Timber as an alternative - didn't work so well...

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
thx1138
Posts: 784
Joined: Fri Jul 12, 2013 2:14 pm

Timber as an alternative - didn't work so well...

Post by thx1138 » Wed Oct 10, 2018 12:59 pm

From the WSJ:

https://www.wsj.com/articles/thousands- ... ding_now_2

Some relevant quotes for those unable to handle the pay-wall:
“We figured we’d plant trees and come back and harvest it in 30 years and in the meantime go into town to make a living doing something else,” he said.

Three decades later the trees are ready to cut, and Mr. George is learning how many other Southerners had the same idea.
“If you work and you didn’t want to put all your money in the stock market, you’d buy 40 acres and plant trees and they’d be ready to cut by the time your kid went to college,” said Skip Stead, a timber broker in Lincoln, Ala. “It’s like a 401(k).”
A glut of timber has piled up in the Southeast. There are far more ready-to-cut trees than the region’s mills can saw or pulp. The surfeit has crushed timber prices in Mississippi, Alabama and several other states.
The California Public Employees’ Retirement System spent more than $2 billion on Southern timberland, and harvested trees at depressed prices to pay interest on money borrowed to buy. Calpers sold much of its land this summer at a loss.
In the South, timber prices haven’t stopped sliding. Adjusted for inflation, the price of Southern pine is down about 45% since 2007, according to Daowei Zhang, an Auburn University professor of forest economics. So-called saw timber, for making lumber, is at a 50-year low, adjusted for inflation.
Article also includes examples of folks who planted over their farms 30 years back as a "retirement investment" only to now discover they can barely cover the cost of clearing the land with the timber they harvest. A significant factor is that there just aren't enough mills in the area to cut the lumber and it is prohibitively expensive to transport uncut logs to locations with more mill capacity. So despite the fact lumber consumption is up overall these trees are hardly worth anything because there isn't mill capacity nearby to process them (sort of like oil stuck in the ground because there are no pipelines nearby). Another issue is that since many of these stands were planted around the same time the trees will soon become too old to harvest for quality wood. That means there may not be an incentive for lumber companies to make the capital investment in opening mills nearby.

So the big lesson here appears to be an old one - don't accept uncompensated idiosyncratic risk (e.g. lumber in one location). For reference Calpers has about $250B in assets so their southern timber investment was a bit less than 1% of their portfolio.

User avatar
willthrill81
Posts: 6104
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Timber as an alternative - didn't work so well...

Post by willthrill81 » Wed Oct 10, 2018 1:02 pm

My parents planted a lot of pines for timber back in 1984. Within five more years, they might be worth $150k. Had they put that same money into U.S. equities, they would currently have $500k (minus tax drag). :oops:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

daheld
Posts: 320
Joined: Wed Sep 13, 2017 8:14 am

Re: Timber as an alternative - didn't work so well...

Post by daheld » Wed Oct 10, 2018 1:14 pm

We (my brother and I) own about 85 acres on a family farm that's been in the family for about 70 years or so. The older portion of the farm, owned by relatives, has been in the family for over 100 years. Timber is a nice addition to being a landowner, but is not a source of consistent or reliable income. You get to cut about once a generation, timber prices can fluctuate wildly, and there's no guarantee you're going to make a lot of money.

I realize the article is about a specific set of people in a specific location, and I wasn't able to read the article due to the paywall, but it seems insane to me that people would plant tracts of trees and expect to have a retirement just waiting to be harvested. That's not the way it works.

User avatar
nedsaid
Posts: 10500
Joined: Fri Nov 23, 2012 12:33 pm

Re: Timber as an alternative - didn't work so well...

Post by nedsaid » Wed Oct 10, 2018 1:15 pm

Well, Timber did work for me. I purchased shares of Plum Creek Timber in 1989 and it was probably the best investment I ever made. I later on owned shares of Willamette Industries and exchanged into Weyerhauser shares after Weyerhauser made a cash purchase of Willamette. Also owned other forest products stocks. Thing was, I was an early adopter, timing is everything. Forest products was one of my favorite industry groups.

Weyerhauser merged with Plum Creek and I still own shares of the combined company that kept the Weyerhauser name. I plan to keep my shares.

It looks like what happened is that people piled in and Timber isn't the sure thing that it was 30 years ago. Even the college endowments got into the act. You can have too much of a good thing.
A fool and his money are good for business.

