearcutting. Short rotation energy plantations close to market will happen IF wood costs go up significantly OR planners fail to anticipate increases in transportation costs. There will be more “in-woods” operations (chippers, biomass harvesting, biochar, and perhaps mobile methanol) – all driven by higher oil costs. Biomass harvests will be incorporated into conventional tree planting prescriptions. Much more competitive markets will mean higher stumpage prices for biomass and pulpwood. The current growth/drain ratios are very favorable (Figure 3) but sustainability will probably become a political issue if not a real one. <br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhu6bPLjAi7RgOu-yHgfq6ZJdIZZXi2KgB7eNJqyLiYNH7ux1fwByQsbiff720NdjjGl9qJy9y1vryGNxV-dFsnM-wptsSpcOebzUBHFjiP4xMp4CB2EMk7hMAQ8kJbvESp3pbXItvQOxw/s1600-h/Growth+Consump+j.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="232" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhu6bPLjAi7RgOu-yHgfq6ZJdIZZXi2KgB7eNJqyLiYNH7ux1fwByQsbiff720NdjjGl9qJy9y1vryGNxV-dFsnM-wptsSpcOebzUBHFjiP4xMp4CB2EMk7hMAQ8kJbvESp3pbXItvQOxw/s400/Growth+Consump+j.jpg" width="400" /></a></div><br />
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Changes in Wood Supply Chain: It is the same basic Wood Supply Chain, but…<br />
<ul><li>Harvest residues will be added, probably more mechanized</li>
<li>Biomass demand brings more stable wood demand</li>
<ul><li>No monthly (weekly, daily) shifts in mill consumption</li>
<li>No shifts in species needed</li>
</ul>
<li>Annual contracts for wood producers become practical for biomass production – good news for loggers!</li>
<li>May force the same for pulpwood and sawlog buyers</li>
<li> Logging will become a more robust, stable and competitive market segment</li>
</ul>My Synopsis of the Future Forest Industry<br />
<ul><li>Biomass/Power companies will be a key part of the industry.</li>
<li>There will be more “in-woods” operations (chippers, biomass harvesting, biochar, and perhaps mobile methanol).</li>
<li>A smaller pulp and paper industry will survive and exporting will play a larger role.</li>
<li>Sawmills: Demographics still favor housing and lumber export market will become significant. Imports less competitive.</li>
<li>Logging contractors will have a more stable operating environment. Annual production contracts.</li>
<li>Stumpage market will be more competitive and more stable.</li>
<li>Plantation establishment will consider energy market.</li>
<li>Timberland ownership will be a good place to be!</li>
</ul><br />
So that’s the way I see it. A global economy responding to a failed energy policy built on unsustainable oil production. This view of the future may not be right but it is worth considering as you go forward.<br />
<div style="text-align: center;"> *****</div>Differing views welcome, especially if rational is explained. --Brian<br />
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Visit <a href="http://www.timberlandstrategies.com/">Timberland Strategies web site</a>.Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com7tag:blogger.com,1999:blog-8494577453535144993.post-13535520121194557232010-01-21T22:33:00.001-05:002010-01-21T22:35:25.417-05:00National Forest HarvestOver the past 20 years there have been many changes impacting the output of our nation's timberland but none have impacted it as much as the management of our National Forests. First, let’s talk big numbers and try to put the whole thing into perspective. There are about 750 million acres of forestland in the United States. About two-thirds of that is classified as “timberland” which is defined as “Forest land that is producing or capable of producing crops of industrial wood and not withdrawn from timber use by statute or administrative regulation”. That definition cuts the area in timberland from 750 million acres to about 500 million acres. Much of the reduction results from set asides such as the National Parks and the designated Wilderness Areas on National Forests. So now we have 2/3 of our forests left to produce wood products.<br />
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Second, let’s look at that two-thirds or 500 million acres of timberland. Who owns it?<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgI2Q1zd_wOBsGArP6NWT_JXdBVWtKChd6oMRkDhFcqS7ylWl2EoDn1lROaAfLHGlYBf6cewaQn94RQSrZiDEhSfXXnvH7MLYDZzC5ESCvqVigGObP8tnwbIb3CTt9ipxoqgHzUwdFjQpU/s1600-h/Timberland%25.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgI2Q1zd_wOBsGArP6NWT_JXdBVWtKChd6oMRkDhFcqS7ylWl2EoDn1lROaAfLHGlYBf6cewaQn94RQSrZiDEhSfXXnvH7MLYDZzC5ESCvqVigGObP8tnwbIb3CTt9ipxoqgHzUwdFjQpU/s400/Timberland%25.jpg" /></a><br />
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</div><div style="text-align: left;">Even after setting aside our forested parks, Wilderness Areas and forest preserves, public ownership still accounts for almost 30% of our timberland. Public ownership is more than twice that of Forest Industry and about one-half of that owned by Non-Industrial Private Owners. Due to the historical method of “keeping score”, TIMO and REIT ownership is somewhat befuddled and some shows up in the NIPF category and some shows up in Forest Industry. The point I want to make here is that any shift in the way that the 150 million acres of Public timberland is managed has far reaching implications for output of building materials, pulp and paper and biomass utilized for renewable energy. The vast majority of the Public timberland falls under the management of the National Forest System (NFS) so that is where we need to look for change. I have watched these changes occur over time but it wasn’t until I came across the following graph that the total impact was driven home to me.<br />
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</div><div class="separator" style="clear: both; text-align: left;"> There are two points on the graph, both designated with arrows, which will be discussed. The first arrow highlights the peak of NFS harvest as well as the beginning of the impact of the Spotted Owl controversy. The corresponding pie graph sets an interesting baseline. Even though the timber harvest has peaked, only one half of the growth was being harvested and one-quarter of the growth was actually being added to the timber inventory! The second pie graph shows the impact of a forest policy that reduced the harvest to 1/6th of what it had been. The result is that less than 6% of growth is being harvested, 58% is being added to inventory and a staggering 36.5% of growth is dying! We are growing trees for bugs and fire. So who is to blame? Public forests are managed by public policy.<br />
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To my mind, this is a terrible trend but it is good for owners of timberland. --Brian<br />
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Visit our web site at <a href="http://www.timberlandstrategies.com/">www.timberlandstrategies.com</a><br />
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</div>Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com5tag:blogger.com,1999:blog-8494577453535144993.post-47495101166366358592009-12-17T09:32:00.000-05:002009-12-17T09:32:36.037-05:00The Trend in Timberland PricesThe current issue of Forest Landowners Magazine published an article that I wrote a few months ago that looks at the trend in timberland prices over the last decade. It examines the changes, data sources and some transactions during the first half of this year. It also tries to answer the following questions:<br />
<ul><li>What has caused timberland prices to stay up while timber prices and most investments have declined in value?</li>
<li>What would cause prices to decline?</li>
<li>So what does the future hold?</li>
</ul>If you are interested in reading the article, <a href="http://www.timberlandstrategies.com/Articles/tabid/55/Default.aspx">here is a link to it</a> on my web site. --BrianBrianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com1tag:blogger.com,1999:blog-8494577453535144993.post-647854141478753252009-11-16T20:13:00.000-05:002009-11-16T20:13:14.881-05:00Anthony Forest Products Sells 93,360 AcresThe pressure from low product demand and low selling prices continues to hammer the sawmills. Companies that have been long-term owners and managers of timberland are continuing to be forced to liquidate landholdings to stay in business. Anthony Forest Products is the most recent with the sale of 93,360 acres of conservatively managed timberland in Arkansas, Texas and Louisiana being sold to a client of the Molpus Woodlands Group for $173,150,000 or $1,895 per acre. There is a wood supply agreement between Anthony and the new owner as a part of the sale agreement.<br />
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The Molpus Woodlands Group continues to build itself into a stronger and well diversified TIMO (850,000 acres in 11 states). Read the entire <a href="http://www.molpus.com/molpus-woodlands-group-and-anthony-forest-products-transasction.html">news release here</a>.Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com1tag:blogger.com,1999:blog-8494577453535144993.post-69562051537167235902009-10-30T12:34:00.003-04:002009-10-31T21:57:14.721-04:00Timberland Transaction UpdateMajor 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.<br />
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</div><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQzWXFxuyKNcBj5Za7hwZiysqqZs4Y-WXbclLIMo_yZMgknhkm_kdjtQ764khD89ArLZRQKdQZO2sdlO90kqR8myBvqcwpOmuMXFHfi04RyK1_s2h2uBRjB_o8cJSNKsGOglLTNnOgAgk/s1600-h/09+Q3Trans.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQzWXFxuyKNcBj5Za7hwZiysqqZs4Y-WXbclLIMo_yZMgknhkm_kdjtQ764khD89ArLZRQKdQZO2sdlO90kqR8myBvqcwpOmuMXFHfi04RyK1_s2h2uBRjB_o8cJSNKsGOglLTNnOgAgk/s640/09+Q3Trans.jpg" /></a><br />
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</div><div class="separator" style="clear: both; text-align: left;">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.<br />
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</div><div class="separator" style="clear: both; text-align: left;">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.<br />
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</div><div class="separator" style="clear: both; text-align: left;">If I have missed any sales, and I probably have, send me an email to jbfiacco@gmail.com. As always, comments and differing opinions are appreciated (especially if supported by facts).<br />
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</div><div class="separator" style="clear: both; text-align: left;">My last post had an error in a link. <a href="http://www.timberlandstrategies.com/Articles/tabid/55/Default.aspx">Click here</a> if you would like to see the PDF of the presentation <a href="http://www.timberlandstrategies.com/Articles/tabid/55/Default.aspx">The Forest Industry of the Future: What will it look like.</a> . --Brian<br />
