US South Pine Sawtimber Prices Expected to Decline in 2012, Recover in 2013-2014

23 09 2011

Over the past three months, Dr. Tim Sydor, Forisk’s Director of Economic Analysis and Forecasting, has led our mid-year update of Forisk’s 2011-2020 timber forecast for the US South and Pacific Northwest.  The results show sawtimber prices for the US South weakening 2.7% in 2012 and then strengthening 2.9% into 2013.  Key factors include weak expectations for housing starts and low utilization rates at sawmills.  While sawtimber prices can increase temporarily from artificial shortages related to weather and logging capacity, long-term strengthening of sawtimber prices requires sawmill utilization to exceed 76%.  For 2012, Georgia, Louisiana, Mississippi and Texas are the only states with forecasted sawtimber stumpage prices exceeding $27/ton.  Alternately, delivered prices for Douglas-fir and hemlock in Oregon and Washington look to increase 6% and 4.9% in 2012 thanks to continued exports to China.

This research emphasizes the critical importance of assessing the relationship between timber prices and wood demand locally.  Forisk tracks 3,191 wood-using facilities in the United States.  This includes every open, closed and idled forest industry mill, and 462 operating and announced wood bioenergy projects.  The bottoms-up, market-specific approach proved effective in 2010; Forisk’s pine sawtimber forecast was within 4% of actual prices, and within $1.00 per ton at the state level.

For more information on Forisk’s forecasting in the South and Pacific Northwest, visit www.foriskstore.com and click “Stumpage Price Forecasts.” 





Timber REITs Outpace S&P in 2011 Based on Long and Short-Term Market Factors

7 04 2011

From the desk of Neena Mishra, Director of Equity Research:

The Forisk Timber REIT (FTR) Index of public timberland-owning real estate investment trusts (REITs) continues to outpace the overall market in 2011, returning 23.78% year-to-date compared with 6.19% for the S&P 500 (as of April 6, 2011).

What factors have contributed to the outperformance of the FTR Index over the broader markets?  We highlight one longer-term investment upside and two shorter-term market drivers.

First, market analysts and investors have incorporated the positive upside imbedded in timber REIT timberland assets over the next few years.  During the downturn, timber REITs deferred their forest harvests and changed the harvest mix (away from higher priced sawlogs towards pulpwood). This effectively increased the capacity to harvest more and improve the mix in the future. When the recovery occurs, these REITs will benefit from higher harvest volumes, improved harvest mix and strengthened pricing.  [We proposed this thesis and detailed the volume impact by firm in our January 2011 Technical Note, which specified Weyerhaeuser (WY) as the primary beneficiary.]

Second, China rapidly increased imports of both logs and lumber since last year, which strengthened sawlog prices in the Pacific Northwest. Though Southern sawlog prices remain impacted by weak domestic demand, pulpwood prices continued to benefit from demand for bioenergy (i.e. pellets) and steady demand from the pulp and paper industry. On the supply side, tailwinds from declining merchantable pine volumes in British Columbia due to feasting by the mountain pine beetle continue to affect pricing.

Third, the recent catastrophic events in Japan will increase demand for logs and lumber once rebuilding starts.  Approximately 150,000 buildings were destroyed by the earthquake and tsunami; these will be rebuilt over the next few years. Most rebuilding will use wood as it is more earthquake resistant.  Of the four public timber REITs, WY is best positioned to gain from the rebuilding, due to the coastal location of its Western timberlands, its focus on higher valued-premium sawlogs and its long-standing client relationships in Japan. Japan has been WY’s largest log export market and currently represents about 10% of its total sales and 75% of its export volume.

As a result of the improved outlook for the timber REITs, Moody’s raised Plum Creek’s (PCL) debt rating one notch, to Baa2 from Baa3, with a stable outlook; and affirmed the debt rating for Rayonier (RYN), while raising the outlook to positive from stable.

To receive the free FTR Weekly Summary along with an Excel file with the historical data that can be used for market research and benchmarking, email Neena Mishra, nmishra@forisk.com .