Jack FFR1846
Posts: 7962
Joined: Tue Dec 31, 2013 7:05 am

Re: Timber as an alternative - didn't work so well...

Post by Jack FFR1846 » Wed Oct 10, 2018 1:22 pm

I directly own timber as I harvest hardwoods for firewood on my own property. There's a state program that I am in where the land is taxed at 10% of assessed value (other property in the state is 100% assessment). I mainly use the wood as a supplemental heating source. In the past, I have asked our closest sawmill (less than half a mile away) about harvesting for lumber. They would pay $zero and charge me $100 for use of their truck as I do the cutting of trees myself. In their case, they're chock full of trees aging in stacks on their property and don't have the room. I believe they do work directly with tree removal companies and likely pay them something.
Bogle: Smart Beta is stupid

Sconie
Posts: 542
Joined: Sun Feb 07, 2010 10:23 am
Location: Arizona

Re: Timber as an alternative - didn't work so well...

Post by Sconie » Wed Oct 10, 2018 1:29 pm

In a similar vein, for years, Jeremy Grantham at GMO was pushing both timber as the one of the only assets with a potentially good return future return. That said, just last year Grantham dumped-off GMOs timber holdings to The Rohatyn Group (TRG):

https://www.businesswire.com/news/home/ ... -Resources

Interestingly, TRG has already announced their intention of disposing of their U.S. timberland holdings----almost all located in the upper Midwest---- retaining only the foreign timberlands purchased from GMO.
I know that you think you understand what you thought I said, but I don't think you realize that what I said is necessarily what I meant......

texasdiver
Posts: 2719
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Timber as an alternative - didn't work so well...

Post by texasdiver » Wed Oct 10, 2018 1:46 pm

This article is about the south but I hear similar things to a lesser degree in New England. I have a cousin in Vermont who has what they call "wood lots" up there. Mostly hardwood for lumber and cord wood for sale as firewood. Apparently prices are also way down in the past 20 years for New England hardwood as well.

I guess less people are using firewood to heat their homes as in the past, and with places like Ikea and Wafair there is less demand for hardwood furniture and cabinetry.

TheAccountant
Posts: 164
Joined: Sun Nov 05, 2017 4:21 pm

Re: Timber as an alternative - didn't work so well...

Post by TheAccountant » Wed Oct 10, 2018 1:55 pm

We sold some trees on a 15-acre plot of land for ~ $ 2,500. Not surprised at all.

renue74
Posts: 1185
Joined: Tue Apr 07, 2015 7:24 pm

Re: Timber as an alternative - didn't work so well...

Post by renue74 » Wed Oct 10, 2018 2:06 pm

My inlaws have 99 acres in the south. They are within 5 minutes of a wood yard (central location that logging trucks bring harvest logs).

This year they cut out 30 acres and the payoff was horrible. They didn't plant the pine, but had purchased the land next to their land...because they like to have land.

In no way, would I ever say owning tree farms would be retirement returns. They use the land as a hobby. Building ponds, barns, farm land tracks...the timber harvest was a way to clear space for a pond they had planned.

Same inlaws also have a huge wood burning stove they use to supplement their home heating. I will say, it's awesome to visit during Xmas and Thanksgiving. Their house is toasty warm. :sharebeer

not4me
Posts: 430
Joined: Thu May 25, 2017 3:08 pm

Re: Timber as an alternative - didn't work so well...

Post by not4me » Thu Oct 11, 2018 1:09 pm

To me, this mainly illustrates not "investing" in what you don't understand. There's a lot of misunderstanding in regard to this area. Untold number of stories where it didn't work out....untold number where it did.

I didn't read this article (due to paywall, but have seen several like it). Close proximity of mills to the trees is a consideration. But, all trees aren't the same. All mills aren't the same. Hard wood vs soft, saw logs vs pulp, etc. Notice the price quote compared back to 2007...ring a bell? Think back to the heat of the housing market then. When housing took a hit, lumber was in oversupply, mills closed etc. Mills are opening now & are more efficient, need fewer folks to operate & still hard to find labor enough. Some are making money by buying from discouraged people who thought they could plant & come back in 30 years!

I don't know specifically how Calpers, GMO, etc mentioned are invested in timber, but I would expect they are in for the long term. They won't have to sell today...& trees will keep growing. Of course, I'm not saying there aren't risks: wildfires, insects, hurricanes, etc etc....certainly not as liquid or passive as index investing...& Calpers, et al probably didn't sell all their stock on the day the indexes were down 3% in one day

User avatar
nisiprius
Advisory Board
Posts: 36866
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Timber as an alternative - didn't work so well...