</div>Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com1tag:blogger.com,1999:blog-8494577453535144993.post-46506277877483278632009-10-22T10:14:00.008-04:002009-10-23T15:14:43.215-04:00The Future Forest IndustryI 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.<br /><br />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.<br /><br />The Three Key Changes in Progress<br /><br />• Changing Timberland Ownership<br /><ul><li>Shift from forest industry to institutional and other owners</li><li>Well under way and well documented</li></ul>• Biomass for Energy<br /><ul><li>Not a new thing but impact is changing</li><li>Sourcing moving from residue to pulpwood</li><li>Sheer magnitude is not well understood</li></ul>• Global Industrial Revolution<br /><br />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.<br /><br />My view of the drivers behind the economic future looks like this:<br /><br />• Social drive for renewable energy, energy self-sufficiency and climate change<br />• High energy costs- The key cost escalator<br />• High Inflation Rate (perhaps hyperinflation) Driven by:<br /><ul><li>Very high government spending</li><li>High oil prices</li></ul>• Declining Dollar<br />• Global Industrial Revolution<br />• Commodity Shortages (natural resources)<br /><br />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:<br /><br />•Biomass/Power companies will be a key part of the industry.<br />•There will be more “in-woods” operations (chippers, biomass harvesting, biochar, and perhaps mobile methanol).<br />•A smaller pulp and paper industry will survive and exporting will play a larger role.<br />•Sawmills: Demographics still favor housing and lumber export market will become significant. Imports less competitive.<br />•Logging contractors will have a more stable operating environment. Annual production contracts.<br />•Stumpage market will be more competitive and more stable.<br />•Plantation establishment will consider energy market.<br />•Timberland ownership will be a good place to be!<br /><br />If you would like to see all of the slides, you can go to <a href="http://www.timberlandstrategies.com">www.timberlandstrategies.com</a> 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. --BrianBrianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com5tag:blogger.com,1999:blog-8494577453535144993.post-24751885754833838412009-06-12T10:22:00.015-04:002009-06-20T10:53:09.386-04:00Baptist, Bootleggers and BiomassWhen I moved to North Mississippi to buy land in the late 60’s, I landed in a “dry county” where it was illegal to buy or have alcoholic beverages in your possession. Like most folks, I enjoyed an occasional adult beverage. And coming from an Italian family, this was a pretty foreign concept to me. I asked “Why?” and the answer came back “because of the Baptists and the bootleggers”!<br /><br />It was a coalition of two diverse groups with very different reasons and objectives. The Baptists supported the “blue laws” for religious, moral and ethical reasons and the bootleggers supported the same laws for reasons of personal financial gain (although it was pretty widely known that some members of the latter group were widely outspoken members of the former group!). The differences in their motives were irrelevant with respect to their ability to create a strong coalition that maintained a common objective.<br /><br />A similar coalition has evolved to oppose the development and use of renewable energy, specifically biomass. The group is composed of environmentalists, power companies and the pulp and paper industry. Strange bedfellows again.<br /><br />The news media’s focus on renewable energy is pretty much confined to solar and wind and what <span style="font-style: italic;">might be</span>. Here is a graph of <span style="font-style: italic;">what is</span> - courtesy of The Energy Information Administration.<br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTjjRLdMzPHazxeFDInu7gHkrE5OpbErHdGWTA_trW6O0mI-RymtBcOObbKl_n0jjBprcs5k061fx8JGaSZWO0GI4sqenlf5FDL3LPvENDAvAaF5qQ-yIAXXuPmMiNe98CoKzBec6SimU/s1600-h/US+Energy+cons+2007j.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 400px; height: 250px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTjjRLdMzPHazxeFDInu7gHkrE5OpbErHdGWTA_trW6O0mI-RymtBcOObbKl_n0jjBprcs5k061fx8JGaSZWO0GI4sqenlf5FDL3LPvENDAvAaF5qQ-yIAXXuPmMiNe98CoKzBec6SimU/s400/US+Energy+cons+2007j.jpg" alt="" id="BLOGGER_PHOTO_ID_5346447439040615698" border="0" /></a><br /><br />Renewable energy currently supplies a meager 7% of the nation’s energy consumption. A year ago it was 6% and 90% 0f that was equally split between hydropower and biomass. All of the rest combined represented less than 10% of that meager 6%! The significant growth in renewable energy in 2007 came from biomass, and to a lesser degree, from wind. Now, let’s take a look at the coalition and what is driving it.<br /><br /><span style="font-weight: bold;">Environmentalists</span>: The environmental community has been a strong proponent of renewable energies up until the point of actually supporting their implementation. Following is a look at the rational and frequent hypocrisy of its “support” for renewable energy.<br /><br /><span style="font-style: italic;">On Hydropower</span><br />Hydropower dropped from 45% of renewable energy consumption to 36% of renewable energy consumption in one year. Hydropower production of electricity has come at the expense of free flowing rivers and I know of no environmentalists that support the expansion of hydropower by damming additional rivers. In fact, I know of very few Americans at all that support expansion of hydropower by flooding more rivers. Even if there was support, it would be squashed by the “discovery” of an endangered minnow or mussel. There will be no more hydropower sites added and some likelihood that there will be calls to restore some rivers to a natural state creating a loss of hydropower. There may be some gains in efficiency but, for all practical purposes, what we have today is all we can expect. Increases in renewable energy will have to come from other sources.<br /><br /><span style="font-style: italic;">On Wind</span><br />Wind and solar represented the energy mantra of the environmental community until engineers dramatically improved the efficiency of windmills to the point of making them actually cost-effective in many (windy) situations. The environmental downside of windmills includes damage to certain species of birds (call in the Endangered Species Act again) and aesthetics. The only places that aesthetics are at issue are the mountains, oceans, deserts and the places in between.<br /><br />This is a link to a Grist article entitled <a href="http://www.grist.org/article/capecod/">The Wind and the Willful: </a><span style="font-weight: bold;">RFK Jr. and other prominent enviros face off over Cape Cod wind farm</span>, By Amanda Griscom Little. It starts with the following quote.<br /><span style="font-style: italic;"></span><blockquote><span style="font-style: italic;">A long-simmering disagreement within the environmental community over a plan to build a massive wind farm off the coast of Cape Cod, Mass., is now boiling over into a highly public quarrel.</span></blockquote>It is a good article illustrating the conflict in the environmental community. When the NIMBY attitude combined with the political clout of the Kennedy clan, the entire world watched as the environmental hypocrisy and political power of the Kennedy family emerged to create the reality of what it will take to actually implement renewable energy projects.<br /><br /><span style="font-style: italic;">On Solar</span><br />Here are a few extracts from a FOX News article <a href="http://www.foxnews.com/politics/2009/03/21/feinstein-dont-spoil-desert-solar-panels/">Feinstein: </a><a href="http://www.foxnews.com/politics/2009/03/21/feinstein-dont-spoil-desert-solar-panels/">Don't Spoil Our Desert With Solar Panels.</a><br /><blockquote style="font-style: italic;">“Sen. Dianne Feinstein said development of solar and wind facilities in California's Mojave Desert would violate the spirit of what conservationists had intended when they donated much of the land to the public.”<br />“"It would destroy the entire Mojave Desert ecosystem," said David Myers, executive director of The Wildlands Conservancy.”<br />"This is unacceptable," Feinstein said in a letter to Interior Secretary Ken Salazar. "I urge you to direct the BLM to suspend any further consideration of leases to develop former railroad lands for renewable energy or for any other purpose."</blockquote>Need I say more?<br /><br /><span style="font-style: italic;">On Biomass</span><br />There are others much more in tune than me with the battles that have raged recently over the definition of biomass in this year’s Energy Bill but I have seen enough of the terminology to understand the role of the environmentalists. In an effort to suppress a fear that natural forests would be converted to plantations they were successful in creating a definition that excluded most trees from the definition. In the end, more rational heads prevailed within the environmental community and they worked to provide a reasonable, workable definition. Still, biomass growing on our federal lands has been excluded as a source of renewable energy. And that’s a lot when you consider that about 1/3 of our forests are on federal lands.<br /><br /><span style="font-style: italic;">On Nuclear Energy</span><br />Nuclear power is not technically classified as renewable but it too, is an option that could replace much of the coal and biomass for electrical production. <a href="http://www.greenpeace.org/raw/content/seasia/en/press/reports/coal-plants-a-greenpeace-brie.pdf">One publication by an environmental organization</a> claims that 30,000 deaths a year are caused by particulates from U. S. coal-fired power plants yet none (that’s zero) have ever been caused by a nuclear power plant. Environmentalists have done a very effective job at scaring the American public to the point where it is questionable whether we can look at nuclear power in a rational manner. IF we are going to do it, some folks in the environmental world will have to play a leadership role. What would the environmentalist’s position be if 30,000 people were killed each year in nuclear accidents? We have options and it is up to all of us to pursue them in rational manners without the scare tactics.<br /><br /><span style="font-weight: bold;">Power Companies:</span><br />The power companies have an industry pretty much built on coal. It’s not that they love coal, it’s that coal is the least expensive way to produce electricity and their customers want low cost power. As an industry, biomass as a replacement for coal is an expensive proposition and they want to hold their costs down so there is a good reason for the resistance to the move to biomass.<br /><br />But not all power companies are in the same boat. A large part of the cost of coal is freight. The largest cost component of biomass is transportation. So look where the resource is and it is pretty easy to see which states have an economic incentive to support or oppose the utilization of biomass. Transporting low sulphur coal from Colorado to Georgia or wood from Georgia to Colorado doesn’t make a lot of sense economically or environmentally. The utilization of energy resources close to the power facility makes a lot of sense and that is what we are seeing evolve from the plans of the power companies. The power companies outside of the nation’s “woodbasket”, sitting on coal reserves, are and will continue to be a part of the coalition. The companies in the Southern woodbasket will remain a part of that coalition UNTIL the 15% renewable energy standard really is a standard, then biomass becomes the least expensive option. In fact, in the South, it is pretty much the only option for both carbon neutral and renewable energy so some of the companies are moving quickly to secure their woodbasket.