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Prentiss & Carlisle  is one of the largest timberland asset managers in North America. P&C provides ongoing management services on approximately 1.75 million acres of timberland located in Maine, Michigan, New York, Vermont, Wisconsin, Ontario and Quebec. Nearly every acre under management is certified by the Forest Stewardship Council through either our clients or through P&C itself, which holds FSC certificates for both Forest Management and Chain-of-Custody.

 

P&C provides turnkey land management from long-range forest planning through on-ground forestry, marketing of forest products, harvesting, transportation, road construction and maintenance, stump-to-mill accounting and reporting, client cash management, administration of third-party relationships, public advocacy/representation and strategic asset planning. P&C also provides specialized consulting services in related areas of expertise:

  • Timber inventory design, execution and analysis
  • G&Y modeling and timber harvest scheduling
  • GIS mapping and data management services
  • Timberland valuations and appraisals
  • Acquisition and disposition due diligence
  • Market studies
  • Timber supply modeling

 

About this magazine

Our aim is to provide a gathering place for news and opinion about timberland investing. We cover both publicly traded issues including listed timber companies, real estate investment trusts (REIT's), and exchange traded funds (ETF's), and the more private world of institutional investing in timberland. Our focus is on: the rationale for investing in timberland; performance of publicly traded timber investments; timberland deals and transactions; timber supply, demand and prices, and; public policy issues that impact timberland investing. Not interested in all of these topics? You can easily filter the stories by using the Tags button above.

 

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Prentiss & Carlisle newsletters

Quarterly updates on conditions in our operating regions

 

Timber Mart North 

Lake States price reporting service published by P&C

 

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Why Have Lumber Prices Fallen?

Why Have Lumber Prices Fallen? | Timberland Investment | Scoop.it

The US housing sector—a bellwether for economic health—has showed signs of stagnation (and even the prospect of reaching peak housing in this market cycle) in recent months. As I wrote last month, forecasts for housing starts are simply overblown, as there isn't much room for an increase beyond the 2018 level of 1.266 million units.

 

As a commodity largely tied to housing starts and broader building and construction activity, lumber prices also reflect the general health of this market via supply and demand metrics. After steady increases beginning in 4Q2017, lumber prices skyrocketed to new record highs in 2Q2018 before dropping precipitously across the board over the last four months. Southern yellow pine (SYP) lumber prices recently hit their lowest point since August 2017; Forest2Market’s SYP composite index price for mid-November was $376/MBF—a 35% drop from the record high of $576/MBF achieved in May.

 

Despite the one–two hurricane punch that recently impacted the US South and the continued wildfires in the Pacific Northwest (PNW)—extreme weather events that have significantly impacted forest inventories, harvests and supply—the drop in lumber prices over the last six months is largely, though not entirely, demand driven. Fewer new-home builds = less lumber.

 

The sudden reversal begs a serious question: Did the lumber market simply over drive its headlights in the price run-up earlier this year, or are there more structural forces at work? Several dynamics are combining to impact housing starts and, by extension, the North American lumber market.
***
Did lumber prices really crash in 2018? Not if we take an historical view using Forest2Market’s SYP price data in the chart below. In fact, we should be asking the inverse question: Why did lumber prices spike to historical highs?

 

It is clear that the irregular peak that occurred from May-August was an anomaly likely driven by speculation around uncertain trade policies, overly optimistic housing start numbers and the likelihood of pinched lumber flows from Canada and the timber-constrained PNW. Yet, none of these events materialized either disproportionately or collectively to a degree that would drive prices to new highs. Remove the May-August variance, control for a more historical trend and 2018 lumber prices are really in line with historical norms and current demand.

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CatchMark Completes $79.3 Million Sale of Southwest Timberlands

CatchMark Completes $79.3 Million Sale of Southwest Timberlands | Timberland Investment | Scoop.it

CatchMark Timber Trust, Inc. (NYSE: CTT) announced today that it had completed the sale of approximately 56,000 acres of timberlands in Texas and Louisiana — the Southwest Region — to Forest Investment Associates (FIA) for $79.3 million. As part of the transaction, CatchMark retains approximately 280,000 tons of merchantable inventory (50% sawtimber/50% pulpwood) to be harvested over the next 18 to 24 months. The per-acre sales price was $1,533, including the timber reservations.

 

Jerry Barag, CatchMark's President and CEO, said: "As a part of a series of coordinated transactions, the Southwest Region sale has enabled CatchMark to recycle capital and diversify our revenue streams, strengthening our capital position, and advancing our future growth track. We have reduced regional exposure in East Texas, after investing in 1.1 million acres of extremely high-quality timberlands through the Triple T joint venture, and redeployed capital into 18,100 acres of prime Pacific Northwest timberlands through the Bandon acquisition — both transactions completed during the summer. Proceeds from the Southwest Region sale are being used to repay debt incurred to fund the Triple T and Bandon investments."  

 

The Southwest Region portfolio, located across counties in East Texas and western Louisiana, was acquired by CatchMark in four separate transactions during 2014 and 2015.

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US Housing Starts Inch up in October as Market Shows Signs of Weakness

US Housing Starts Inch up in October as Market Shows Signs of Weakness | Timberland Investment | Scoop.it

After dropping 5.3 percent in September, US housing starts inched up 1.5 percent to a seasonally adjusted annual rate (SAAR) of 1,228,000 units in October. Single-family starts accounted for 865,000 units, which is 1.8 percent below the revised September figure of 881,000, and starts for the volatile multi-family housing segment jumped 10.3 percent to a rate of 363,000 units in October. Multi-family numbers were off over 15 percent last month, so a bounce back is not unexpected.

Privately-owned housing authorizations were also down 0.6 percent to a rate of 1,263,000 units in October. Single-family authorizations decreased to 849,000, which is 0.6 percent below the revised September figure. Privately-owned housing completions were down 3.3 percent to a SAAR of 1,111,000 units in October. Regional performance demonstrated some drastic variation as confirmed by the US Census Bureau report.