Post by nisiprius » Thu Oct 11, 2018 1:18 pm

Swensen invested some of the Yale endowment fund in timber; anyone know how that's done?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

not4me
Posts: 430
Joined: Thu May 25, 2017 3:08 pm

Re: Timber as an alternative - didn't work so well...

Post by not4me » Thu Oct 11, 2018 1:52 pm

nisiprius wrote:
Thu Oct 11, 2018 1:18 pm
Swensen invested some of the Yale endowment fund in timber; anyone know how that's done?
I don't, but would be interested in hearing as well. I did a quick search to see what the "current" state is comparing "timber" to stocks. I use quotes because different sources use different methods as to what "timber" really includes. One such place is NCREIF -- National Council of Real Estate Investment Fiduciaries. I didn't attempt to delve into their numbers, but took what was readily available through another site quoting them. It compared the NCREIF Timberland Index against the S&P 500 for 1993-2017. I don't know why that time frame.

It had sp500 for that time period having a return of 9.69%, std dev 14.47%, and sharpe of 0.41. For timber, it had a return of 8.36%, std dev of 9.09%, and sharpe of 0.64. I would expect someone could shop around & find some time periods where it had a negative correlation, but I think it is now positive. By tweaking index & time period, this can get skewed to what you want to show ( I think ).

Whakamole
Posts: 776
Joined: Wed Jan 13, 2016 9:59 pm

Re: Timber as an alternative - didn't work so well...

Post by Whakamole » Thu Oct 11, 2018 2:12 pm

nisiprius wrote:
Thu Oct 11, 2018 1:18 pm
Swensen invested some of the Yale endowment fund in timber; anyone know how that's done?
I imagine if prices are low, he's not cutting it and is just letting the trees grow.

Hopefully there is also some diversity, both geographical and in the type of tree, given the size of the endowment fund. That's not something feasible if you are buying timberland yourself, unless you are going through a REIT.

BigMoneyNoWhammies
Posts: 132
Joined: Tue Jul 11, 2017 11:58 am

Re: Timber as an alternative - didn't work so well...

Post by BigMoneyNoWhammies » Thu Oct 11, 2018 2:21 pm

nisiprius wrote:
Thu Oct 11, 2018 1:18 pm
Swensen invested some of the Yale endowment fund in timber; anyone know how that's done?
I don't know about the Yale endowment specifically, but the article does mention that a lot of hedge funds and large institutional investors like pension funds and endowments invested in timber land back in the day as a portfolio diversifier and most have since sold off the land at a loss.

Also, many of the people who planted the timber didn't necessarily do it for just retirement investment purposes. Many in the south planted in the 80's due to the implementation of USDA's Conservation Reserve Program, where farmers are basically paid a set price per acre to keep some of their farm land as woodland or natural habitat.

User avatar
watchnerd
Posts: 1432
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Timber as an alternative - didn't work so well...

Post by watchnerd » Fri Oct 12, 2018 12:58 am

My house is on about an acre of land, with about 70 trees on it, most of which are fir, spruce, and big leaf maple, 50-150 feet tall.

A cord of firewood around here goes for $50-100.

From what I can tell, it would cost me more to harvest the trees than any potential profit.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

Valuethinker
Posts: 36340
Joined: Fri May 11, 2007 11:07 am

Re: Timber as an alternative - didn't work so well...

Post by Valuethinker » Fri Oct 12, 2018 4:46 am

texasdiver wrote:
Wed Oct 10, 2018 1:46 pm
This article is about the south but I hear similar things to a lesser degree in New England. I have a cousin in Vermont who has what they call "wood lots" up there. Mostly hardwood for lumber and cord wood for sale as firewood. Apparently prices are also way down in the past 20 years for New England hardwood as well.

I guess less people are using firewood to heat their homes as in the past, and with places like Ikea and Wafair there is less demand for hardwood furniture and cabinetry.
I suspect it is the growth of composite timber products. Glue-lam (sp?) timbers that can span more space than all but the longest oak beams. We get a lot more product out of a volume of wood, now. That, at least, a major factor.

The thing that surprises me is that with the growth of Chinese demand (which has deforested Indonesia, Vietnam etc.) this hasn't affected US markets. Perhaps because of the transportation costs and mill availability mentioned above.

