I'm out of the stock market for the foreseeable future. That means I need to look at other investments. I have an idea but don't know enough about the industry to know if it's another of my off the wall ramblings, or a doable project.
The price of pine has crashed along with the economy here. Every day, I see tracts logged just to get enough cash to get by a little longer. My guess is pine will be down for the next 5 years.
I am thinking about buying the timber but not logging it until the price comes back. There are some contractual issues and certainly some risk, but it seems worth looking into. I'm also sure It's being done. If I come up with an idea, I find everyone else has been doing it for years.
I have a Forester that I trust completely, but before I talk to him and start looking at tracts, I wanted to see if anyone wets on my parade.
Thanks !
If you have the cash & can afford the wait, Taxes, maintainence & such how can you go wrong. But that being said the price has to be dirt cheap because I beleive things are going to get a lot worse. Cash is King. If it were me I'd look at a ten year turnaround & you have to own the land not just the timber.....Cheyenne
If I bought tracts as an investment, I would buy them widely separated so a natural disaster would not take them all out in one fell swoop.
I would buy ones with water front property (lake, river, etc.) so they can be used as vacation cabins or hunting sites. Or for easy access in case right of way access or road usage changes.
I would buy near another large land owner (millions of acres) such as GP with a sawmill in the area so the transport of my own pine in the distant future would be economical.
I would look for something in the middle of a triangle of highways that would stand a chance of being future housing.
Very unusual for land to go down in value, unlike a stock, because they are not making any more. I do not see a downside :)
Quote from: rebocardo on February 15, 2009, 09:08:37 PM
If I bought tracts as an investment, I would buy them widely separated so a natural disaster would not take them all out in one fell swoop.
I would buy ones with water front property (lake, river, etc.) so they can be used as vacation cabins or hunting sites. Or for easy access in case right of way access or road usage changes.
I would buy near another large land owner (millions of acres) such as GP with a sawmill in the area so the transport of my own pine in the distant future would be economical.
I would look for something in the middle of a triangle of highways that would stand a chance of being future housing.
Very unusual for land to go down in value, unlike a stock, because they are not making any more. I do not see a downside :)
Those are good points to consider, Thanks!
The biggest downside I can see is what Cheyenne said. Things will get worse. My guess and it is onlty an educated guess because nothing like this has happened before, is that we are only halfway through this. I think that when the dust settles, we will be about 1972 in personal income and the entire economy will be in line with that.
I have to figure the prices for that possibility.
I see nothing but pain for the next few years.
Quote from: rebocardo on February 15, 2009, 09:08:37 PM
Very unusual for land to go down in value, unlike a stock, because they are not making any more. I do not see a downside :)
I see a downside. Land prices are dropping like a pregnant rock around here. 5 years ago, small acreage(10-20) were going for $2500/a. During the bubble, they went up to $7500-$10,000/a. Now they're back to $2500 and falling.
Quote from: peter nap on February 15, 2009, 09:19:31 PMThings will get worse. My guess and it is onlty an educated guess because nothing like this has happened before, is that we are only halfway through this. I think that when the dust settles, we will be about 1972 in personal income and the entire economy will be in line with that.
I have to figure the prices for that possibility.
I see nothing but pain for the next few years.
I think you're in the right ballpark.
The price is pretty much down for timber, but land can go quite a ways yet. So buying a good stand of timber on land that goes further down might still work out, probably will. But I think the land better not be the primary value or you may get hurt a little. At least you'll get more than one egg in your basket this way. I think it's basically a good plan if you buy the right tracts. I'd exercise caution though.
Personally, I would look at hard assets that can be mobilized to other markets, machinery, forklifts, construction equipment, and the like. It is something you need to know what is "GOOD" and only personal experience can really teach you that. But there are some AMAZING deals to be had out there. There are some desparate folks looking to dump capital goods to generate cash and get out from under loans and general liabilities. I have personally seen some things selling for half there value just a year or two ago, in the rolling stock machinery, and in stationary equipment I have seen pennies on the dollar. Like I said though, you gotta know what to look for (both brands, and vintage/ technology, capacity).
I would not venture into timber property, unless that is, it is waterfront and CHEAP.
Ironwood
In my experience buying timber for mills, we found that we could not "time" the market with any precision. It was best to buy what we needed at the current market price rather than try to "load up" or buy heavy when prices were down in anticipation of a better market. I realize that these times are not "normal" for the industry, and what happened in the past as far as trends are concerned may not hold true after we get through this mess.