 

Seasonally-adjusted total housing starts by region included:
Northeast: -34.1 percent (+29 percent last month)
South: +4.7 percent (-13.7 percent last month)
Midwest: +32.9 percent (-14.0 percent last month)
West: -4.6 percent (+6.6 percent last month)

 

Seasonally-adjusted single-family housing starts by region included:
Northeast: +14.8 percent (-6.7 percent last month)
South: -4.0 percent (-6.8 percent last month)
Midwest: -1.6 percent (+10.2 percent last month)
West: -2.0 percent (+7.0 percent last month)
***
The 30-year fixed mortgage rate is now hovering at a seven-year high of 4.94 percent as of late November. At the same time, builder sentiment recorded its sharpest one-month drop in over 4.5 years as the National Association of Home Builders (NAHB)/Wells Fargo builder sentiment index fell to 60—an 8-point drop in one month and the lowest level since 59 that was recorded in August 2016.

The sputtering housing market—whose slow growth helped to buoy the larger US economy over the last decade—now stands in stark contrast with the broader economy, which has seen two straight quarters of robust growth and an unemployment rate at a near 50-year low of 3.7 percent. 
***
Among the drivers of this softening is the restrained amount of new-home building since the Great Recession of 2008. Single-family housing starts have been well below the 1984-2004 median level for nearly a decade, which has kept inventories at sustained low levels—particularly at the lower end of the housing market.

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Top Court Orders New Review in Weyerhaeuser Frog Habitat Case

Top Court Orders New Review in Weyerhaeuser Frog Habitat Case | Timberland Investment | Scoop.it

The U.S. Supreme Court told a lower court to take another look at the federal designation of privately owned land in Louisiana as critical habitat for the endangered dusky gopher frog.

Ruling unanimously in a case involving the forest-products company Weyerhaeuser Co., the justices called for a closer look at the meaning of the word "habitat" in the U.S. Endangered Species Act.

Weyerhaeuser, which owns part of the land, said the designation was improper because the animal doesn’t live on the property and couldn’t do so without modifications to the land. Weyerhaeuser is harvesting timber on the land and says the owners are planning to develop the 1,500-acre property later.

During arguments in October, the justices had seemed divided on whether the law’s definition of "habitat" left open the possibility that modifications would be needed.

Writing for the Supreme Court Tuesday, Chief Justice John Roberts said a federal appeals court didn’t squarely confront that issue when it rejected a challenge to the Fish and Wildlife Service designation. Roberts also told the appeals court to consider whether the agency adequately weighed the costs and benefits of designating the land.

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Southern Yellow Pine Exports to China on Pace to Double in 2018

Southern Yellow Pine Exports to China on Pace to Double in 2018 | Timberland Investment | Scoop.it

According to trade data compiled by the US Census Bureau through August, 20181 exports of southern yellow pine (SYP) have increased nearly 1 million cubic meters (m3), or 73 percent, over 2017. If the trend holds, the US South will surpass the Pacific Northwest (PNW) on exports of conifer logs to China in 2018. Export prices2 (to all destinations) for Douglas fir have increased sharply and Hemlock prices have remained flat, but SYP prices have dropped significantly over the last year.


While exports of pine logs out of the US South are increasing, exports on an annualized basis in the PNW are trending down. Doug Fir exports continue a downward slide, dropping 3 percent since 2017 and 36 percent compared to 2014. Hemlock exports, which were up slightly in 2016 due to Chinese demand, are also on a 5-year slide; export volume is down 13 percent since 2017 and 43 percent compared to 2014.

Alternatively, SYP continues its upward trend driven by exports to China, gaining 28 percent in the conifer export market share since 2015. The increase in volume is driven by a significant decrease in price, as export SYP log prices are down 13 percent compared to 2017 and currently averaging $141/m3. This price decrease is a result of the plentiful log supply and availability of fast-growing SYP timber in the US South.
***
The impact that some previously-enacted tariffs are having on the wood products trade between the two countries is just beginning to show up in the data. In late 2017, the US hit China’s plywood industry with significant countervailing duties. As the American Journal of Transportation recently noted, the tariffs totaled “nearly 200 percent on some imports of Chinese hardwood plywood after a Commerce Department analysis showed the engineered panels were being sold below cost of manufacture. Since the duties, China’s fiberboard exports to the U.S. fell 11% to 71,200 m3 and plywood exports to the U.S. dropped 31% to 360,000 m3 in the first three months of 2018.”

It’s still too early to tell how the escalating trade dispute and new round of tariffs between the US and China will play out.

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Forestry investment remains a top performer

Forestry investment remains a top performer | Timberland Investment | Scoop.it

The 20th edition of The UK Forest Market report, produced by Tilhill Forestry and John Clegg & Co., reveals that patience and shrewd forestry investment choices have paid dividends over the last 12 months.

 

Many UK forest owners who purchased their property 30 or 40 years ago are now reaping exceptional rewards for patiently growing their timber assets. Not only is their investment showing returns of 13.9 per cent per annum, but the price of standing timber has soared 30 per cent in the last year alone - great news for owners whose forests are now ready to harvest.

 

In discussing the performance of the commercial forestry market in the year to September 2018, the report describes a "brisk and robust" sector. A total of £104.2m of forest properties were traded in 2018. This is a 6 per cent drop from 2017, but, interestingly, the market comprised a smaller number of higher value sales (57 in 2018 compared to 87 in 2017) with an average size of 196 hectares (149ha in 2017) and an average price of £1.83m (£1.28m in 2017). Scotland retained its dominant position in the marketplace with 69 per cent of the sales recorded.

***

Peter Whitefield, Business Development Director for Tilhill Forestry, explained: "Motivations for investors vary, but the main reasons are long-term financial returns, the potential for tax planning, long-term capital growth particularly within a pension, or the amenity value."