McGilicutty
Posts: 159
Joined: Tue Dec 13, 2016 5:24 pm

Re: Timber as an alternative - didn't work so well...

Post by McGilicutty » Fri Oct 12, 2018 5:24 am

I've heard that there is good demand for white oaks that are turned into barrels for whisky and wine. Supposedly, the barrels can only be used once for whisky and then again for wine and then they are pretty much useless except for maybe as a lawn ornament.

As for firewood, my uncle says that there is money in it so long as you sharpen your own chainsaw. :D IOW, the margins are el zippo.

daheld
Posts: 320
Joined: Wed Sep 13, 2017 8:14 am

Re: Timber as an alternative - didn't work so well...

Post by daheld » Fri Oct 12, 2018 7:22 am

McGilicutty wrote:
Fri Oct 12, 2018 5:24 am
I've heard that there is good demand for white oaks that are turned into barrels for whisky and wine. Supposedly, the barrels can only be used once for whisky and then again for wine and then they are pretty much useless except for maybe as a lawn ornament.

As for firewood, my uncle says that there is money in it so long as you sharpen your own chainsaw. :D IOW, the margins are el zippo.
Can confirm. I live in a part of the country that produces essentially all of the white oak used for barrel staves used for whiskey in America. We had 85 acres logged a couple years ago, and the payout was very, very well worth it. We have very little hardwoods that would be furniture grade (cherry, maple, etc.).

As for the discussion above, nobody is having timber cut for firewood--that is generally a process that happens after loggers leave and have harvested their cut. We literally let people come cut firewood for both their own use and to sell for free. It helps remove some of the undergrowth and brush and scrubby stuff left over from cutting timber, and they make a few bucks. Nobody's getting rich cutting or selling firewood.

User avatar
willthrill81
Posts: 6104
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Timber as an alternative - didn't work so well...

Post by willthrill81 » Sun Oct 14, 2018 2:35 pm

Whakamole wrote:
Thu Oct 11, 2018 2:12 pm
nisiprius wrote:
Thu Oct 11, 2018 1:18 pm
Swensen invested some of the Yale endowment fund in timber; anyone know how that's done?
I imagine if prices are low, he's not cutting it and is just letting the trees grow.
A classic example of market timing*. One of the problems you can encounter with this approach is the risk of disease, storms, and the finite lifespan of 'modern' trees (i.e. hybridized versions bred to grow quickly but have far less density than uncultivated trees).
Old-growth wood refers to wood from trees that belonged to forests that grew up over hundreds of years. A majority of today’s lumber is harvested from trees that have been cultivated to grow rapidly, so the wood is not as dense. As a result, it is weaker and more susceptible to decay and instability.
https://www.bostonbuildingresources.com ... rowth-wood

*Being that I'm a trend follower, I don't have a problem with objective, rules-based market timing.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
ClevrChico
Posts: 1293
Joined: Tue Apr 03, 2012 8:24 pm

Re: Timber as an alternative - didn't work so well...

Post by ClevrChico » Sun Oct 14, 2018 2:55 pm

Fascinating! I had this recommended to me about 20 years ago by a know it all type person. They also suggested landlording. I'm glad I ignored the noise and stuck to index funds.

I know a couple people that did the timber investment plan, and it's way too late to turn back now. I wonder if it will pay off at all.

thx1138
Posts: 784
Joined: Fri Jul 12, 2013 2:14 pm

Re: Timber as an alternative - didn't work so well...

Post by thx1138 » Sat Oct 27, 2018 9:19 pm

As a follow up:

https://www.wsj.com/articles/stressed-s ... _lead_pos4

At least $1.6 billion in timber losses due to Hurricane Michael. Most all of it uninsured because it is impractical cost wise to insure. To add insult to injury some of the mills that were already over stocked on timber were damaged in the storm reducing capacity further. The losses while large are not expected to reduce the oversupply problem at all. In the near term they actually make it worse because any damaged timber has to be harvested quickly before it rots.

User avatar
arcticpineapplecorp.
Posts: 3337
Joined: Tue Mar 06, 2012 9:22 pm

Re: Timber as an alternative - didn't work so well...

Post by arcticpineapplecorp. » Sat Oct 27, 2018 9:46 pm

I guess money doesn't grow on trees.

mic drop
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

mrgeeze
Posts: 178
Joined: Wed Nov 04, 2015 11:09 am

Re: Timber as an alternative - didn't work so well...

Post by mrgeeze » Sun Oct 28, 2018 6:21 am

I guessing one can harvest white oak timber about once every 50-100 years.
Better make a lot on that investment.

