The Wall Street Journal published an article last week that has caught the attention of many landowners or those who are considering making a timberland investment. This week I have been tagged by friends and followers in posts and comments on Facebook to ask my thoughts about it. The article is entitled “Thousands of Southerners Planted Trees for Retirement. It Didn’t Work.”
Ryan Dezember, the author of the article, makes some very insightful observations and reports on broad trends in the Southeastern pine timberland markets. I tend to agree with many of his statements in a broad sense, and am glad to know he has ties to Alabama when he was previously a writer for the Mobile Press Register. You should read his article in full before going any farther in this post. Also from the outset let me disclose that I am not a forester, economist, accountant, or attorney. Everything below is solely my opinion based on years of observation as a broker of Alabama timberland, and is not legal, forestry, accounting, or other professional advice.
Mr. Dezember makes three points that are virtually indisputable on a large scale across the Southeast.
- In many places in the Southeast the supply of standing pine timber far exceeds the demand or capacity of the local mills.
- This “glut of timber” has caused the price for timber to go down in many parts of the Southeast.
- Some institutional investors and individual landowners have lost money, significant money, in their timberland investments in recent years.
That all sounds like bad news. However, what if someone told you “Go invest your money in the stock market.” That is a broad and daunting task for the novice investor. Are there still any stocks that are winners in a declining market? Sure there are. You just have to know what to look for. The same is true for investing in timberland. Here are some elementary things you can do to increase your chances of making a good pine timberland investment.
- Find land with quality soils. The better the soils, the better and faster that you will generally be able to grow timber. Look for soils with a high site index for loblolly pines. Soils that will grow genetically superior loblolly to 90′ to 100′ in 25 years are highly desirable.
- Locate close to several mills. Loggers generally tell me that you cannot haul timber more than 75 miles and the landowner or loggers make any money. Locating land close to one or more mills, along good roads, increases your potential to make a good investment. The closer you are to the mill, the less money the loggers spend on hauling, and the more money goes into the landowners pocket. The money paid to the landowner for their cut timber is called“stumpage”. Locating close to more than one mill means that you have several mills competing for your wood, and you are likely to be able to get a higher price when it is time to sell your land
- Find sites that can be logged in wet weather. Locating an upland property that can be logged during the winter months is a great way to increase your chances of making a good timber investment. Timber harvesting equipment is heavy and will bog down in the mud during the wet season. Having well-drained soils that can be navigated during rainy weather is a real plus. Mills tend to pay the most during the wet season because that is when they have the most difficult time getting wood to their yards. Look for tracts that are loggable (suitable for logging) during winter and have access to good dirt roads or paved roads.
- Invest for the Long Haul. Pine trees have been genetically enhanced to grow to maturity faster than ever before. You can now reach a full growing cycle in 25-30 years. But trees still take a long time to reach maturity compared to a stock or mutual fund. Allowing yourself some flexibility on the length of the investment can pay big dividends if you can time the harvest of your timber sale to correspond with higher market prices. Some institutional investors have a fixed window of time in which they must generate a given rate of return. If your fund length is 10-12 years, but your timber needs 15 years to reach maturity, then your fund is likely to suffer. Give yourself plenty of time to take full advantage of the biological growth of the trees and the corresponding higher prices in the timber markets. Giving a tree another year or two of growth may allow the tree to move up into another age class, meaning it can be sold at a higher price because it can be used for a product that requires a larger tree.
The good news for small to medium-sized investors is that you can avoid some of the problems that have plagued institutional buyers. Timberland Investment Management Organizations (TIMO’s) are given the difficult task of going and Finding a large package of timberland to Purchase on behalf of their client, Manage the fund for 10-15 years, and then Sell with guaranteed returns. Often these packages are 10,000 acres up to 100,000 acres. It is difficult to pick the very best pieces of land when you take that approach. To some degree you have to take what is available on the market at the time. Smaller landowners can be much more surgical in their selection of prime pine timberland.
In my opinion, pine timberland can still be a good investment. Like every other investment, you need to educate yourself on the topic, research the options, and enlist the help of a team to help with your purchase. Southeastern Land Group has a Timber Sales Division with registered foresters that can assist you in making a sound timberland investment. Our team of brokers and agents helps people buy and sell thousands of acres of timberland around the Southeast every year. We will be happy to assist you in your search for a good timberland investment. Please let us know how we can be helpful to you with your land investment needs.
This article was originally posted on the Southeastern Land Group website.
Jonathan Goode, ALC, is an Accredited Land Consultant (ALC) and a partner with Southeastern Land Group. He is a licensed broker in Alabama and Mississippi, and is the co-host of the weekly radio program and podcast “The Land Show.