 

More conifers were planted in Scotland last year than in any year since 2000. There has been strong demand for woodland creation schemes for 2018/19 with over 12,000ha assessed - well exceeding the Forestry Commission Scotland target of 10,000ha per year.

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Market Snapshot: Canadian Softwood Lumber

Market Snapshot: Canadian Softwood Lumber | Timberland Investment | Scoop.it
The North American softwood lumber market ended October 2018 at a low point for the year—a complete reversal compared to its record-setting performance earlier in 2018, which also came on the heels of solid performance in 2H2017.
Throughout Canada, inventories still remain heavy, customers are quiet, producers are just starting to announce seasonal downtime and secondary suppliers have an abundance of wood on hand. At sawmills, log supply has been plentiful and small orders of fill-in lumber are about the only sales tasks that need to be addressed.

Market conditions for North America softwood lumber products—the supply-demand balance—has changed drastically in recent weeks. The slowdown in US construction activity has caused lumber producers to pump the brakes just a few months after surging demand drove price levels to new highs.

At the start of 4Q, suppliers quickly found themselves with overflowing inventories and more manufacturing booked to come online quickly. Buyers, meanwhile, have backed off almost entirely and prices have responded accordingly.

An unexpected predicament recently manifested itself in the form of labor action for producers in British Columbia (BC); the United Steelworkers Union, representing sawmill workers across Canada, is currently in negotiations with two BC employer groups that have been hit by rotating strikes at select operations. In response, several individual operators have announced seasonal curtailments and downtime. This sudden uncertainty is hitting at a time when lumber demand is soft and prices are lower than earlier in the year, so the impact to production has not yet been felt in the market.
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Lumber Market Crash Is Probably Over, Resolute Forest Says

Lumber Market Crash Is Probably Over, Resolute Forest Says | Timberland Investment | Scoop.it

The plunge in lumber prices is probably over, Resolute Forest Products Inc. Chief Executive Officer Yves Laflamme said in an interview.

The market is “close” to a bottom, though prices probably won’t rebound to this year’s highs, Laflamme said. Last week, lumber futures tumbled to a 28-month low and have plunged 50 percent from the record in May. That spurred Interfor Corp. to announce plans to reduce output by 20 percent at its British Columbia sawmills. Canfor Corp. on Thursday said it will to cut production 10 percent in British Columbia in the fourth quarter.

Montreal-based Resolute reduced shifts at some mills in Thunder Bay, Ontario, and Quebec to adjust log inventory, Laflamme said in the telephone interview. “That’s the way we’re managing right now, and if we need to do more, we’ll do more,” he said.

Tight supplies, trade disputes and transport bottlenecks sent lumber futures higher earlier this year. As a Canadian rail logjam eased, the outlook for U.S. housing started to trail some expectation, and the lumber “market started to collapse,” Laflamme said.

Even if prices have bottomed, fourth-quarter results for lumber “won’t be that great” after the slump and the persistent dispute between Canada and the U.S. over softwood lumber, Laflamme said.

Resolute will pay about $88 million in import duties to the U.S. by the end of the year, and neither side appears to have “any interest” in a deal, he said.

On the outlook for lumber prices, “I’m not expecting to go back to where we were because that was the exception,” though the market will be “better in the next few months.”

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Timber product exporters wary of potential Chinese dumping

Timber product exporters wary of potential Chinese dumping | Timberland Investment | Scoop.it

The far-reaching consequences of the escalating trade tensions between the US and China are also a concern for the timber product export industry, according to new Malaysian Timber Council (MTC) chairman Datuk Low Kian Chuan. While manufacturers of furniture, wood-based panels and commodities like rubber and palm oil may benefit from the diversion of investment and demand from the two countries, there is the potential that excess Chinese timber products may be dumped into export markets that Malaysia currently supplies to, like Europe and Japan, Low said.

 

“For example, Chinese plywood may potentially flood the Japanese market, which is currently the largest market for Malaysian plywood. [There is also the] potential risk of dumping of China-made wooden products and furniture into Malaysia, which affects companies focusing on the domestic market, though this will provide more choices for domestic users,” he told The Edge Financial Daily in a recent interview.

 

Hence, with Malaysia’s open economic policy, Low urges stronger trade relations with both China and the US, focusing on attracting foreign direct investment from these countries.

 

Still, trade tensions notwithstanding, Low foresees that Malaysia will be able to achieve its target of RM25 billion export value by 2020 under the revised National Timber Industry Policy. To achieve this, he said, Asia will be the focus region for Malaysia’s exports of timber and timber products in the next few years.

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CatchMark Timber Trust Inc.'s (CTT) CEO Jerry Barag on Q3 2018 Results - Earnings Call Transcript

CatchMark Timber Trust Inc.'s (CTT) CEO Jerry Barag on Q3 2018 Results - Earnings Call Transcript | Timberland Investment | Scoop.it

Executives
Brian Davis - CFO
Jerry Barag - President and CEO
Todd Reitz - SVP, Forest Resources
John Rasor - President, Triple T Timberlands

Analysts
Collin Mings - Raymond James
Paul Quinn - RBC Capital Markets

 

Jerry Barag
***
Now I'd like to spend some more time reviewing two other important transactions that we have not previously discussed on our calls. Bandon which we completed in late August and the southwest regional disposition which we entered into in late August. Bandon is our first transaction in the Pacific Northwest. We acquired from more than 18,000 acres of prime Oregon timberlands for $90 million.

 

In keeping with our focus on premium quality and durable earnings potential, the acreage features quality stocking of 36 tons per acre and merchant inventory comprised of 87% commercial conifers, 77% Douglas fir.