What I scratch my head on is the rise of prices lately on almost all construction lumber.
Surely the hurricanes of the last few years have driven demand.
I guess foreign demand has some play.

But if lumber is so cheap why is plywood so expensive.
And dimensional lumber is up quite sharply.

In my travels out west it doesn't seem like the mills are running 24/7.
Perhaps I'm missing something

staythecourse
Posts: 6123
Joined: Mon Jan 03, 2011 9:40 am

Re: Timber as an alternative - didn't work so well...

Post by staythecourse » Sun Oct 28, 2018 7:57 am

Does this mean this is a good time to buy some timber? If everyone else is getting out seems to be a good time to get in?

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

thx1138
Posts: 784
Joined: Fri Jul 12, 2013 2:14 pm

Re: Timber as an alternative - didn't work so well...

Post by thx1138 » Sun Oct 28, 2018 8:08 am

mrgeeze wrote:
Sun Oct 28, 2018 6:21 am
I guessing one can harvest white oak timber about once every 50-100 years.
Better make a lot on that investment.

What I scratch my head on is the rise of prices lately on almost all construction lumber.
Surely the hurricanes of the last few years have driven demand.
I guess foreign demand has some play.

But if lumber is so cheap why is plywood so expensive.
And dimensional lumber is up quite sharply.

In my travels out west it doesn't seem like the mills are running 24/7.
Perhaps I'm missing something
The original topic/article was on timber in the south, mostly pine. The issue there was that there was too much timber in one region and much more than the local milling capacity could handle. Timber (as opposed to cut lumber) is far too bulky and heavy to transport cost effectively so you can’t move it to regions where there is milling capacity and demand. Because most of the timber is maturing in the short term there is no incentive to make the long term investment in more milling capacity.

So it is mostly another demonstration of getting the “trend right” but the “investment wrong”. Indeed increasing demand for finished lumber in a lot of regions. Despite that the specific investment of timber in the south has been horrible.

User avatar
nedsaid
Posts: 10500
Joined: Fri Nov 23, 2012 12:33 pm

Re: Timber as an alternative - didn't work so well...

Post by nedsaid » Sun Oct 28, 2018 11:00 am

not4me wrote:
Thu Oct 11, 2018 1:09 pm
To me, this mainly illustrates not "investing" in what you don't understand. There's a lot of misunderstanding in regard to this area. Untold number of stories where it didn't work out....untold number where it did.

I didn't read this article (due to paywall, but have seen several like it). Close proximity of mills to the trees is a consideration. But, all trees aren't the same. All mills aren't the same. Hard wood vs soft, saw logs vs pulp, etc. Notice the price quote compared back to 2007...ring a bell? Think back to the heat of the housing market then. When housing took a hit, lumber was in oversupply, mills closed etc. Mills are opening now & are more efficient, need fewer folks to operate & still hard to find labor enough. Some are making money by buying from discouraged people who thought they could plant & come back in 30 years!

I don't know specifically how Calpers, GMO, etc mentioned are invested in timber, but I would expect they are in for the long term. They won't have to sell today...& trees will keep growing. Of course, I'm not saying there aren't risks: wildfires, insects, hurricanes, etc etc....certainly not as liquid or passive as index investing...& Calpers, et al probably didn't sell all their stock on the day the indexes were down 3% in one day
This is the thing, it really helps if you know what you are doing. I suppose I didn't know what I was doing either but I was wise enough to invest in companies that specialized in timber. Presumably, the folks at Plum Creek and Weyerhauser would know what they are doing. (These two companies later merged). I certainly wouldn't rush out and buy a wood lot because of an article that I read in the Wall Street Journal.

In the case of Plum Creek, they have diversified holdings. They had holdings in the Pacific Northwest and later made some purchases in the South. My suspicion is that their original lands in the Pacific Northwest did better, they probably ran into the oversupply problems in the South that others here alluded to. But they were professionals in the vocation of timber and land management, they could afford to hire professional foresters.

There is the old thing of supply and demand. Sometimes you get good prices and sometimes you don't. If you can't get good prices, you just let the trees grow and at some point the timber markets will experience a favorable change.
A fool and his money are good for business.

garlandwhizzer
Posts: 2017
Joined: Fri Aug 06, 2010 3:42 pm

Re: Timber as an alternative - didn't work so well...