<br /><br /><span style="font-weight: bold;">Pulp and Paper Industry:</span><br />The pulp and paper companies, like the power companies, are looking at both costs and their ability to survive. They are faced with increased global competition, severely declining demand and now a new threat that is competing for both their raw material and one of their primary energy sources. Although they probably use more renewable energy than any other industry, don’t expect them to embrace a national shift to biomass that will make it even more difficult for them to compete or survive. Inflation, followed by a weak dollar, may save the industry but “hope is not a strategy”. The industry must fight for its survival on all fronts and we should expect to see little change on the biomass front.<br /><br />The question that the industry poses is whether or not the forest can sustain both the pulp and paper industry and a robust biomass industry. Collectively, is it sustainable? One solid argument is that the economic value of the pulp and paper industry (employment, value added, and multipliers) is much greater than can be achieved by the biomass industry. Below is a graph produced by the South Carolina Forestry Commission that illustrates how important pulp and paper is to the forestry sector in that state.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgoj38Ar_OY8n9-khLGV68Efr2VhcQky7Ijm2utdcNde4Ge7gg4a696jLrE9fxAfJUaMwADBXLoaGqA2lpWtPoDhu3nqcnmH9ifvN-etf-REIlkm5dSp0Hwq8p_WfGTxj1Zx4zA3mWMDuk/s1600-h/Economic+Impact+by+Sector+SC.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 400px; height: 257px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgoj38Ar_OY8n9-khLGV68Efr2VhcQky7Ijm2utdcNde4Ge7gg4a696jLrE9fxAfJUaMwADBXLoaGqA2lpWtPoDhu3nqcnmH9ifvN-etf-REIlkm5dSp0Hwq8p_WfGTxj1Zx4zA3mWMDuk/s400/Economic+Impact+by+Sector+SC.jpg" alt="" id="BLOGGER_PHOTO_ID_5346449792500556770" border="0" /></a><br />On the value added issue, it is questionable. The resource supply chain for the two industries is identical – stumpage, harvest, transport to mill, and woodyard handling. I’m not sure how many more people a pulp mill employs relative to a pellet mill. If you throw in the paper mill, you have to throw in the power generation plant on the other side of the equation. I’m not sure how much difference there really is AND I’m not convinced that there isn’t room for both. I just don’t accept the argument that it has to be one or the other.<br /><br />The industry is crying “sustainability”. And they are doing it in an organized and deliberate fashion. As a 40-year veteran of the pulp and paper industry, I am disappointed with the industries position. Twenty years ago the industry would have taken a strong positive approach and embarked upon an effort to substantially increase planting, growth and future availability of wood. Landowner assistance programs would be growing and new ones would be sprouting. Tree improvement programs would be well-funded in an effort to grow more and better trees on each acre. This time the industry has taken a position that is negative to all of the components of their entire wood supply chain. Negative to the growers of the wood, the loggers who harvest it and to those that transport the wood to the mills. People remember such things.<br /><br /><span style="font-weight: bold;">Some Final Thoughts:</span><br />If a shift to renewable energy is to be successful, some environmentally responsible environmentalists must step up to the plate and show some leadership. It is doubtful if an effective renewable energy policy can be developed with an environmental community unified behind antagonistic policies for every form of renewable energy but hemp. Additional hydroelectric sites are out of the question. That leaves wind, solar, geothermal and biomass. The environmental community must decide how best to utilize and mix the combination of those four renewable energy options or oil, gas and coal will be the answer. The environmentalists continue to fiddle as Rome burns.<br /><br />The power companies are looking strictly at cost. Most of them have some level of governmental support, usually in the form of a monopoly supported by government control of prices. If a national goal of energy self-sufficiency, with a strong component of renewable energy and carbon reduction, is the goal, the pricing issue is something the power companies can understand. That problem can go away quickly if Americans want renewable energy and are willing to pay for it. If Americans are not willing to pay for it, then the power companies are right on target with their objections.<br /><br />The pulp and paper companies have traded a level of self-sufficiency (typically in the neighborhood of 25% - 30%) for the cash received for selling their land. This was a deliberate decision done after weighing the options and now the industry must live with it and it may not be pretty. The market will determine what products the new timberland owners will grow and sell. The pulp and paper industry has long touted its ability to compete in a fair and level playing field. The playing field has changed as the nation seeks energy independence, renewable energy sources and reduced carbon emissions.<br /><br />If the anti-renewables coalition is not broken, Rome will be in ashes.<br /><br />****************************************<br />Visit our web site at <a href="http://www.timberlandstrategies.com/">Timberland Strategies</a><br />****************************************Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com4tag:blogger.com,1999:blog-8494577453535144993.post-91587193852073405732009-06-10T16:55:00.012-04:002011-12-28T15:46:36.988-05:00Tree Planting in the South Continues DeclineLast week I had an opportunity to speak at the annual Southern Forest Tree Improvement Conference at Virginia Tech. The subject that I was asked to talk about was "The Relevance of Tree Improvement to Changing land Ownerships and Objectives". By the time I finished my presentation, I think that I had reversed it and actually talked about the opposite or "The Relevance of Changing land Ownerships and Objectives to Tree Improvement". At any rate, in the process of putting together the information, I created one graph that should be of interest to more than just the geneticists and biotech folks.<br />
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Each year Steve Chapman, with the Georgia Forestry Commission, conducts a survey on the prior year's tree planting in the South. He contacts each of the State Foresters for the data and then he compiles it. The project takes a great deal of time and is a very important service to everyone involved with timberland in the South. Actually, given the importance of the Southern forest to the nation, this project has importance to everyone. We should all be thankful to both Steve and the Georgia Forestry Commission for their efforts.<br />
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Last year Steve had provided me with the historical data and I looked at the trends which were not real positive. I also noticed that not all State Foresters placed a high priority on cooperating with Georgia on the project. That is very unfortunate. I graphed the data with the intention of posting it here. I decided to try to get the missing data first so I sent emails to the State Foresters that didn't provide Steve with data and asked them to add the missing data. No response.<br />
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When I was asked to speak to the Tree Improvement folks, I knew it was important to them to understand how the demand for seedlings was changing so I contacted Steve again to see how he had made out with the 2008 survey. Most of the State Foresters had responded but data from two states was still unavailable. He sent me what he had and I adjusted for missing data by using <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDjLmB3P-XtmXF17rJa-Nft3cTyKMrajobSv4gP50T-G1fzr3Xr-vuOSESowbGPkV3jQmx3XK-sif9esizEQfgwnpVl_07dw6G2KF__kJ3LNhI3tZkZ1aHXKlPjqQc3T4NyUa5GgKjv6A/s1600-h/tree+planting+graphj.jpg"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5345806212379668066" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDjLmB3P-XtmXF17rJa-Nft3cTyKMrajobSv4gP50T-G1fzr3Xr-vuOSESowbGPkV3jQmx3XK-sif9esizEQfgwnpVl_07dw6G2KF__kJ3LNhI3tZkZ1aHXKlPjqQc3T4NyUa5GgKjv6A/s400/tree+planting+graphj.jpg" style="cursor: pointer; float: left; height: 286px; margin: 0pt 10px 10px 0pt; width: 400px;" /></a>previuos years data wherever annual data was missing. Not the best numbers but the best available and that is what I used to make this graph.<br />
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The picture isn't pretty. Planting dropped off considerably after the 2001 peak and has continued through 2008. Planting levels have not been this low since the 1950's!<br />
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Let's look at the reasons behind the decline and speculate about the implications. A year or two ago I was working on a project for a pulp and paper company and we were discussing this trend and one of the Wood Procurement people made the observation that he had not been doing any clearcutting - only thinnings- for a year. So maybe the lack of planting is not so important to the long term wood supply as the graph might indicate.<br />
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There is clearly some sound logic behind this observation. During the late 1980's, national planting levels peaked at the three million acre mark and the lion's share of that was in the South. Today we are thinning those plantations and that is what is providing much of the resource for pulp production. In addition, the shift in timberland ownership from pulp and paper companies to institutional owners has probably resulted in a lengthening of pine rotations by a couple of years as the ownership objectives shifted from maximizing mean annual increment to maximizing return on investment. High planting levels of the late 80's and lengthening rotations have clearly provided a thinning opportunity. So..., we are living on the investment of previous tree planters.<br />
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The other clear driver behind the lack of planting is the sawtimber market. Low demand resulting in low sawlog prices means reduced sales and reduced final harvest cutting (clearcuts) and that results in a <span style="font-style: italic;">reduced</span> <span style="font-style: italic;">need</span> for planting.<br />
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It all sounds pretty logical so maybe the reduced planting is not such a bad thing. The question that is not answered is "Are there a significant number of clearcuts that are not being replanted because of poor markets?" A"Yes" answer would be a bad thing. --Brian<br />
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Check out my new web site: <a href="http://www.timberlandstrategies.com/">Timberland Strategies</a><br />