 

More than 90% of Bandon expected five years average harvest volume will keep sawtimbers, helping increase sawtimber share of our harvest.
***
The southwest region disposition is a key part of our capital recycling strategy, following the Triple T and Bandon transactions. Scheduled to close before year-end, southwest disposition involves selling 56,000 acres in Texas and Louisiana and CatchMark will retain merchantable inventory for harvest on the sold acreage. over the next 18 to 24 months.

***
In terms of current transactional activity in timberlands, we see a bifurcated U.S. South just as reference. High quality properties attract strong bidding. Second tier properties take longer to clear and possibly aren't even selling. Lower projected sawtimber pricing growth is weighing on valuations in the region.

In the Pacific Northwest, the transaction market remains robust supported by favorable underlying inventory and demand dynamics.

***
Paul Quinn

Very great. Maybe we had a record drop of lumber in the quarter. Just wondering if you've seen any kind of -- or heard of any changes in some of the potential capacity adds that are coming in November space going forward in the U.S. South?

 

Jerry Barag

Yes. I mean, as an industry it's impacting different places differently and we know given the really strong prices for timber out in the West and the fall particularly in power prices in particular out in the West that it's gotten a little bit more dicey. As I noted in my comments, prices on Southern Yellow Pine, while it come down from big highs, are still -- on a trend line basis are it's still pretty attractive.

And so the people that we're supplying, which again by design are in some of the better lumber production markets, and as a result, some of the better timber markets, they have not pulled back at all. We have seen no real impact of lower lumber prices on their current operating rates and their future plans for expansion in the south.

 

Paul Quinn

Okay. And just last year on Timberland values, I mean you guys are pretty. Just wondering if you are seeing any impact from rising interest rates, lower lumber and sort of this Chinese import tax issue on Timberland values?

 

Todd Reitz

The quick answer is no. It's still a little early for that to have gone through. As I've noted on previous calls, the big impact -- and it's challenge for the appraisal industry for valuations in general, is that the way the market operates is based on actual recorded sales and it doesn't really take into account no sales.

 

And there have been quite a bit of no sales in weaker and weak Timberland markets. And so those comps really never make it to those appraisers and it's odd process probably a flawed process because of that. But what you've seen is where products have transacted have been in the more desirable market, the better operating market and prices have remained very consistent.

 

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Housing Start Forecast: What the Next Five Years Really Look Like

Housing Start Forecast: What the Next Five Years Really Look Like | Timberland Investment | Scoop.it

Housing start forecasts are overly optimistic, with many in the industry suggesting we'll see 1.6 million housing starts in 2020. These estimates are overblown. Forest2Market’s current forecast for 2020 is 21 percent lower; here's why.

 

Demand—Millennial Buying Behavior

All the statistics point to pent-up demand from millennials. Several trends indicate that this cohort may not follow in the footsteps of their parents.

 

In general, millennials eschew the ownership of things. They stream music, film and television instead of buying CDs, DVDs and expensive cable TV packages.

 

Millennials are delaying major life changes that often lead to the decision to buy a home, like marriage and having children.

 

Home prices are painfully high and interest rates are increasing. Millennials have more student loan debt than previous generations.
***
With this debt comes two things that make loan qualification difficult: lower credit scores and high debt to income ratios. High down payments and mortgage payments are obstacles as well.
***
When they do decide to enter the market, however, millennial buying behavior is not following the historical pattern of buying a starter home, living in it for 5-7 years, and then making a second purchase of a dream home. Instead, millennials are skipping starter home purchases, saving longer to amass larger down payments and making their first homes their dream homes. Ultimately, this cohort will buy half the number of homes in the beginning stage of their adult lives.

 

Supply—Labor, Land and Lumber

***
The national unemployment rate was 3.7% in September 2018, but the unemployment rate in the construction sector was 5.0%, according to Bureau of Labor Statistics (BLS).

 

The causes of this shortage are varied:

 

Fewer young people are choosing construction as a profession and since the workforce is aging, retirees are not being replaced.
***
During the Great Recession, workers who lost their construction jobs found other jobs (mostly in the energy sector) and did not return to construction once home building picked up.

The opioid crisis has exacerbated the labor shortage.
***
More rigorous drug screenings have also led to more potential workers being turned away, and others who are otherwise qualified avoid drug tests by not applying for open positions.

 

According to the Pew Research Center, nearly 15% of the workforce in the construction industry—roughly 1.25 million workers—are undocumented immigrants.
***
The effect of this labor shortage is two-fold: it takes longer and costs more to complete a construction project.
***

Land shortages are also influencing the market. In urban areas, where demand is strongest, the availability of serviced, buildable lots suitable for residential construction is shrinking. Because land is a finite resource, this problem is likely to worsen.

 

Another issue that could lead to shortages affecting the number of homes that can be built in the future is sawmill capacity.
***
Considering the average amount of lumber used to construct the average-sized US home, there isn't much room for housing starts to increase beyond their 2018 level of 1.266 million (Forest2Market’s estimate) before lumber shortages become common. With an additional 3.3 BBF of capacity coming on line between 2019-2021 (a 15% increase), the highest annual housing start level that US capacity will be able to absorb through 2021 is roughly 1.44 million units. And adding new capacity beyond 2021 will be limited to roughly 1.2 BBF a year, the limit to how much new sawmill capacity can be built in that amount of time.
***
Forest2Market's Housing Start Forecast

Because of headwinds facing both demand and supply, Forest2Market's current 2020 forecast for housing starts is 1.259 million units, roughly the same as it is for 2018 and 2019. In 2021, we anticipate the market will soften slightly to 1.209 million units, gaining back some ground in 2022 to 1.280 million units. In 2023, we should see a more dramatic recovery, with starts ranging between 1.55-1.80

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Lamar Adams Sentenced to 20 Years in Probable Largest Ponzi Scheme in State History

Lamar Adams Sentenced to 20 Years in Probable Largest Ponzi Scheme in State History | Timberland Investment | Scoop.it

U. S. Attorney Mike Hurst released the following statement tonight, posted verbatim:

 

Jackson, Miss. – Arthur Lamar Adams, 58, of Jackson Mississippi, was sentenced today to 235 months in federal prison for wire fraud involving a large, multi-state Ponzi scheme involving more than one hundred million dollars and hundreds of victims spanning a number of years, announced U.S. Attorney Mike Hurst and FBI Special Agent in Charge Christopher Freeze.