Your experience may be different. I see it as highly speculative and risky. A key mill or two could go down in your area, then you are sunk. You have absolutely no control over that. As a timber investor, remember that you are a slave to your markets. It is all about distance. You can sell pork belly futures in a broad market, but you will be hard pressed to haul your timber more than 100 miles. 75 miles is a more reasonable upper limit. Hopefully the market will be there for you, but things are changing fast with many shutdowns that will totally change the face of the business in the future. What if a key mill or two in your area goes down, what then?
Quote from: WDH on February 15, 2009, 11:49:27 PM
In my experience buying timber for mills, we found that we could not "time" the market with any precision...
And remember, WDH was getting paid to do that sort of work! Honestly, I don't mean any harm by that statement but just to reiterate the point that it is very difficult to time
any market. If you read "A Random Walk Down Wall Street" by Burton Malkiel, you'll see that even the guys earning six-figure incomes can't time the market when they literally spend days (or lifetimes) trying to do it.
If you still think it's an ok idea, read the book I suggested and if that doesn't convince you that timing the market is a roll of the dice then I've got a real nice crystal ball to send your way!
Clark
My first thoughts,
In essance you would be buying timber just as any other timber buyer, but the cutting phase of the contract would be much longer. Instead of a standard 6 month or 1 year contract in this area for example, you'd be asking for one for 5 to 10 years. I think such an investment would be a long shot. Buying just standing trees and not the land underneath them exposes you to biological problems which can wipe out the pines and leave you with nothing. In a 5 to 10 year span something could happen such as insect (southern pine bark beetle for instance), disease, forest fire, hurricane, or other calamity. If the land is within 50 or so miles of Dulles airport for instance, a commercial airliner crash into the woods could take all of them out. These are concerns with any timber sale contract of course, but the longer the time frame of holding the timber, the more the risk that one or more of these could happen.
I'd be more inclined to buy the land with the timber. Then you can still get your investment back on the real estate if you lost the pines, if you had to liquidate your investment when the pine markets were down, or if mother nature liquidated it for you. Just more flexible with your options if you own the land too. Real estate investment is a gamble too, I know, but I think not as much as long term timber markets.
Other thoughts; Have you looked into insuring such an investment? I would think insurance for standing timber when the land is not also owned would be difficult to get. Looking at it from the landowner's standpoint, he would also be limiting his options with the land since he could not sell the timber himself, and he would also have more difficulty with selling the property if the timber rights would not also convey. I can see a situation where a landowner might jump at such an arrangement if he needs money right now, but then years down the road decide this was a bad decision and sue to get out of your contract. Your own business setup and tax situation will dictate how this could be handled with taxes and that needs to be investigated.
Flip side is that you could try this with an amount of money you could stand to lose and not suffer. Then if you did come out well, good. If it didn't work out you would not be hurt financially. Long shots sometimes work.
Look at what has happened in the ethanol business. Many farmers that geared up for the boom now are hurting. I saw a national news report today that indicated that some of the new ethanol plants that were started are now on hold. The farmers with the contracts for producing the corn are left holding the investment bag. 9 months ago who would have thought that the oil price would plunge back to the mid-30's?
Newton did...What goes up must come down. 8) 8) 8)....Cheyenne
I was in Norfolk last week teaching a class on natural gas to the Naval Facilities folks and I got to use one of my favor statements when asked what the future price of gas was going to be. I told them:"If I knew what the price of natural gas was going to be tomorrow, day after tomorrow, next month or next year. I would be working about 5 to 10 hours per week, hunting and fishing the rest of the time, and would be driving a Mercedes ML 450 up into the woods."
If it was me, I won't do it.
Bruce
You can always dabble in lumber futures. If you think they'll be up in five years, then buy an option with a strike price geared to today's market. Or you can buy a full blown contract and keep on rolling it over.
No need for contracts, you'll get great leverage, no need for insurance and it is highly liquid. It only works for pine lumber. It is closely linked to the housing and interest markets. Current margin is about $1650 and controls 110 Mbf.
The downside is that if lumber drops further, you'll have to make up the difference to keep in the game. Options would be a risk of only the money invested. There are time limits on these contracts, as they expire on a regular basis.
In 1980 my brother and I sold my grandmother's farm we had inherited in 1967. We got lucky and sold at the peak in land prices. We took the money and invested in land in other parts of the country. My grandmother's farm was worth 1/2 a year later and took almost 20 years to reach the value that we got and that doesn't include inflation. It is just now reaching that point 28 years later. This was high quality farm land, not residential.
Be careful.