****************************************************Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com9tag:blogger.com,1999:blog-8494577453535144993.post-75323514339054560842009-03-26T18:37:00.005-04:002009-03-26T18:48:08.882-04:00RMK Gets the Adirondack Finch Pruyn Timberland<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEicxxFzG_ShwZWbq1hhUVWkF9aYPTVt6fhGXJwKpkWwiOyPerWulV7VVKZ_a5GooXd00CtnosAiRH3iuAbaXtFastJZt9lI9ml5fW2eQ5yhQ46DKEQYMXTXRv-6GVEeJxC-lQk158E0HIc/s1600-h/ADK_FinchPruyn.jpg"><img id="BLOGGER_PHOTO_ID_5317630618655668194" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 200px; CURSOR: hand; HEIGHT: 268px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEicxxFzG_ShwZWbq1hhUVWkF9aYPTVt6fhGXJwKpkWwiOyPerWulV7VVKZ_a5GooXd00CtnosAiRH3iuAbaXtFastJZt9lI9ml5fW2eQ5yhQ46DKEQYMXTXRv-6GVEeJxC-lQk158E0HIc/s400/ADK_FinchPruyn.jpg" border="0" /></a><br /><div>It appears that The Nature Conservancy has sold the 90,593 plus acres of the former Finch Pruyn lands in the Adirondacks to a subsidiary of the Danish pension fund ATP. The sale was handled on a sealed bid basis by LandVest (<a href="http://72.32.2.139/property/NY0209/1/">see details</a>). The land will be managed by RMK Timberland and is subject to both a Fiber Supply Agreement with the current owners of the Finch, Pruyn mill and a conservation easement. According to my sources in Denmark, the purchase price was 180 million Kroners. If I’ve got my conversions correct from Kroners to Dollars, the price would be $361 per acre. The price/acre clearly reflects the result of the conservation easement. The location map to the left includes the entire TNC purchase of 160,000 acres. --Brian<br /></div>Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com7tag:blogger.com,1999:blog-8494577453535144993.post-26224812374174317852009-03-15T09:16:00.010-04:002018-06-06T09:18:59.244-04:00The Dichotomy in Timberland Valuation<div align="left">
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The issue in today’s post concerns why the transaction price of timberland has shown little or no decline in value but the stock price of the publicly traded companies that own timberland has declined dramatically. I will also look at what I think is happening in the timberland market today and how I see the market for timberland investment. But first, let’s set the stage.<br />
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In January, I did a post that included some graphs developed from my timberland transaction file. I was looking to see if the data supported a wide-spread belief that timberland values had dropped. The thinking was that housing starts declined, which caused a drop in lumber prices, which caused a drop in stumpage prices (all true), which caused a drop in timberland prices. You can read that post here <a href="http://thetimberlandblog.blogspot.com/2009/01/how-much-did-timberland-values-fall-in.html">How Much Did Timberland Values Fall in 2008?</a> The data did not support the logic and did not show any evidence of a significant decline in timberland values. (For those that sent emails saying my opinion was wrong – that was not my opinion, it was just the data). I also wondered what the NCREIF Timberland Index would look like when it was released. The publicly accessible portion of the <a href="http://www.ncreif.com/indices/timberland.phtml">NCREIF website</a> showed quarterly returns that compound to a 9.5% total return for the timberland in its index in 2008 but the components of the return are not broken out. A recent report by Brookfield Timberlands Management, distributed by <a href="http://www.forestweb.com/">Forestweb</a>, shows the NCREIF return broken down by earnings and capital appreciation.</div>
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NCREIF TIMBERLAND INDEX </div>
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The significant decline in the blue portion of the graph reflects the decline in housing/lumber/stumpage/earnings. The green portion, Capital Appreciation, can be viewed somewhat (not perfect) as a surrogate of the <em>change</em> in timberland value as determined from tract sales and appraisals of tracts – all of which are a part of the index. Note the green from 2000 to 2002. This data certainly contains no indication of a 2008 decline in the price of timberland either.<br /><br />Below is another graph that I found interesting. It is from the <em>Timberland Report</em> VOL. 10, NO. 2; by the James W. Sewall Company, a highly respected firm with a very long record in the timberland investment community.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJ_KnYADRAZtrmXI51rwo6UeflAHy5X54eKyQI5ovPqc7t9rRekhY5bf5ZC5A4p1NaRJHPXl8FDwf-X_gkb8j4Yf_KfsRRdJMMtcOeCjd2nTnZa7cWu6xMIW7hUQl_h9DyrwGgRlBeilE/s1600-h/TimbPerAcVsHousingStarts.jpg"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5313404470379953618" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJ_KnYADRAZtrmXI51rwo6UeflAHy5X54eKyQI5ovPqc7t9rRekhY5bf5ZC5A4p1NaRJHPXl8FDwf-X_gkb8j4Yf_KfsRRdJMMtcOeCjd2nTnZa7cWu6xMIW7hUQl_h9DyrwGgRlBeilE/s400/TimbPerAcVsHousingStarts.jpg" style="float: left; height: 258px; margin: 0px 10px 10px 0px; width: 400px;" /></a><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br />
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From my perspective, the important take-a-way from this graph is that <em>the old correlation between timberland values and housing starts fell apart.</em> We can speculate as to why and we can speculate as to whether the correlation will return but it’s pretty clear that the conventional wisdom has not prevailed during this economic downturn. Another graph in the report reinforces the historical correlations between housing starts and stumpage prices. That correlation did hold as all timber owners know only too well. You can <a href="http://www.sewall.com/files/timberlandreport/v10n2.pdf">read the entire Sewall report here</a>(recommended).<br />
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Now, let’s take a look at the price of common stock in some of the publicly traded companies that have timberland holdings that represent a significant share of the companies’ assets and see how share prices were impacted last year. Ownership structures of these companies include timber REITs, “C” corporations and limited partnerships but for my purposes today, I will refer to them collectively as “timberland companies”. Let’s look at this chart I made from Google. </div>
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It’s hard to see but the blue line just above Weyerhaeuser (green line) is the S&P 500. Weyerhaeuser took an early hit because it has such a major direct investment in housing. I read somewhere that it is the 17th largest home builder. The rest of the timber companies fell about the same amount as, and in synch with, the general market. My conclusion is that the timber companies stock price tracks the stock market rather than with the timberland market. Not a “pure play” in the bunch. Down about 50% when timberland prices held pretty steady.<br /><br />I have long been a skeptic of the “pure play” concept of acquiring timberland companies (or an ETF) as a surrogate for timberland ownership. Even if 100% of the assets owned by the company were timberland, I would still be a skeptic and here is why.<br /><br />Timberland investors use metrics based on a time horizon of 10 to 50 or more years. The key metrics are based on a discounted cash flow (DCF) analyses over that time horizon. If you would like to <a href="http://thetimberlandblog.blogspot.com/2008/10/valuing-timberland-i.html">read more about timber valuation than you really want to know, you can do that here</a>. The metrics used by those that analyze stock value are usually based on very short term future cash flows of a year or two (no need to discount those!). The inherent assumption is that the stock price will respond to very short term (a few quarters or few years at most) cash flows and that the stock will be bought or sold in that time frame. Some of the most referenced metrics are based on what happened last year rather than what is expected to happen in the future (current P/E for example). The Warren Buffets in the crowd that actually do take a long term view of stock investing are a clear minority today and I’m sure that DCF is an integral part of their valuation. Don’t misunderstand me. I’m not saying that one way is right and that the other way is wrong, only that they produce different results and that creates a dichotomy in value and an opportunity for long term investors. Given all this, is it any wonder that the stock of the timberland companies has fallen dramatically with the general market decline? The value of their timberland portfolio is based upon the very depressed earnings reflecting current stumpage prices rather than the DCF of future stumpage prices!<br /><br />At this point, I reach two conclusions (and I know that some will not agree)</div>
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<li>Timberland values have fallen little if any, and </li>
<li>The timberland value component of the timberland companies’ stock price has fallen dramatically</li>
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<br />And therein is the opportunity.<br /><br />Here is another stock chart just like the one above except Forestar Group has been added. If ever there was a pure play for timberland/HBU, this is it. Other than some OGM, that is its only asset! <br />
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<strong>The “Pure Play” Fallacy</strong><br />
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<br /><br />In spite of that, the stock price of Forestar dropped over 80% - the worst of the group. So much for the “pure play” concept. If you want to invest in timberland, you need to own timberland, not stock!<br /><br />Think about this. Is it possible that the assets of Forestar were worth five times as much in June as they were in November? Some folks sure didn’t think so. To name a couple, Holland Ware and Carl Icahn. Both recognize the dichotomy in valuation methodology between timberland and the valuation of the stock in timberland companies! Both made some serious money with that little bit of information and a lot of cash. Buy at $3 - $4/share, offer $15.00 (still undervalued), sell at $12 or so. Not bad. And the $15/share offer? Even that was well under the underlying value of the timberland/HBU asset.<br /><br />Okay. We understand what happened in 2008. What is happening to timberland prices now and what will happen in the future? I still have seen no significant decline in transaction prices regardless of the emails I get claiming dramatic declines in prices (no transaction details attached). There is a slowing of transactions, at least one announced major transaction (St. Joe) did not close and several tracts that were put on the market were pulled off. What does this mean for the future?<br /><br />It may mean that prices will fall. It may mean that buyers are holding their cash until this economic downturn, recession, depression, or crisis begins to resolve itself. I don’t know what the future holds but I do know that there is a lot of pension fund and other cash out there that will be invested somewhere. Today it is going into money market accounts and just kind of sitting there. Barron’s reported about a week ago that there was $4 trillion in money market funds which is about one-half the market cap of the entire U. S. stock market. That is a lot of money and I doubt that it will all stay in cash. At some point, some will go back into the market, some to commodities, some elsewhere and some to timberland.<br /><br />Long term, I remain bullish on timberland but, in the short-term, I think that stock in the timberland companies is a better investment. The downside is less than timberland and the upside is much, much greater. If you follow Holland Ware, you won’t starve. --Brian<br />