Post by garlandwhizzer » Sun Oct 28, 2018 11:28 am

David Swensen, Yale endowment investment advisor, popularized a diversified non-traditional portfolio which included private equity, hedge funds, real estate and alternate assets. His performance relative to other Ivy endowments and to traditional 60/40 portfolios was quite impressive. Swenson himself has said that most endowments that attempt to follow his strategies are unlikely to find such success. The following is an article in Institutional Investor magazine by Julie Segal based on an in depth independent study of Swenson's techniques and success by Markov Processes International. The conclusion is that Swensen's outsized performance comes as a result of taking outsized risk. The Sharpe Ratio (return pre unit of risk) of Swenson's portfolio is very close to that of a standard 60/40 portfolio. Surprise! The more things appear to change in the investing arena, the more they may remain the same.

Garland Whizzer

texasdiver
Posts: 2719
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Timber as an alternative - didn't work so well...

Post by texasdiver » Sun Oct 28, 2018 6:21 pm

I wonder how Trump's tariffs on Canadian lumber and paper products (newsprint) have affected this market if at all. I have no idea if Canadian lumber is in direct competition with these pulpwood tree farms in the south or more directly competitive with say douglas fir lumber from the Northwest.

Also something I have not seen reported anywhere, I'm curious of the extent to which tariffs on lumber and steel have affected the costs of rebuilding post-Hurricanes Michael and Florence.

Valuethinker
Posts: 36340
Joined: Fri May 11, 2007 11:07 am

Re: Timber as an alternative - didn't work so well...

Post by Valuethinker » Mon Oct 29, 2018 6:58 am

texasdiver wrote:
Sun Oct 28, 2018 6:21 pm
I wonder how [deleted] tariffs on Canadian lumber and paper products (newsprint) have affected this market if at all. I have no idea if Canadian lumber is in direct competition with these pulpwood tree farms in the south or more directly competitive with say douglas fir lumber from the Northwest.

Also something I have not seen reported anywhere, I'm curious of the extent to which tariffs on lumber and steel have affected the costs of rebuilding post-Hurricanes Michael and Florence.
Hi

My recollections are vague on all of this and would need some checking.

The Canadian softwood lumber dispute has long been an issue - this predates the current Administration, AFAIK. The US has actually been found to be in the wrong in international trade disputes tribunals, but that has not ended the problem. The American contention (which is not without validity) is that American forests are privately owned and the owners undertake the cost of replanting and maintaining -- stewardship. Whereas in Canada the land is technically all Crown land, the harvesters pay a royalty, and thus they don't pay for the costs of replanting etc.

It pits the sawmill owners and workers of the NW against housebuilding & construction industry. Given the size of the average new home in USA, it's a significant number (low thousands of dollars on the average sized home, I believe).

AFAIK this is a NW vs. Canada thing. I.e. softwood lumber. I don't think pulp & paper is at all involved.

Those tariffs will have increased costs for American homebuilders, primarily. It will have increased the cost of reconstruction (although only by a fairly small percentage).

The big impact on steel and aluminum are on American manufacturers. Caterpillar has noted precisely this problem - increased input costs. This would be true across anyone who makes things out of aluminum and steel in the USA. Also in the construction industry (reinforcing bar for concrete; steel I Beams (joists)).

Application to investment

I think we can discount the effects of these measures on companies in the stock market as a whole - it's really a very small proportion of the US economy (although it's not good for China as an EM). It does not really matter to a shareholder if CAT or Harley Davidson (sp?) manufactures a bit more in an offshore plant rather than a US plant (if you are a consumer of these raw materials, that's what you do as a manufacturer - you relocate production to the lowest cost area).

The broader issues are:

- raises consumer prices (particularly for those in the market for a new home, car, appliances etc.) and that increases the likelihood of interest rate rises in the near term by the Fed

- it's bad for market sentiment and risks much broader trade wars breaking out, which would be bad for world economic growth, corporate earnings, and thus stock markets
Last edited by Valuethinker on Mon Oct 29, 2018 8:53 am, edited 1 time in total.

Murgatroyd
Posts: 132
Joined: Sun Jan 21, 2018 8:23 pm

Re: Timber as an alternative - didn't work so well...

Post by Murgatroyd » Mon Oct 29, 2018 7:29 am

About 30 years ago the controller for the St. Louis based company I worked for shared his timber plan. He bought 40 acres and planted walnut trees. He said it’d be worth $1 million in 40 years. I never thought about it until seeing this. According to this article he was conservative https://www.profitableplantsdigest.com/ ... or-profit/ It suggests $100,000 per acre.

