Forestry Investment – Independent financial analyst Chris Mayer, who edits the Daily Wealth blog, has called forestry investments “crisis-proof”.
“Timberland is a crisis-proof investment because the growth of the trees does not move in step with economic cycles,” said Mayer. “You don’t have to harvest when demand is soft. Let them grow, and trees will become more valuable anyway. Bigger trees equal more dollars.”
At first glance, it may look as though timber has too many ties with the US housing market to be a reliable investment, and it is true that demand for timber as building material has decreased. Yet this has not equated to a drop in timberland values – quite the reverse in fact.
Why? First of all, the supply of forestry is decreasing. North America will lose about 20% of its spruce, pine, and fir lumber over the next five to eight years, and most of Canada’s forests will not be economical unless timber prices rise significantly.
This restricted supply is co-inciding with an increased global demand for timber, particularly in China – the world’s biggest importer of logs. There is also a growing institutional interest in timberland, from banks, pension funds and the like. Mayer quotes estimates that there is at least $10 billion in funds seeking forestry investments.
It is these factors, Mayer believes, that keep timber prices strong, even when housing markets are weak. “That’s why I’m encouraging my readers to hold on to their timber investments,” he said.