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Visit my website at <a href="http://www.timberlandstrategies.com/">Timberland Strategies</a><br />
***************************************Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com12tag:blogger.com,1999:blog-8494577453535144993.post-20238901181848270212009-03-09T15:13:00.005-04:002009-03-09T16:12:00.736-04:00Valuing Timberland V – The Discount RateThis is the fifth and final post of a series on timberland valuation. If you missed the first post, which included an Overview plus a discussion on Disaggregation, you can read <a href="http://thetimberlandblog.blogspot.com/2008/10/valuing-timberland-i.html">“Valuing Timberland I</a>” here. The second post focused primarily on productivity and how that fits into today’s appraisal systems which use discounted cash flow techniques to determine the value of timberland. You can read “<a href="http://thetimberlandblog.blogspot.com/2008/10/valuing-timberland-ii.html">Valuing Timberland II</a>” here. The third post focused on estimates of timber volumes and values, how we get them, and how to forecast them for future year’s cash flows. Read <a href="http://thetimberlandblog.blogspot.com/2009/01/valuing-timberland-iii.html">“Valuing Timberland III”</a> here. The subject of the last post, <a href="http://thetimberlandblog.blogspot.com/2009/02/valuing-timberland-iv.html">Valuing Timberland IV</a>, was on the methodologies used in discounted cash flow analysis. Today I’ll focus on the discount rate to be used in the cash flow model.<br /><br />The “discount rate” is essentially the same thing as the interest rate used in any financial calculation. We have to get the series of future cash flows “discounted” back to the present so we pick the appropriate interest rate to do that. As an example, say you wanted to buy a tract of land and your credit union would lend you the money for 6%. You know there is some risk associated with this so you assign another 2% for risk. You would use a discount rate of 8%. Sounds simple to me.<br /><br />Let me start off by saying “I don’t know what discount rate to use”! This question is argued by investors, economists and corporate finance types. But understand this, selection of the discount rate is the most important decision made during the valuation process. Let me illustrate.<br /><br />Many years ago (I was working as a Land Acquisition Forester at the time) I decided to reread Thoreau’s “Walden” which led me to “In the Maine Woods”, “A Week on the Concord and Merrimack Rivers” and “Cape Cod”. Considering my job, Thoreau really got my attention with the following words from “Cape Cod”.<br /><br /><em>“Between the Pond and East Harbor Village there was an interesting plantation of pitch-pines, twenty or thirty acres in extent, like those which we had already seen from the stage. One who lived near said that the land was purchased by two men for a shilling or twenty-five cents an acre. Some is not considered worth writing a deed for.”</em><br /><br />Thoreau had traveled across the Cape in the 1850’s and I had noticed and made mental note of these same pitch pine plantations while visiting there. So what would a Land Acquisition Forester think… “Man, what a buy that would have been!”<br /><br />What if an investor knew what the values on the Cape would be like in 2008? Would he have bought some of that timberland for $0.25 acre? Maybe, maybe not. Let’s consider the opportunity and create a simple analysis. Let’s say that the investor could foresee all that wonderful HBU land on the Cape and actually KNEW what 2009 land prices would be like. Keeping it simple (so we can isolate the impact of discount rate selection), assume he leased the land out “for taxes” so he had no cash flows (positive or negative) other than the purchase and sale of the land. The data below shows the value of a $0.25/acre investment compounded forward for 150 years.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6-6nz7fDwuijiMS2vXFN77ME1n5ohld-Z3zsuX6L9SPmErjFBRUf57cKL8hzaV97687u1Iw7vEV8ySrXwOlHEYvHIXdaPwBBJSYomCZYVF1etjedillkFfTBfvVUWNbhBVQ4sB4tuqx0/s1600-h/Clipboard01.jpg"><img id="BLOGGER_PHOTO_ID_5311272327209868770" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 295px; CURSOR: hand; HEIGHT: 62px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6-6nz7fDwuijiMS2vXFN77ME1n5ohld-Z3zsuX6L9SPmErjFBRUf57cKL8hzaV97687u1Iw7vEV8ySrXwOlHEYvHIXdaPwBBJSYomCZYVF1etjedillkFfTBfvVUWNbhBVQ4sB4tuqx0/s400/Clipboard01.jpg" border="0" /></a><br /><br /><br /><br /><br />So…, would the investor have bought the land (for his descendents!!). It very clearly depends on the discount rate that the investor used. I don’t think that there is an acre of scraggly pine plantation on the Cape that could be bought for $1,562/acre and I doubt that you could sell an acre for over $300 million per acre either – not even the Kennedy compound. The value determined clearly depends on the discount rate used. So what discount rate would you have used? Think about that seriously. If the rate is too high (nice to get but will you get it!) you may never have the opportunity to make an investment EXCEPT one that is very risky.<br /><br />When I was in forestry school (back in the 60’s) we normally used 6% in our forest economics courses. When I was an MBA student (in the late 70’s), we used the company’s marginal cost of capital with an appropriate adjustment for risk. Early in the timberland shift to TIMOs, it was pretty freely discussed that TIMOs were using real rates in the 6% to 8% which was based on the “risk free” rate of return (10 year T-bills at 4%) plus risk adjustment. At the same time, integrated forest products companies with large timberland acreages were using investment hurdle rates significantly above the average or even marginal cost of capital for the firm (a mistake – it should have been based on the marginal cost of capital and risk associated with purchasing and owning more timberland not riskier investments!). The result of this is that high-risk capital investments were subsidized by low-risk timberland ownership. As a general rule, discount rates used by the C corporations were much higher than that used by the TIMOs (rates in the range of 12% - 15% or more). Remember the decision you reached above with the Thoreau example. The C corporations also had to include taxes in the cash flow analyses (reducing cash flow and, subsequently, value) whereas most of the TIMO clients were pension funds and tax exempt. Between the tax payments and high discount rates used by the corporations, it is pretty clear why the TIMOs valued timberland higher than the forest industry.<br /><br />Note two things from the above discussion. The “appraised value” of a particular tract of timberland, based on comparable sales, was the same for the TIMO buyer and the forest industry seller yet the real valuation for the buyer and seller were very different. As I pointed out in an earlier post; <em>timberland valuation and fair market value are two different things!!</em> The second point: the difference in discount rates used, combined with tax policy, has dramatically changed the face of timberland ownership and forestry practice in this country.<br /><br /><em><strong>How do inflation and taxes affect the selection of the discount rate?</strong></em> We discussed that somewhat in the post on cash flows. Here are a couple of quotes, also from the <a href="http://www.timbertax.org/publications/aghandbook/html/ch2.asp">Forest Landowners Guide to the Federal Income Tax, Ag. Handbook No. 718.</a><br /><br /><em>“it is imperative that the discount (interest) rate used for the analysis include a similar expectation factor for inflation. In summary, both elements of the analysis—cash flow and discount rate—must be kept in comparable terms (with or without inflation and before or after-tax) for reliable results.”<br /><br />“Forestry investments are very sensitive to the discount rate used because of the long time period between planting and harvest. For after-tax analyses, the correct discount rate is the after-tax rate based on your alternative rate of return. If the next best alternative is a tax-free investment, such as a municipal bond, then the interest rate is used without adjustment, as shown in Table 2-3 for the 10-percent discount rate. If your next best alternative is an investment, such as a corporate bond, that yields 10 percent annually with taxes subtracted before compounding, the correct discount rate is 7.2 percent, after-tax [10 percent x (1 - 0.28 assumed tax rate)]. Alternatively, if the next best alternative is an investment such as an individual retirement account (IRA), certain saving bonds, or an alternative timber investment, where taxes are deferred until the end of the period rather than being subtracted before compounding, then the correct discount rate depends on the length of the investment period and when the costs are incurred and revenues received. Assuming an initial investment, 10 percent interest, and a 28-percent tax subtracted at the end of 34 years, the appropriate discount rate would be 8.94 percent.</em><br /><em><br /></em>Now, if you feel that you still need more info on how to select the right discount rate for a timberland purchase, let me give you a couple more references.<br /><ul><li><a href="http://www.amazon.ca/Timberland-Investments-Perspective-Christian-Zinkhan/dp/0881922188">“Timberland Investments” by Christian Zinkhan</a>, et. al. </li><li><a href="http://www.forisk.com/UserFiles/File/Vol8%20No3.pdf">“Discount Rates and Timberland Investments”</a> by Brooks C Mendell in the Timberland Report published by <a href="http://www.jws.com/">James W. Sewall Company</a> </li></ul><p><br />Finally, it may be worthwhile to speculate a little bit (actually that is what the selection of the discount rate is). Timberland investors have watched as discount rates rose early in this decade followed by decreasing discount rates which resulted in a steady increase in timberland transaction prices (and corresponding values from comparable sale based appraisals). Some TIMOs have left the market so they clearly believe discount rates got too low and pushed prices too high (potential returns too low). Other TIMOs have tried to sell large blocks but pulled them off the market. Perhaps they think discount rates are too high but prices are too low to justify selling?? Or maybe there is less money chasing timberland. This concludes the Timberland Valuation series. </p><p><br />Oh, I almost forgot. Nobody is going to tell you what discount rate to use. That's your call. Comments welcome. --Brian </p>Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com11tag:blogger.com,1999:blog-8494577453535144993.post-9222095143436999582009-03-02T13:58:00.005-05:002009-06-14T11:20:50.087-04:00I-P to Sell 143,000 acresThe following is from IP’s website<br />********************************************************<br />International Paper (NYSE: IP) announced today that it plans to divest approximately 143,000 acres of properties located in the southeastern United States in a transaction with American Timberlands Fund I, LP (the "Partnership").