Valuethinker
Posts: 36340
Joined: Fri May 11, 2007 11:07 am

Re: Timber as an alternative - didn't work so well...

Post by Valuethinker » Mon Oct 29, 2018 8:51 am

Murgatroyd wrote:
Mon Oct 29, 2018 7:29 am
About 30 years ago the controller for the St. Louis based company I worked for shared his timber plan. He bought 40 acres and planted walnut trees. He said it’d be worth $1 million in 40 years. I never thought about it until seeing this. According to this article he was conservative https://www.profitableplantsdigest.com/ ... or-profit/ It suggests $100,000 per acre.
You'd need to take that in real terms? Prices have risen 113.9% since then according to Google. At least, in my experience, human brains have trouble with compound growth. Thus we have trouble intuitively understanding the effect of inflation over long periods.

$4m now is worth x (118.3/ 252.4) = $1.874 m in 1988 money according to Google.

In real terms his rate of return was (1.874 m /100k)^(1/30)-1 = 10.3% real pa.

That's pretty good - my mental image is c. 7% for S&P 500 over same time period. https://dqydj.com/sp-500-return-calculator/ says 7.7% assuming dividends reinvested.

However it involved a lot of specific risk. Pretty sure an apartment in San Francisco or New York has done better than that (but many cities worse than that). The latter would have a carrying cost, although there would be property taxes and perhaps other costs associated with the stand of timber.

A bad plague of beetles, severe drought, fungal infection or fire could wipe out your return.

Murgatroyd
Posts: 132
Joined: Sun Jan 21, 2018 8:23 pm

Re: Timber as an alternative - didn't work so well...

Post by Murgatroyd » Mon Oct 29, 2018 9:20 am

Valuethinker wrote:
Mon Oct 29, 2018 8:51 am
Murgatroyd wrote:
Mon Oct 29, 2018 7:29 am
About 30 years ago the controller for the St. Louis based company I worked for shared his timber plan. He bought 40 acres and planted walnut trees. He said it’d be worth $1 million in 40 years. I never thought about it until seeing this. According to this article he was conservative https://www.profitableplantsdigest.com/ ... or-profit/ It suggests $100,000 per acre.
You'd need to take that in real terms? Prices have risen 113.9% since then according to Google. At least, in my experience, human brains have trouble with compound growth. Thus we have trouble intuitively understanding the effect of inflation over long periods.

$4m now is worth x (118.3/ 252.4) = $1.874 m in 1988 money according to Google.

In real terms his rate of return was (1.874 m /100k)^(1/30)-1 = 10.3% real pa.

That's pretty good - my mental image is c. 7% for S&P 500 over same time period. https://dqydj.com/sp-500-return-calculator/ says 7.7% assuming dividends reinvested.

However it involved a lot of specific risk. Pretty sure an apartment in San Francisco or New York has done better than that (but many cities worse than that). The latter would have a carrying cost, although there would be property taxes and perhaps other costs associated with the stand of timber.

A bad plague of beetles, severe drought, fungal infection or fire could wipe out your return.
He was pretty shrewd. But to your point he very well may have been talking current dollars. But I don’t think so and here’s why; I seem to recall he spent something on the order of $50,000 for the land and seedlings. And there is no doubt in my mind he did the work, as well as the fact we (a bunch of young MBA’s) were all blown away by the ROI.

Valuethinker
Posts: 36340
Joined: Fri May 11, 2007 11:07 am

Re: Timber as an alternative - didn't work so well...

Post by Valuethinker » Mon Oct 29, 2018 9:37 am

Murgatroyd wrote:
Mon Oct 29, 2018 9:20 am
Valuethinker wrote:
Mon Oct 29, 2018 8:51 am
Murgatroyd wrote:
Mon Oct 29, 2018 7:29 am
About 30 years ago the controller for the St. Louis based company I worked for shared his timber plan. He bought 40 acres and planted walnut trees. He said it’d be worth $1 million in 40 years. I never thought about it until seeing this. According to this article he was conservative https://www.profitableplantsdigest.com/ ... or-profit/ It suggests $100,000 per acre.
You'd need to take that in real terms? Prices have risen 113.9% since then according to Google. At least, in my experience, human brains have trouble with compound growth. Thus we have trouble intuitively understanding the effect of inflation over long periods.

$4m now is worth x (118.3/ 252.4) = $1.874 m in 1988 money according to Google.