Check out the ( Winter storm 09 ) thread . Another thing that I haven't read on this thread would be tornadoes. They can clear a few acres in a coulple of minutes and you would not have anything. I saw one in the 70's that hit Guin al. cleared about a 1/2 mile strip. :o Tim
My 401K took about a 200k lick in the ice storm of 03.
Forest land here is cheaper than cleared farm land, but farm land was at a high of $4500 an acre in some areas and that is dropped to less then half. Farms that have been for sale the last 3 years have never sold and most folks that are selling woodland, gut it first and it is very hard to sell. No one in the wood business around here, unless it's a mill that is planning for the long run, will buy up woodland unless they can make a buck today. For sure they will not pay much for it. I know one small mill and there are some big ones out there to, that would buy up old farms that are basically abandoned or the folks are too old to work it, have some timber land on them, and would pay $20,000 for 100-200 acres and plant the old fields. Those are pretty good investments for a mill. When most loggers do that, they liquidate what they can and often sell to a mill for peanuts just to unload it. There are a couple lots down the road that got gutted and have been for sale for 5 years, probably the price isn't attractive because the owner is thinking of building lots, being along a highway. There are many lots that were bought cheap and gutted and never tended from that point forward. Can't even convince the owner to partake in silviculture, even when it's free. I don't see much value in owning a lot you never visit or manage or a lot hours away you can't look after. I just can't figure out that mind set.
risky at best, but then what aint in this time. if its what you want to invest in then go for it. i know folks here that buy timber and have 8 years to move it. never made any sense to me as i know of two different loggers that have lost timber they paid for because of the time constrants running out on the contract.
my cousin sold timber like this and during those eight years i harvested all the dieing timber that was lightning killed and bug killed. the guy that bought it was mad at first, i guess he thought i was stealing from him. we had a talk before i took any of it and he decided it was better than watching it rot. a win win for me. ;D
I'm afraid I can't offer much advice about investment strategies, but I did want to say that I'm surprised at all the reports of falling land prices around the country. It's still in the neighborhood of 30-50K for small tracts here, 10-20K for large acreages :-[. Sounds like I need to buy some land in DanG's neighborhood ;).
Lots of land up here and not selling. It seem's to bounce from agent to agent and each time the price is reduced.
My niece just bought a house that sold for $209,000. a few years ago for $109000. it was purchased from the bank this time.
I know one speculator into the real estate business that bought up timber lands from a company that went out of business. I was with a fellow looking at the land on aerial photos and there was no timber left on the 1000's of acres for sale except riparian and camp lots. That was 4 years ago. He is calling himself Grey Rapids Lumber Company and now lists his land as Grey Rapids Nature Preserve since it is adjacent to protected Public Forests. It doesn't look like he sold anything yet. As I recall it's along the Renous river watershed. If JDI didn't buy it, it can't be worth too much.
Well it depends on how much risk you want to take with your investment. As others have noted simply buying the timber or cutting rights is highly risky in a volitile or declining market. Making sure that you own the land underneath it gives you some better options. Work with your forester and purchase timberland that can grow trees at a good rate (given proper management of course) and you'll proably find that the real rate of return will surprise you. Timber that you can hold is a good investment since you can hold it for a better market. But like any investment you'll have to do your research. There is also some timber investment software that you can use to determine if a particular tract is a good one to purchase. It takes into consideration the productivity of the ground, transportation distances, types of mills available, the area where you're growing the timber, etc. If you're interested in something like that give me a personal message and I can fill you in on the details. I don't have anything to do with the software I just know who developed it and where to get it.
Dont forget about the risk of losing your investment some warm windy summer afternoon.
Also with woodland investments I am starting to worry about climate change.
There seem to be more pests surviving the winter and using the woods for 1st class dining
facilities around here.
Also more timber is being blown down in land that is shallow rooted, as there seem to be more violent wind storms going thru.
I know several old timers that made their fortunes in land and cattle speculation coming out of the depression. Maybe we'll be seeing some good opertunities to make some money as we come out of this depression(they still are not calling it that but get real) Of course around here bootlegging always helped to suplement their farm income. ;D
Be careful and check the enviornmental side of things around any waterfront of stream frontage, the enviornmentst like to dictate policy and you could be stuck with part of the property you can't touch.
Good input John, I hadn't thought of that.
Ironwood
IF i were to do it I would buy in appalachian and norhern reigions unless I found a very good stand of cypress and I would really look at quality more than stem count Good logs will almost always sell I would also check around to see if there had been any insect infestations of any regularity and Also remember doesn't matter when you sell it location will be a factor also I would look more toward White oak red oak walnut and ash also cherry God luck
Chico