<br /><br />The transaction value is approximately $275 million. International Paper will sell approximately 114,000 acres to the Partnership for $220 million in cash and will contribute 29,000 acres, with a value of $55 million, in exchange for a 20 percent interest in the Partnership.<br /><br />The transaction value is subject to various adjustments at closing and is contingent upon the Partnership raising $220 million to finance the transaction. The transaction is expected to close in mid-June.<br />********************************************************<br /><br />A couple of observations:<br />1. American Timberlands Company, out of Columbia, SC, also bought 20,000 acres from I-P last year. The Registered Agent for them is Mark W. Buyck III from Florence SC. Other than that, I don't know anything about them but it looks like they could use some money.<br /><br />2. It also looks like somebody thinks the value of timberland has not dropped. The reported value is $1,923/acre. --Brian<br /><br />****************************************<br />Visit my web site at <a href="http://www.timberlandstrategies.com">Timberland Strategies</a><br />****************************************Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com11tag:blogger.com,1999:blog-8494577453535144993.post-64113000260620225302009-02-20T13:44:00.008-05:002009-02-20T14:48:41.434-05:00Valuing Timberland IV<p>This is the forth post of a series on timberland valuation. If you missed the first post, which included an Overview plus a discussion on Disaggregation, you can read <a href="http://thetimberlandblog.blogspot.com/2008/10/valuing-timberland-i.html">“Valuing Timberland I</a>” here. The second post focused primarily on productivity and how that fits into today’s appraisal systems which use discounted cash flow techniques to determine the value of timberland. You can read “<a href="http://thetimberlandblog.blogspot.com/2008/10/valuing-timberland-ii.html">Valuing Timberland II</a>” here. The third post focused on estimates of timber volumes and values, how we get them, and how to forecast them for future year’s cash flows. Read <a href="http://thetimberlandblog.blogspot.com/2009/01/valuing-timberland-iii.html">“Valuing Timberland III”</a> here. Today, I’ll focus on how all of the previously discussed factors are tied into some form of discounted cash flow (DCF) model.<br /><br />Foresters and most financial types are well versed in DCF, what it is and why it is so important. Its use can be traced back to Martin Faustmann, a German forester, in an 1849 publication on valuing immature stands. By the 1930’s, the financial community had recognized its importance and began incorporating it into investment analysis.<br /><br />Here is the definition of DCF according to Investopedia: <em>A valuation method used to estimate the attractiveness of an </em><a href="http://www.investopedia.com/terms/d/dcf.asp##" target="_blank"><em>investment</em></a><em> opportunity. Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.<br /></em><br />Forget that comment about the “weighted average cost of capital” and we will talk about that in the next post. This post will touch on the following issues.<br /></p><ul><li>Cash flows: Revenue from timber sales, leases, HBU sales, etc.; silvicultural expenses, taxes, management fees and other costs. </li><li>Inflation and taxes </li><li>Spreadsheet models, computer programs, harvest scheduling software</li><li>Location: Important? Can it be quantified? Final sale price: When you sell the land, how much will you get? Existing cons easements </li><li>Discount rate: very, very important and will be discussed in next post </li></ul><p><br /><em>Cash Flows</em>: The costs and revenues, and when they occur, constitute the cash flows used in a DCF analysis. The entire process can be visualized utilizing a timeline such as the one below from a forestry investment example illustrated in the <a href="http://www.timbertax.org/publications/aghandbook/html/ch2.asp">Forest Landowners Guide to the Federal Income Tax, Ag. Handbook No. 718.</a><br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZ_oraMdD9a3aIqwESD8a1mXpUQECMN1Obk80v7hobsaMuqSOAf_y6v2_0TCdAX9SPvfbvvs5mookPnLwzl8GWhC1kmFnrVEG0d4ezNbCP6EQJDIfjwevxy_ACQtoQ1e0roOTpGUw3P3o/s1600-h/timeline.jpg"></a><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-0dYBgKO4jrlFCTTLTXrUl80obLyDeOSCC2c84m-YiPgxsWZx_7wjk4VU-aWUGlCF8mZCJCLUhsYtx7T_dVe36Q5BWw6svuQrhpE_hgUKfKO45dchO0y978egRg4gxRU3mrB-HKwpmYY/s1600-h/timeline.jpg"><img id="BLOGGER_PHOTO_ID_5304958465476453602" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 400px; CURSOR: hand; HEIGHT: 187px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-0dYBgKO4jrlFCTTLTXrUl80obLyDeOSCC2c84m-YiPgxsWZx_7wjk4VU-aWUGlCF8mZCJCLUhsYtx7T_dVe36Q5BWw6svuQrhpE_hgUKfKO45dchO0y978egRg4gxRU3mrB-HKwpmYY/s400/timeline.jpg" border="0" /></a><br /><br />The cash flows illustrated in this timeline are shown below.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhy9pVHciM6XKdIEDmt1O3B7ysWaqYdZn38DI2iOmm_l0uwlF2V8w-VDSwdEDIxfxJTqpZyqdAwGz0DLR64QtKSj9qGIc45Ne2GzF1G5pWfQDDS993r7CMAo8dVqPnqy_p23IgrYTH5nD8/s1600-h/transactions+example.jpg"><img id="BLOGGER_PHOTO_ID_5304959040589787618" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 370px; CURSOR: hand; HEIGHT: 340px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhy9pVHciM6XKdIEDmt1O3B7ysWaqYdZn38DI2iOmm_l0uwlF2V8w-VDSwdEDIxfxJTqpZyqdAwGz0DLR64QtKSj9qGIc45Ne2GzF1G5pWfQDDS993r7CMAo8dVqPnqy_p23IgrYTH5nD8/s400/transactions+example.jpg" border="0" /></a><br />This is a very simple example but it illustrates the process very well. Note that some of the flows occur in a particular year and some recur every year. Although the costs and revenues occur at different times, they are all discounted back to the present to determine the value today. There is a very thorough explanation of the process accessible by the link above. Note that in this example, the land purchase price is included at the start of the analysis and then the land is sold in the final year. An alternate approach is to create the cash flows in perpetuity (don’t include the land cost) and discount them back to the present. The result is the value of the land BUT only if you hold it forever any your cash flow calculations never change! If you plan to sell off some HBU land in the early years or if you see real increases in land value at the end of the investment, you MUST include land cost. If a conservation easement has been sold, the revenue should show up in the appropriate place AND the final sale price must be reduced by the appropriate amount.<br /><br /><em>What about inflation and what about taxes?</em> Should they be incorporated into the cash flows? The answer is fairly clear, with respect to taxes, if the owner, such as a pension fund, does not pay taxes! For every investor though, there is a clear answer. Include them IF they are included in the discount rate. Here are a couple of quotes, also from the Forest Landowners Guide to the Federal Income Tax.<br /><br /><em>“Most forestry costs change at the rate of inflation in the economy; however, stumpage prices may increase (or decrease) at rates exceeding (or less than) inflation when supply/demand relationships change. These differential price trends can cause miscalculations in an investment analysis. Real (exceeding inflation) price appreciation—or price depreciation as the case may be—for some products, such as Southern pine and Douglas-fir sawtimber stumpage, has received much attention. But other product prices, such as those for pine and hardwood pulpwood, and equipment costs, also have been affected. Predicting the future always is uncertain and hazardous, so the best information available for projecting real changes in cash flows should be used.”</em><br /><br />And the second quote: <em>“it is imperative that the discount (interest) rate used for the analysis include a similar expectation factor for inflation. In summary, both elements of the analysis—cash flow and discount rate—must be kept in comparable terms (with or without inflation and before or after-tax) for reliable results.”</em><br /><br />The take-away here is to include inflation in the cash flow if you think it is appropriate and to include taxes in the cash flow if you think that is appropriate, but you must incorporate those elements in the discount rate if they are included in the cash flow. My solution, when building a model, is always to create the discount rate as a variable. Then model the discount rate so the analysis can instantly be modified by setting the inflation and tax rate variables (either or all) to zero. If you don’t do this, I promise that someone will ask you “What if…”<br /><br />Let me also add that there are some complexities associated with timber depletion that will create some pitfalls for the model builder not experienced with forestry taxation (depletion and multiple tax rates). The taxation issues are further complicated by the “inflation tax”. Maybe someday I will do a post on that too but not today. For now, let’s look at the types of software available to do DCF analysis of timberland investments.<br /><br /><strong>Spreadsheets, forestry investment software programs or Harvest Scheduling software?</strong><br /><br /><em>Spreadsheets</em>: This is the “roll your own” option. It has some advantages but some very powerful disadvantages as well. The biggest advantage is that you can do it your way, you already have the software (and you can distribute the model to everyone in your organization) and you understand all of the drivers used. It is a good solution for simple situations like the one above. The disadvantage is that you really have to understand forest management, DCF, forest taxation, depletion accounting, G & Y models, spreadsheet development and probably a few things that I have left out. I have constructed complex models used for evaluating large transactions so it can be done. But the results fall short in many ways.<br /><br /><em>Forestry Investment Software Applications</em>: These applications, frequently web based, are a good alternative to the use of spreadsheets if the target tract is not to large or complex. There are usually multiple applications in each suite which allow calculations designed to feed the DCF application. Growth and yield models may be built-in or a part of a supporting application. Applications that allow projections of both real and inflated timber prices (and land prices) are available to help feed the DCF analysis (remember to use a discount rate that is consistent with the inflation/real price). They have “help files” that explain the terminology and provide guidance in usage. They are generally easy to use and they are free.<br /><br />Two examples can be found on web sites at Mississippi State and the Texas Forest Service. See <a href="http://www.cfr.msstate.edu/forval/">FORest VALuation or FORVAL Online</a> and the <a href="http://tfsfrd.tamu.edu/tdss/default.htm">Timberland Decision Support System</a>. You can actually use both of these sites to create your cash flows and then enter them into the Texas site.