 

United States District Judge Carlton Reeves sentenced Adams to serve nineteen and a half years in prison, followed by three years of supervised release, on a charge of wire fraud involving a scheme and artifice to defraud investors in connection with a Ponzi scheme using Madison Timber Properties, LLC, a company wholly owned by Adams. Judge Reeves ordered full restitution to be paid to the victims of the scheme. During the last year of the scheme, Adams fraudulently obtained in excess of $164.5 million dollars from more than 320 investors located in at least 14 different states.
***
Over a period of at least 7 years, Adams executed this sophisticated Ponzi scheme using Madison Timber Properties, LLC, a company wholly owned by Adams. From as early as 2011 through April 2018, Adams’s scheme defrauded investors by soliciting millions of dollars of funds under false pretenses, failing to use the investors’ funds as promised, and converting investors’ funds to Adams’s own benefit without the knowledge of the investors. Instead of investing his clients’ money, Adams used the invested funds for his own personal benefit and for purposes other than those represented to investors, which also included making payments due and owing to other investors, thus perpetuating the Ponzi scheme. 

***

As part of his fraudulent scheme, Adams falsely represented to investors that Madison Timber Properties was in the business of buying timber rights from landowners and then selling the timber rights to lumber mills at a higher price. The object of the scheme was to cause individuals to invest in loans that purportedly were for the purpose of financing contracts for the purchase of timber rights to be sold to lumber mills at a higher price. However, neither Adams nor Madison Timber Properties had such timber rights or contracts with lumber mills, except in only a few instances.

 

Adams entered into fraudulent investment contracts with investors, most often in the form of promissory notes on behalf of Madison Timber Properties. The loans typically guaranteed investors an interest rate of 12-13%, with the interest to be repaid to investors over the course of 12-13 months. The monthly payments due on these promissory notes were typically due on either the first or the fifteenth of the month.

 

Adams created false documents causing investors to believe that their investments were secured by sufficient collateral from which they could recover all or part of their investment in the event that Madison Timber Properties defaulted on the loans. Specifically, Adams created false timber deeds purporting to be contracts conveying timber rights from landowners to Madison Timber Properties. Adams forged the signatures of landowners and also created false timber deeds purporting to convey timber rights from Madison Timber Properties to the investors.

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South Africa: Fires drive local timber industry to its knees

South Africa: Fires drive local timber industry to its knees | Timberland Investment | Scoop.it

A total of 7 643 hectares of predominantly pine plantations belonging to private timber growers in the Southern Cape region have either been totally or partially destroyed in the fires that raged in the Outeniqua mountains between 25 October and 16 November. Plantations ranging in age from one to 25 years were affected.

 

These were the findings of a meeting of 35 people involved in the timber and timber processing industries, held at the Nelson Mandela University in George on 3 December.

 

This will have a major negative influence on the future ability of the forestry industry in the region to produce the timber needed to supply the processing plants reliant on this resource.

 

The value of the timber lost has not yet been completely established, as many factors need to be taken into consideration. The cost of re-establishing those areas that have been totally destroyed has also not been established accurately. However, initial estimates are that just the re-establishment costs could be in the region of R80-million.

 

Furthermore, many jobs in the timber-growing sector will be permanently lost. Forestry infrastructure was also destroyed.

The processing side of the industry in the region has the potential to process approximately 700 000m³ of logs per annum, the majority of this through sawmills and pole treatment plants.

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Climate assessment predicts increasing wildfires

Climate assessment predicts increasing wildfires | Timberland Investment | Scoop.it

The Fourth National Climate Assessment focuses on human welfare, societal, and environmental elements of climate change.

It lays out the devastating effects on the economy, health, environment, and wildfires. Within the 1,656-page document wildfires are covered extensively.

 

The scientists conclude that by the middle of this century, the annual area burned in the western United States could increase 2–6 times from the present, depending on the geographic area, ecosystem, and local climate. The area burned by lightning-ignited wildfires could increase by 30% by 2060.

 

In the Southeast rising temperatures and increases in the duration and intensity of drought are expected to increase wildfire occurrence and also reduce the effectiveness of prescribed fire. Intra-annual droughts, like the one in 2016, are expected to become more frequent in the future. Thus, drought and greater fire activity are expected to continue to transform forest ecosystems in the region.

 

In the Southwest, recent wildfires have made California ecosystems and Southwest forests net carbon emitters (they are releasing more carbon to the atmosphere than they are storing). With continued greenhouse gas emissions, models project more wildfire across the area. Under higher emissions, fire frequency could increase 25%, and the frequency of very large fires (greater than 5,000 hectares) could triple.

 

The Northwest is likely to continue to warm during all seasons under all future scenarios, although the rate of warming depends on current and future emissions. The warming trend is projected to be accentuated in certain mountain areas in late winter and spring, further exacerbating snowpack loss and increasing the risk for insect infestations and wildfires. In central Idaho and eastern Oregon and Washington, vast mountain areas have already been transformed by mountain pine beetle infestations, wildfires, or both, but the western Cascades and coastal mountain ranges have less experience with these growing threats. Forests in the interior Northwest are changing rapidly because of increasing wildfire and insect and disease damage, attributed largely to a changing climate. These changes are expected to increase as temperatures increase and as summer droughts deepen.