In real terms his rate of return was (1.874 m /100k)^(1/30)-1 = 10.3% real pa.

That's pretty good - my mental image is c. 7% for S&P 500 over same time period. https://dqydj.com/sp-500-return-calculator/ says 7.7% assuming dividends reinvested.

However it involved a lot of specific risk. Pretty sure an apartment in San Francisco or New York has done better than that (but many cities worse than that). The latter would have a carrying cost, although there would be property taxes and perhaps other costs associated with the stand of timber.

A bad plague of beetles, severe drought, fungal infection or fire could wipe out your return.
He was pretty shrewd. But to your point he very well may have been talking current dollars. But I don’t think so and here’s why; I seem to recall he spent something on the order of $50,000 for the land and seedlings. And there is no doubt in my mind he did the work, as well as the fact we (a bunch of young MBA’s) were all blown away by the ROI.
Ahh right. So his returns were effectively double - not sure why I plugged in $100k, except pure error on my part.

texasdiver
Posts: 2719
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Timber as an alternative - didn't work so well...

Post by texasdiver » Mon Oct 29, 2018 10:39 am

Murgatroyd wrote:
Mon Oct 29, 2018 9:20 am
Valuethinker wrote:
Mon Oct 29, 2018 8:51 am
Murgatroyd wrote:
Mon Oct 29, 2018 7:29 am
About 30 years ago the controller for the St. Louis based company I worked for shared his timber plan. He bought 40 acres and planted walnut trees. He said it’d be worth $1 million in 40 years. I never thought about it until seeing this. According to this article he was conservative https://www.profitableplantsdigest.com/ ... or-profit/ It suggests $100,000 per acre.
You'd need to take that in real terms? Prices have risen 113.9% since then according to Google. At least, in my experience, human brains have trouble with compound growth. Thus we have trouble intuitively understanding the effect of inflation over long periods.

$4m now is worth x (118.3/ 252.4) = $1.874 m in 1988 money according to Google.

In real terms his rate of return was (1.874 m /100k)^(1/30)-1 = 10.3% real pa.

That's pretty good - my mental image is c. 7% for S&P 500 over same time period. https://dqydj.com/sp-500-return-calculator/ says 7.7% assuming dividends reinvested.

However it involved a lot of specific risk. Pretty sure an apartment in San Francisco or New York has done better than that (but many cities worse than that). The latter would have a carrying cost, although there would be property taxes and perhaps other costs associated with the stand of timber.

A bad plague of beetles, severe drought, fungal infection or fire could wipe out your return.
He was pretty shrewd. But to your point he very well may have been talking current dollars. But I don’t think so and here’s why; I seem to recall he spent something on the order of $50,000 for the land and seedlings. And there is no doubt in my mind he did the work, as well as the fact we (a bunch of young MBA’s) were all blown away by the ROI.
Owning 40 acres of land of any kind also generates annual carrying costs that are going to be greater than a Vanguard index fund.

Taxes (they may be low on forest land, but unlikely to be zero)
Insurance (no idea what kind of insurance is required on forest land, but presumably some type of liability)
Maintenance such as mowing, pruning, spraying, maintaining fencelines, etc. I'm not sure how succeptible these trees are to pests English walnuts are succeptible to various blights that can require aerial spraying.

forgeblast
Posts: 167
Joined: Fri Oct 13, 2017 8:45 am
Location: PA
Contact:

Re: Timber as an alternative - didn't work so well...

Post by forgeblast » Mon Oct 29, 2018 10:54 am

For us anything over 10 acres that is wooded we can enroll in "Clean and Green" which means we do not have to pay taxes on, and we promise not to dump or make it into a landfill.
Hardwood timber is what is all around us, and depending on the species and grade prices can been great. The grade is what gets people, they think every tree is a veneer quality tree and its just not. When I look at facebook marketplace adds and see people trying to sell yard trees for 2-300$ it just makes me laugh.
We were approached by a company to logg some of our 20 acres. They were going to High Grade meaning cut the best and leave the worse (this will destroy your tree genetics since only poor quality trees will be seeding). So I called our local forester and we walked the property and came up with a working plan. He said if we sold now we would get $500 a tree, wait ten years its 1k per tree as some of our cherrys are growing over 1/2'' per year.
I cut the injured/poor trees and plant different species in. Black walnut being a biggie. My daughter will make out pretty good, but Its not something that I plan on benefiting from.

Post Reply