The future for growing timber?

[livemusic]

Curious if anyone can provide an opinion about the state of the timber market (not good) and what you expect in the future. What has changed and where are we headed? Do you think growing timber as an investment will work in the future?

It certainly has a lot to do with demand growth/retraction. I know some really, really smart people who are predicting dire straits for the global economy in the years ahead, and long-lasting, and it really has nothing to do with anything other than demographics. The short answer being that populations are aging all around the world, not just the USA. It certainly happened in Japan and my gosh, who would have thought they would have a depressed economy for so long. What, 20 years now? The reason aging demographics matters is because older people spend less money. Old people don't build houses, for instance. And they retreat to retirement and don't spend like young people do. Who the heck knows, but these forecasts make an awful lot of sense to me. If you look at the numbers and just recognize that, yes, older people do not build demand, then we are in for a rough ride for a very long time.

And then we could go down another rabbit trail and discuss the global debt crisis. It is not just the USA that is hocked to the hilt, it's all over the world. I can see the possibility that easy credit could be an experiment that failed. Failure would certainly be ugly.

If we do have a global economic collapse, land prices should plummet, like in the Great Depression. It seems that timber value could fall to next to nothing.

I have heard of some places, they can't get anything for pine, even right now. That is a bummer for a landowner with mature pines and they counted on the retirement boost in income.

Have a good day, .

[Ron Wenrich]

If you're not raising timber, what would you be doing with the land?  Would you sell the land and invest in something differently?  If you are planning to keep the land, then you want to use it for your desired output.  That output could be recreational value, wildlife, aesthetics, or some other non-timber forest products.  Having a healthy forest is just something that is compatible with those products.  So, why not manage it? 

If you're managing for a certain market, then you're delving into speculation.  Nothing is to guarantee that a particular species will be in high demand at maturity.  That's part of the risk.  I remember when people talked about planting pawlonia, but that market seems to have slipped away.  There was also talk of planting fast growing poplar to fuel biomass energy plants.  That also has slipped away.  You manage for the best trees that can grow on a given site.  Something with a long history of value is probably a lower risk.

As for the highly industrialized economies getting older, that's true.  However, the third world is younger, and they are creating more wealth.  The older economies are spending their wealth or not creating it as fast.  Those third world countries will use wood products. 

Sovereign debt is a different animal.  The thoughts were to run up debt, then devalue your currency to pay off with lower valued dollars.  If the debt bubble bursts, interest rates will run up, and demand for products will dwindle.  That will suppress values.  But, the value will be suppressed on everything else.  The proceeds of 1Mbf of stumpage will probably have the same purchasing power.  It just won't be as liquid of an asset. 

As for being in for a rough patch, all things are cyclical.  There are a bunch of underlying economic cycles that all reached a peak in 2008.  If I recall, the major long cycle is about 52 years.  There are a lot of shorter cycles, like the business cycle, which is 4 years.  The bottom of the major cycle would be about 2034-35.  Not a guarantee.  But, what would you be doing with the timber before than?  You would need a few thinnings, but you probably could hold off in total liquidation for several years.  Trees last a long time.

[TKehl]

From a different perspective:

Some of your concerns are part of why I see my timber and sawmill as being so valuable.  I'm still fairly optimistic, but it's part of my plan B.

You could call it a "Hedge" fund.   

[livemusic]

I am in luck because I do not care about profit. I am interested in managing to leave a diversified forest. Aesthetics, big trees, a lot of native species and wildlife benefits are at the top of my list. But I was curious about the big picture for those who grow for profit.

Ron, you always provide good insight. However, regarding the demand picture changing from demographics changing, I recall that the reports/forecasts I have read indicate that the number of emerging economies pale in comparison to the rest of the world... which is aging. That is the gist of their forecasts... that this cannot be changed, and nothing can stop the trouble ahead. For instance, I may be in error, but I seem to recall that I was surprised to read that China was one of the countries that is in the
 "aging" category.

China is certainly one of the huge concerns regarding a looming debt crisis due to their crazy gubment spending but I think it's also demographics.

[tule peak timber]

Well I'm looking at land with timber myself. I don't care what the crystal ball says -you can't go wrong with land. I want some mature trees , but even a recent replant is ok because the value has only one direction to go- up. Rob

[Ron Wenrich]

The world may be getting older, but it is mainly in the under developed countries.  China had a one child policy for many decades.  Now they're finding out that they don't have a labor force that will replace the current one.  They're starting to outsource to countries like Vietnam and any place they can find cheap labor. 

25% of the world's population is in the developed countries.  Their birth rate is right around 2.0 or a little less.  Africa is still 4.6.  Africa population is expected to double by 2050 and Asia is expected to add another 1 billion people.  But, the birth rate isn't the only thing that has an effect on demand.

The developed countries have been outsourcing to the underdeveloped countries for decades.  That brings down prices for everyone.  But, those countries providing the labor are having a net inflow of money.  That brings the standard of living up for all those people.  As their standard of living increase, so does their demand for goods.  Its the moving from poverty to a higher standard of living that is important.  Look at the demand China has created just in the past few decades.  They're going to need resources to supply that demand.  If there is enough money sloshing around, that will drive prices up. 

All we have to do is survive the war cycle that will peak probably about 2020.

[Puffergas]

I see the forest as a personal asset. I would hate to trade a large percentage of it for digital numbers in the bank when it can keep me warm, cook food, provide material to build endless items and etc. Even help with food production. Priceless.

[Magicman]

In my area the future for individual landowners to grow/produce SYP is sorta bleak.  Established and well managed hardwood tracts have a bright future.

[Tarm]

Livemusic
I also worry about the future viability of the forest products industry.   As I lay in bed at night I foresee a troubled market for the hardwood trees I grow.  On the low end, pulp and biomass, the markets are being squeezed by the declining use of paper and cheap natural gas. On the high end, lumber and veneer, the off shoring of furniture and plywood production is cutting into demand for local sawlogs. What we are left with is the middle, cross ties and pallet lumber. But even there I’ve seen concrete cross ties and plastic pallets coming into use. Thirty years ago when I made my first investments in timberlands I was quite confident in the wisdom of my decision. Now I’m not so sure. I love my woodlands and am glad that I have them.  They however may no longer be a wise financial investment.

[Puffergas]

Maybe use your timber to make a product that is sold directly to the customer. That's how some small farms do it.

[CJennings]

I see a few problems in the future. The big one is the state of the economy and job stability and pay, or rather the lack thereof. Without stable, well paying employment younger people are not buying or building homes. They're renting longer term. I expect even as they build homes the trend will be towards smaller sizes. Thus less lumber sold. The other, related aspect, is lifestyles changing, or maybe I should say tastes. Interior furniture and cabinetry is going to be hit hard I think. People living a less stable, less settled down life aren't going to buy quality hardwood furniture or cabinetry. They're buying the particle board junk from Walmart and such and considering it disposable. The throwaway mentality. That hits the hardwood markets. I'm seeing a hint of this already. I've dabbled in antiques collecting and selling at times and the market for antique furniture is about dead now. Can hardly give old dressers and chairs away in spite of how nice they are. People will pass up a $10 or $20 quality wood dresser or such and buy something at IKEA for several times the price. The pulp market doesn't have a good future in my view. The trend is using less paper. We can only use so much paper for packaging and such leaving more wood on the market than we need. I think fuel wood (pellet, firewood, biomass) has a future but it will never be as profitable as pulp and sawlogs have been. Natural gas is cheap, for now, but I doubt that lasts too long, making wood based fuels more competitive eventually.