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Climate change shrinks winter snowpack, damaging Northeast's forests

Climate change shrinks winter snowpack, damaging Northeast's forests | Timberland Investment | Scoop.it
Climate change often conjures up images of heat, drought and hurricanes. But according to the latest U.S. National Climate Assessment, released on Nov. 23, 2018, winters have warmed three times faster than summers in the Northeast in recent years. These changes are also producing significant effects. Historically, over 50 percent of the northern hemisphere has …
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NH Biomass Sustains Veto, but a New Challenge Emerges

NH Biomass Sustains Veto, but a New Challenge Emerges | Timberland Investment | Scoop.it

Biomass fuel is an important market for New Hampshire’s forest industry and, despite recent victories in the state legislature, six legacy biomass plants now face a new challenge that threatens their ability to continue operations. 


The Granite State is home to eight total biomass plants, six of which are older plants that were developed decades ago in response to policy incentives. These plants provide a vital market for low-grade wood. In 2016, the most recent year for which New Hampshire has full harvest data, wood for all products (sawlogs, pulpwood, firewood and biomass) totaled 3.3 million tons. 1.3 million tons—or 41% of the total—was biomass. Biomass has supplanted pulpwood as the single largest market for low-grade wood in NH, as in-state pulp mills have closed and two new biomass plants have opened.

 

While they comprise an important market for the state, New Hampshire’s smaller biomass plants have a hard time operating in the highly competitive wholesale energy market. In 2008, the average price for wholesale electricity in New England was $80.56 per MWh; in 2017 it dropped to $33.94 per MWh (up from $28.94 per MWh in 2016). Decreased natural gas prices coupled with increased efficiency at homes and businesses has been great for forest industries that purchase electricity, but it also threatens the continued operations of some biomass plants.

The New Hampshire legislature stepped into this fray in early 2018 and passed a bill providing for three years of above-market contracts for electricity from the state’s six legacy biomass plants (five of which are operating). 
***
Citing the increased cost to electricity customers from this bill, Governor Chris Sununu vetoed the legislation, setting up a contentious and high-profile effort to override the veto and continue the biomass market at these legacy plants.

***

In September, the 400-member NH House overrode the governor’s veto by just one vote, apparently securing the near-term future for these biomass markets. 

But the nail-biting win for biomass may turn out to be too good to be true. In mid-November, the New England Ratepayers’ Association filed a challenge with the Federal Energy Regulatory Commission (FERC) arguing that federal law doesn’t allow states to set electricity rates, and that New Hampshire’s support for biomass effectively does just that.

***
Just when New Hampshire’s loggers, truckers and forest industry thought they had three more years of a critical market for low-grade wood, the future is now uncertain. 

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Stumpage or Delivered: Is there an Ideal Sales Model in the US South?

Stumpage or Delivered: Is there an Ideal Sales Model in the US South? | Timberland Investment | Scoop.it
Two basic sales models exist for individuals and companies that own and manage timberland for profit in the US South:
Stumpage model: A company or individual sells timber “on the stump” to a logger or broker by either a bid sale or negotiation process. A vast majority of small, private landowners in the South sell their timber this way because it streamlines and simplifies the timber sales process, and they simply don’t have the available timber resources to meet the long-term supply needs of a large mill facility.


Delivered Model: A company or individual sells timber directly to end-use/mill facilities, taking responsibility for harvesting and delivering the wood. In this case, the seller gets paid a stumpage price + the margin that would otherwise go to the logger or broker if they sold wood as stumpage.

***
The stumpage model is typically favored by landowners who have relatively small holdings and are looking to sell timber on a one-off basis. Large landowners such as Timber Investment Management Organization (TIMOS) and Real Estate Investment Trusts (REITS) also favor this model at times as they seek to eliminate the uncertainty of operating costs.

The delivered model is only a “real-world” option for large landowners who own and manage thousands of acres of timberland. It is favored by larger landowners that continuously harvest and deliver large volumes of timber, month after month and year after year. These landowners typically secure a higher-than-average delivered market price since they can commit large volumes of secure supply. This model allows large landowners to focus on net realization and minimize the costs of harvesting and hauling timber.
***
The charts below compare net realization from our delivered price database and stumpage price from our stumpage database for FY2017. When analyzing data for our standard areas for pine sawtimber and pine pulpwood in the US South, strong evidence suggests that the delivered model is more profitable for landowners. While this is the case when analyzing larger areas, a more detailed view produces different results, as some local markets clearly favor a stumpage model.

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Chequamegon-Nicolet National Forest timber sales reach record levels

Chequamegon-Nicolet National Forest timber sales reach record levels | Timberland Investment | Scoop.it
Timber sale levels on the Chequamegon-Nicolet National Forest  reached 128.7 million board feet in fiscal year 2018, a level of sales not seen since the early 1990s.

The 2018 fiscal year was also the sixth year in a row timber sales have increased in the forest. In 2017, the forest sold 120.5 million board feet of timber for an estimated value of $7.72 million. Contractors also harvested 93.1 million board feet of timber valued at $7.48 million.

“I am very proud of the great staff and partners we have in making this achievement possible," said Paul Strong, forest supervisor of the Chequamegon-Nicolet National Forest.

In addition to the forest’s regular timber sale program, which sold 98 million board feet this year, 30.7 million board feet were sold through the Good Neighbor Authority agreement with the Wisconsin Department of Natural Resources.