<br /><br />The MSU site also has G&Y models for loblolly, slash and longleaf as well as some calculators to let you look at real increases in timber values (can also be used for real increases in land values as well). The Texas site also has several supporting “calculators” including <a href="http://tfsfrd.tamu.edu/tdss/models/tis.asp">The Timberland Management Simulator</a> which integrates a loblolly G&Y model with the financial analysis.<br /><br />There is other software available that you can find with a Google search. Some of the software is web-based and some requires downloads. I prefer the web-based stuff because it is more likely to work without problems. There are some very good G&Y models that have been “left-behind” because they no longer behave well (or at all) on the current operating systems. Another advantage of the web software, particularly over spreadsheets, is that they have well thought out explanations of the terminology and give you some good advice on how to conduct your analysis.<br /><br /><em>Harvest Scheduling or Forest Planning Software</em>: What is Harvest Scheduling? First of all, the term is a misnomer. It is a carryover from earlier linear programming models that focused on the best time to harvest stands. Today’s applications, best referred to as Forest Planning applications, are far advance from just projecting harvests. All of the activities from planting through harvest are included while measuring the impact on attributes such as habitat, wood flows and cash flows are reported. The earlier applications have morphed into spatial applications importing GIS data and producing maps that show the “where” of all activities in the plan. The spatial applications also allow the use of spatial constraints, such as “green-up” requirements. The following paragraphs are from NCASI’s <a href="http://ncasi.uml.edu/projects/habplan/">HABPLAN</a>, spatial Forest Harvest and Habitat Scheduling software, users manual. I selected them to give you a better understanding of harvest scheduling and its complexities. </p><p>************************************************************<br />“Harvest scheduling entails the application of mathematical programming techniques to determine the allowable cut and/or the cutting budget, for a given area of forest, over multiple rotations or cutting cycles. With sustainability being a buzz word in the forestry industry, a number of harvest scheduling methods have been (and continue to be) developed that help us to manage our forests on a sustainable basis. The basic management unit is the forest stand (or a polygon comprising multiple stands). It is desirable that each management unit be managed in the most environmentally, economically and socially beneficial way. For each management unit, however, there are numerous management regime possibilities. The following are a few variables, which contribute to the wide range of potential management regimes. </p><ul><li>species </li><li>site quality </li><li>age of current stand </li><li>length of rotation </li><li>number of thinnings (& ages at which they occur), and intensity thereof </li><li>regeneration or replanting</li><li> greenup window </li></ul><p align="left">The potentially complex procedure of developing and solving a harvest scheduling model can be summarized in the following steps: </p><ul><li><div align="left">Decide on decision-making variables. In Habplan, where integer programming is used, each decision-making variable represents one whole management unit (forest stand or polygon), i.e. each management unit can only be assigned one management regime. However, in linear programming, it is assumed that each management unit can conceptually split up, and managed under a number of different regimes, thus creating a number of different decision making variables for each management unit. </div></li><li><div align="left">Develop the objective function, according to the objectives of the given harvest scheduling problem.</div></li><li><div align="left">Incorporate various constraints e.g. land constraints, volume flow constraints, financial constraints and ending inventory constraints.</div></li><li><div align="left">Use a mathematical programming technique to solve the problem for the optimal/best solution. </div></li><li><div align="left">The solution to such a problem should offer information on which management units (or how much of each management unit) to devote to each of the proposed management regimes.</div></li></ul><p align="left"><br />There is no one computer program in the world that can account for all variables in nature. Therefore, it is important to keep in mind that harvest scheduling is merely man's best effort at simplifying a very complex and dynamic natural phenomenon into a mathematical formula, and does by no means offer the perfect solution in the quest for the optimal management regime. However, it is safe to say that various harvest scheduling methods are capable of providing fairly reliable guidelines, by which land can be managed.” </p><p align="left">**********************************************************<br />The above paragraphs illustrate the complexities and capabilities of harvest scheduling. In addition to Habplan, there are several other applications available. The hands-down favorite of forest planners is <a href="http://www.remsoft.ca/products.php">Remsoft’s Forest Planning System</a> (Woodstock and Stanley) regarded as the best available by most users (at least managers of 500 million acres on five continents)! </p><p align="left"><br />It takes very well trained people to prepare a harvest schedule or plan. From personal experience, I can say that Remsoft also offers excellent training programs and support for its products. Some companies and TIMOs have trained people and do their own plans. Others use forest consultants that have experienced harvest scheduling people on their staff. One company, <a href="http://www.forsightresources.com/planning.htm">FORSight Resources</a>, actually specializes in harvest scheduling and has several world-class authorities on the subject. </p><p align="left"><br />The take-home for the harvest scheduling discussion is that it is the best DCF methodology for a major acquisition because: </p><ul><li><div align="left">It seeks optimization of management scenarios. </div></li><li><div align="left">The better versions allow spatial constraints and provide spatial output.</div></li><li><div align="left">It allows the addressing of very complex issues that other solutions are not capable of doing. </div></li><li><div align="left">Optimal solutions form the basis of the future management plan.</div></li><li><div align="left">There is some very good software available with tools built that reduce the complexity of the mathematical programming.</div></li><li><div align="left"> But… it is complex, time consuming, and must be implemented by specialists</div></li></ul><p align="left"> </p><p align="left">Summarizing: </p><ul><li>because of the timeline associated with the cash flows of all timberland investments, DCF is a requirement of all valuations (except the flip!)</li><li>for large timberland transactions, use harvest scheduling software </li><li>for small tracts (up to a couple of thousand acres) and infrequent purchases, use freely available forestry investment software</li><li>for frequent purchases/valuation of smaller transactions, spreadsheets may be the better choice.</li></ul><p><br />This concludes the DCF discussion. The next, and final, post in this series will focus on the choice of the discount rate and how critical that decision is to the outcome of the valuation. Comments welcomed. --Brian</p>Brianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com3tag:blogger.com,1999:blog-8494577453535144993.post-42348127221930288282009-01-20T11:36:00.008-05:002009-01-20T12:23:57.973-05:00Valuing Timberland IIIThis is the third post of a series on timberland valuation. If you missed the first post, which included an Overview plus a discussion on Disaggregation, you can read “<a href="http://thetimberlandblog.blogspot.com/2008/10/valuing-timberland-i.html">Valuing Timberland I” here</a>. The second post focused primarily on productivity and how that fits into today’s appraisal systems which use discounted cash flow techniques to determine the value of timberland. You can read <a href="http://thetimberlandblog.blogspot.com/2008/10/valuing-timberland-ii.html">“Valuing Timberland II” here</a>. Today’s post will focus on estimates of timber volumes and values, how we get them, and how we forecast them for future year’s cash flows. We will also take a quick look at the confidence you should place in them.<br /><br />First, let’s look at timber volumes. What does the cruise say? What does the inventory say? What is the difference? How was the acreage calculated? Are volume estimates tied to a GIS? What are the sources of errors? Can volumes be reasonably audited? If the volume estimate isn’t “right”, the value certainly won’t be!<br /><br />What is a “cruise”? <em>A survey of forestland to locate timber and estimate its quantity by species, products, size, quality, or other characteristics; the estimate in such a survey. Several different sampling techniques can be used in a cruise.</em> (source: Forestry Terms for Mississippi Landowners, Mississippi State University Extension).<br /><br />What is an “inventory”? <em>See Cruise</em> (same source). H’mmm. I don’t want to aggravate my Mississippi State colleagues or to argue semantics but there is a huge difference between a cruise and an inventory or, more appropriately, a timber cruise and a forest inventory. To keep it simple, the cruise (as correctly defined above) collects data to estimate the timber volume, quantity, etc. that is there right now. The forest inventory collects much more information which can be used to project volumes and harvests (and other stuff too) into the future. A cruise, as defined above, wouldn’t collect any information on an eight year old loblolly pine plantation. There is little or no volume (perhaps a few trees that meet the limits of merchantability) but there certainly is value. A forest inventory would want to know the species, age, trees/acre, site index and acreage at a minimum. That is the information that is necessary to drive the growth and yield models necessary to estimate future wood flows from the tract. The wood flows become the basis for the cash flows in the appraisal. Perhaps this is just semantics but it is very important to understand the difference and to know what you are looking at.<br /><br />So the “acquisition cruise” necessary to purchase land is more appropriately referred to as a forest inventory than a cruise. A “timber cruise” is more likely used to determine the immediate value of the timber for a timber sale. Data to drive growth models or cash flow models is not necessary. This distinction is more than academic. The inventory data can be “grown” to provide volume information for appraisals, stand level info for thinning or harvest, projected harvest and regeneration sites for planning site preparation and planting, all at multiple forward points in time. A typical cruise is not designed to do this. Merchantability specs are frequently different between cruises and inventories resulting in differences in volumes reported. Merchantability specs for inventories must be consistent from tract to tract, year to year, cruiser to cruiser and they must be consistent with what the growth models require. Merchantability specs for a timber sale cruise will normally be modified to conform to current demand, market pricing and perhaps even the logger that will be doing the harvesting.