“The 2014 Farm Bill permanently authorized Good Neighbor Authority as well as Stewardship Contracting, and the forest continues to leverage them to increase timber sales and sustainable forest management activities on the National Forest,” Strong said.
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Presidential Wildfire Tweets: Right Message, Wrong Time

Presidential Wildfire Tweets: Right Message, Wrong Time | Timberland Investment | Scoop.it

Every so often, a Presidential tweet sparks a worthwhile conversation on the national stage. While President Trump is constantly criticized for his choice of words on the digital platform, two of his latest messages in question centered on the cause of the devastating wildfires that have ravaged portions of California:
“There is no reason for these massive, deadly and costly forest fires in California except that forest management is so poor. Billions of dollars are given each year, with so many lives lost, all because of gross mismanagement of the forests. Remedy now, or no more Fed payments!”
***
Under any other circumstances, the entire US forest value chain would applaud the President for raising awareness about a topic that is so often dismissed at the legislative level.
***
However, in this particular case, the President’s remarks were simply ill-informed and ill-timed. While many of the devastating wildfires in the Pacific Northwest (PNW) and much of California do indeed originate in poorly-managed forests, the current blazes that are decimating California did not start in a forest. Rather, they were sparked in a “wildland-urban interface,” which are areas where suburbs abut undeveloped wildlands—in this case grasslands. Aided by strong Santa Ana winds, the fires have quickly spread to engulf huge swaths of the state.

 

The President’s tweets also implied that the state’s forest management is to blame; however, the majority of California’s forests are federally owned.
***
The single largest contributing factor to the dangerous state of western forests has not been climate change; rather, it is almost entirely an artifact of the way that our national forests—millions of acres of timberland—have been managed since the mid-1970s. The controversy and senseless litigation that has surrounded harvesting activities on publicly-owned lands has long prevented the US Forest Service (USFS) and the Bureau of Land Management (BLM) from taking a common sense, science-based approach to managing forests to control for naturally-occurring, catastrophic events like forest fires, insect damage and disease.

 

To be clear, cyclical changes in climate undoubtedly impact western forests. Precipitation, snowpack/snowmelt, temperature, soil moisture, the density of trees, shrubs and other potential fuel—as well as the health of these trees and shrubs—all contribute to the conditions that create favorable wildfire scenarios. All of these factors are also impacted by climate variability. But in the case of the devastating fires that have grown in scale over the last few decades, it is a widely-held belief that the mismanagement of western national forests is the primary cause for the unprecedented destruction.

 

In a separate blog post we published earlier this year, we noted that forest mortality now far exceeds forest growth in western national forests. In 2017, forest growth was 48 percent of mortality while timber harvests were a mere 11 percent of what is dying annually—and this trend is on the rise. The USFS estimates that 6.3 billion dead trees were standing in 11 western states in 2015, up from 5.8 billion in 2010. Regardless of the climate variability in the region, this accumulation of dead timber is a tremendous problem that has resulted in a very dangerous situation.

 

The good news is that a successful model for managing forests to minimize devastating mega fires and disease risk already exists. We need only look to privately-owned working forests to find a solution. Working forests are managed for production and health and, while fires and infestations do occur in these forests, overwhelming incidents like those currently ravaging California are rare.

 

At a landscape level, working forests are made up of a patchwork of smaller timber tracts that are thinned and harvested at different intervals. Due to this hands-on management, the landscape-level forest has multiple characteristics that prevent catastrophic damage:

 

Because they are thinned at regular intervals, these forests do not contain as much fuel as forests that are unmanaged, and the remaining trees stand farther apart.
***
Due to rotating harvest schedules, working forests are also of different age classes. Planting and harvesting tracts of timber at varying periods helps to slow down—and sometimes even stops—the spread of fire or disease.
***
Simply cloning a management style from region to region is unrealistic, as there are a number of key differences between western and southern forests. Timberland acres and tree species are dissimilar, as are the soil and terrain, elevations, climatic trends and precipitation norms just to name a few. However, key forest management practices such as regular thinnings, harvests and prescribed burns—rigorous monitoring and reacting to health issues—are pretty universal in application. For example, a 2015 study by The Nature Conservancy and the USFS showed that a 12,000-acre “doughnut hole” within a major western fire zone remained untouched by the massive Carlton Complex fire in Washington. The area survived, the researchers believe, because it had previously undergone a thinning and prescribed burn.

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Forest Resilience Bond to help fund $4.6 million restoration project to mitigate wildfire risk in Tahoe National Forest

Forest Resilience Bond to help fund $4.6 million restoration project to mitigate wildfire risk in Tahoe National Forest | Timberland Investment | Scoop.it

This summer, California experienced its largest fire in state history—the latest disaster in a growing trend towards hotter, larger, and more destructive fires. Without urgent action, wildfires will be even deadlier and costlier in years to come. The Forest Resilience Bond (FRB), developed by Blue Forest Conservation (BFC) in partnership with World Resources Institute (WRI), raises private capital to finance forest restoration today, to reduce the risk of severe fire tomorrow. With financing secured from The Rockefeller Foundation, the Gordon & Betty Moore Foundation, Calvert Impact Capital, and CSAA Insurance Group, private capital will now fund the upfront costs of forest restoration, while multiple beneficiaries share in the cost of reimbursing investors over time.
***
The investment will kick off a forest restoration project protecting 15,000 acres of forestland in the North Yuba River watershed using ecologically based tree thinning, meadow restoration, prescribed burning, and invasive species management—all specifically designed to reduce the risk of severe fire, improve watershed health, and protect water resources. The restoration treatments are prescribed by the Forest Service, benefit from public comment, and rely on the work of existing restoration crews.
***
The Yuba Water Agency, a utility provider that recognizes the benefits of restoration to local water and power resources, has committed $1.5 million over five years to reimburse investors. In addition, the state of California has committed $2.6M in grant funding to the project from the state’s Climate Change Investment program. The Tahoe National Forest will provide in-kind support and services and has provided all the resources associated with planning and permitting the project. The National Forest Foundation serves as one of the project’s primary implementation partners, leading much of the forest restoration work on the ground.

 

“The financing provided by the FRB provides us with the financial flexibility to accelerate the pace and scale of restoration treatments at a time when this work is needed most”, said Marcus Selig, Vice President of Field Programs for the National Forest Foundation.
***
The FRB also makes a compelling case to investors. “The Forest Resilience Bond provides diversification while also benefitting our communities by making them safer,” said Linc Walworth, vice president of investments at CSAA Insurance Group, a AAA insurer offering insurance to AAA members in Northern California. “We earn a good return while helping the environment and our policyholders. What a great combination in a single investment.”