<br /><br />The lesson here is that the user of cruise or inventory information had better understand what he or she is looking at. The cruise/inventory designer needs a clear understanding of the objective of the cruise. Otherwise, expect disappointment.<br /><br />The sampling intensity of most inventories will not provide adequate data for timber sales. Inventories must collect some information on every stand or stratum (a collection of stands with similar characteristics). The objective of an inventory or cruise is to gather the information that is necessary at an acceptable level of accuracy at the least possible cost. Contrasting the two extremes, consider the case of a 100,000 acre land acquisition compared to a 50 acre mature hardwood timber sale. The objective of the land acquisition inventory is to be accurate enough to generate a reasonably accurate cash flow analysis for the perceived life of the investment (and hence, its present value). Another objective may be to assist in management if the tract is purchased. The resulting inventory would be one with a low sampling intensity but one collecting much information at each sample plot. The inventory is “not accurate” at the stand level. Cost is a serious consideration. If the tract is not purchased, the entire cost of the inventory is wasted. The 50 acre timber sale, on the other hand, has a much higher sampling intensity (perhaps a 100% tally), does not require collecting growth modeling information and requires careful inspection of the quality of each tree relative to current market conditions. The cruise cost/acre is much higher but the payback is immediate and ensured.<br /><br />Statistics 101: Reiterating an earlier point when addressing timber volume reports; you had better understand what you are looking at. Most well done cruise reports will provide some detail with respect to the statistical accuracy provided by the data. You will see something like “2,216 MBF ± 10% of hardwood sawtimber”. This means, that from a statistical standpoint, the actual volume will be within 10% of the volume estimate 95% of the time, or maybe 90% of the time, or maybe 66% of the time. Maybe you better ask which probability level applies! You will probably also see a volume by species report and perhaps that will also provide statistical error reporting too. If it doesn’t, you should understand that because the sampling intensity for any given species is well below that of all of the species combined, the accuracy of the estimate drops pretty dramatically in a mixed species stand or forest. Now, digging into the cruise report a little deeper you will see that volumes may be reported by species and diameter class. How accurate do you think that will be? If the statistics are reported, that is great. If not, beware the value that you place in the numbers. This information can be useful but you have to assign it the appropriate credibility.<br /><br />You should also understand that there are other sources of error in a cruise in addition to the statistical sampling error. Examples are the use of incorrect volume tables, measurement errors, poor sample design, calculation errors and, yes, a poor cruiser.<br /><br />The statistical accuracy of large inventories that have been conducted over several different years and have been brought current using growth models is a different story. I’m not going to get into how to do this because I have no earthly idea how to do it! It can be done by a fairly limited group of forest statisticians, mensurationists and biometricians but it is clearly a difficult task. As a rule of thumb, it is safe to say that the accuracy is somewhat less than what would be calculated using the “ungrown” plots and declines as the number of “grown” years increases.<br /><br />That’s enough said about cruise reports, inventories and the timber volumes that they report. Now let’s talk about volumes that what will be there tomorrow and the fundamentals of creating a future wood flow.<br /><br />Future harvest volumes and timing must be done on a stand by stand basis utilizing stand volumes that have been “grown” using yield tables and growth and yield models. The starting base is the stand or strata level inventory and each stand or stratum is grown into the future. Some rule or methodology is then used to select the harvest date to determine the harvest volume for each future year. The result is a wood flow model that, when combined with values, becomes a key component of the cash flow model. More detail about this will be provided in the next post.<br /><br />This is probably the appropriate place to discuss the integration of a GIS (Geographic Information System) with the timber inventory system when creating the information system used for timberland management. GIS based inventory systems are very common among managers of large tracts of timberland today and sellers normally provide output from these systems to potential buyers. Inventory or cruise volumes may say what is out there but the GIS says exactly WHERE it is on the surface of the earth. A quick check of the validity of the data provided by the seller can be made by auditing selected stands to compare inventory acreage, stocking, volumes, forest types, SI, etc. to the audited values. It doesn’t take much of this type of checking to determine how serious the forest managers have been about the quality and timeliness of their inventory efforts and hence the credence that can be placed in the data provided. The GIS data can be “read” into the GIS based harvest scheduling/ cash flow models and will eventually provide the basis for future management (activity schedules, maps and annual cash flow projections). These are the tools that become the foundation for communications and expectations between the new landowner and the timberland managers. The schedules tell the owner what to expect financially and form the basis of the management plan for the manager. A final point about the GIS based inventory system is that it provides the basis for a field audit in conjunction with the traditional financial audit. In the timberland sector, a financial audit without a corresponding field audit is a serious mistake; in fact, it's not really an audit.<br /><br />Now let’s discuss timber values. They are down! A lot! If you are selling timber today, that is very important but how important is it with respect to timberland valuation? Should current market conditions be used for valuation?<br /><br />The comments below are by Rick Holley (from Plum Creek 2008 Q3 Earnings Conference call) answering an analyst’s question about why he thinks timberland values are holding up while other asset classes are declining in value. The quote is a little messed up but his point is clear.<br /><br />“I think largely because the investor in timberlands, and there’s still a fair amount of capital on the sidelines trying to invest in timberlands, is longer term. They’re looking through this cycle. If anything they’re starting to look at this cycle and lower prices as being more upside when you look out a year or two years or whatever these markets improve. I know there was a recent [Reese] article talking about some transactions that may or may not get done. We’re in the marketplace and we talk to a lot of buyers. We know who the sellers are, and we think all those transactions will in fact get done at very, very good prices, so I think the market is holding up and there’s still a lot of capital chasing very little opportunity…”<br /><br />The key words above are “looking through…” with respect to timberland prices. To me, that implies that they are also “looking through” with respect to the timber values used in the timberland valuation. I think that if stumpage prices were at all-time highs, buyers would “look through” and see lower prices in the future as well. As Andy Malmquist, my good friend, former employee, and current TIMO guy, used to remind me about so many things… “It’s regressing toward the mean”! Andy actually talks like that.<br /><br />There are at least three factors to consider for determining future timber values to apply to future volumes – current values, real price increases and inflation. We will discuss how to address inflation in the next post so for now, we will confine the discussion to the first two items.<br /><br />I am defining “current price” as a “look through” price that is on the trend line for the species,local area and region (huge differences between NE and NW, cherry and red maple). In other words, I am looking for the price that has “regressed to the mean”. This data can be obtained from several different pricing services such as <a href="http://www.forest2market.com/opencms/opencms/f2m/index.jsp">Forest2Market</a>, <a href="http://www.risiinfo.com/pages/product/timber/market-prices.jsp">RISI </a>and <a href="http://www.tmart-south.com/tmart/prices.html">Timber-Mart South.</a> In addition, most state forestry commissions (<a href="http://www.state.sc.us/forest/mprice.htm">South Carolina Forestry Commission pricing report</a>) or forestry university extension services also provide some level of pricing reports. Local consulting foresters usually know what is available and can also provide first hand local knowledge. Pricing from these sources will provide the baseline for projecting the value of future harvests in the cash flow model.<br /><br />A real increase in future stumpage prices can and should be incorporated into the model if you think it is justified. U. S. Forest Service reports suggest that sawtimber stumpage prices have increased at a real rate of 2% a year over a very long period of time. An <a href="http://www.forestresearchgroup.com/V1No2.pdf">analysis of southern pine stumpage prices by forest economist Jack Lutz</a> reached the following conclusion:<br /><br /><em>“Our analysis indicates that southern pine sawtimber stumpage prices are mean-reverting, with a 50-year mean of $38.29/ton (based on LDAF data). Those prices have held to that mean through 50 years of timber supply and demand shocks and significant changes in timber harvesting and processing technology. That means we should not expect a significant increase in sawtimber stumpage prices in the near future. This supports the current practice of many timberland investors who are using 0% real appreciation rates in their timberland investment models.”<br /></em><br />The future is anybodies guess but the real value increase used should be based upon your view of the future. That’s why there is always a high bidder and a low bidder!<br /><br />This concludes the discussion on timber volumes and values. The next post in the series will attempt to tie it all together by addressing the methodologies associated with the discounted cash flow models. Comments are welcomed. --BrianBrianhttp://www.blogger.com/profile/13131938369170326948noreply@blogger.com8