 

As the prescribed forest management techniques are applied in the North Yuba River watershed, researchers from the Sierra Nevada Research Institute at UC Merced and the Natural Capital Project at Stanford University will monitor the impacts on water supply and other ecosystem services, providing data to quantify the benefits of restoration activities undertaken. Findings from this research could help catalyze future investment in forest restoration by showing how healthy landscapes can reduce fire risks —and by identifying the best possible interventions.

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Jaguar scheme opts for forestry and farmland

Jaguar scheme opts for forestry and farmland | Timberland Investment | Scoop.it

The Jaguar Pension Plan has invested in agriculture and timber funds in a bid to diversify its portfolio and develop its exposure to opportunistic private markets.

 

According to its latest investment report, the £3.7bn scheme invested $16.5m (£12.3m) in an agriculture fund managed by Boston-based specialist Folium Capital in the year to April 5 2018. It invested the same amount in a timber fund run by the same asset manager.
***
However, the Jaguar scheme has blamed diversification for recent underperformance. Losses from “diversifying assets, hedge funds and emerging markets” mean the fund lagged expectations, according to its accounts, which did not disclose the portfolio’s performance as of April 5. It said its performance over the year was led by investments in real estate and infrastructure.

Experts praise agriculture and timber investment for their diversifying benefits and inflation linkage, but say the governance burden of these investments and a small market largely restrict them to bigger funds.
***
Research by consultancy Mercer indicates that in 2018, 2 per cent of European pension schemes held part of their exposure to real assets in timberland or agriculture. Of these schemes, the average asset allocation stood at 2 per cent. The Jaguar plan sits in a range of large UK schemes with exposure to agriculture and timber.
***
Timber funds invest largely in freehold land, according to Edward Daniels, a director in real asset investment manager FIM’s forestry team. Some investors own the right to the timber, as well as the land underneath it. Alternatively, they may just own the rights to the crop.
***
According to reports, Folium Capital is run by former managers of the Harvard Management Company, which operates Harvard University’s $37.1bn endowment fund.
***
Timberland has received more institutional investment than agriculture because of the “fragmented nature of the agriculture market”, according to McAleer.

 

“It is mostly larger schemes that access these asset classes,” she added, “and that’s predominantly because of the governance burden”.

 

Australasia and South America are two key markets for these investments. Timberland and agriculture are, however, “very US-centric”, McAleer said.

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Judge strikes down California land use law

Judge strikes down California land use law | Timberland Investment | Scoop.it

A U.S. judge struck down a California law challenged by the Trump administration that aimed to give the state power to override the sale of federal lands.

The law unconstitutionally regulates the U.S. government and discriminates against people seeking to buy federal public land, Judge William Shubb in Sacramento ruled Thursday.

State lawmakers who passed the law — SB50 — last year cited concerns that the Trump administration would allow more logging, oil drilling or development on some of the 46 million acres owned by the federal government in California.

Gov. Jerry Brown signed the law a year ago, and it went into effect in January. The U.S. Department of Justice filed its lawsuit in April — one of several the administration has filed against California as the state seeks to thwart President Donald Trump’s policies.
***
The law sought to give the commission the first right to purchase federal lands or to arrange for a specific buyer and included fines for failing to do so.

The DOJ argued in its lawsuit that California had no power to interfere with federal land sales, citing the Constitution and the 1850 act of Congress that admitted California to the union.It said the state law was delaying land sales — even for projects that had been in the works for years — and was depressing their value.
***
Shubb rejected the state’s argument that the law regulated land buyers, not the federal government.

The law “trespasses on the federal government’s ability to convey land to whomever it wants,” the judge said.

It also singles out people who do business with the federal government, Shubb said, subjecting them to a “level of uncertainty and potential delay that all others are spared from.”

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In One Week, Georgia’s Timber Damage Estimate More Than Doubles To About $763M

In One Week, Georgia’s Timber Damage Estimate More Than Doubles To About $763M | Timberland Investment | Scoop.it

Hurricane Michael is continuing to have a severe impact on Georgia’s timber industry. 

 

The latest damage estimate has more than doubled from last week’s numbers. About a week ago, Georgia Forestry Commission officials estimated the state’s timber loss at more than $374 million. 

***

Now, the damage estimate is at more than $762 million.

 

Georgia Agriculture Commissioner Gary Black, who also released the latest data, calls the assessment “unfortunate” for the state’s forestry community.

 

“This number went in the wrong direction and will undoubtedly have a significant impact on the industry for years to come,” he said, in a statement. “As more information continues to be gathered regarding Hurricane Michael’s impact on Georgia’s diverse agricultural economy, we will continue to pray and work for all the communities impacted by this catastrophic storm.”

 

Georgia is one of the top states in the nation for timber exports.

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Rayonier Inc. (RYN) CEO Dave Nunes on Q3 2018 Results - Earnings Call Transcript

Rayonier Inc. (RYN) CEO Dave Nunes on Q3 2018 Results - Earnings Call Transcript | Timberland Investment | Scoop.it

Executives

Mark McHugh - SVP and CFO
Dave Nunes - President and CEO
Doug Long - SVP, U.S. Operations

Analysts
Collin Mings - Raymond James
Ketan Mamtora - BMO Capital Markets

 

Collin Mings

***
Mark, you've spent a lot of time discussing Timberland markets and just return to the asset class over time, just kind of against that backdrop, just maybe talk a little bit about what you're seeing in terms of deal flow. It looks like you guys made a total of about $7 million to $8 million in Timberland acquisitions during the quarter.

 

Mark McHugh

I guess, it had a very high level and I'll invite Doug or Dave to comment as well. I'd say we continue to see a pretty robust Timberland M&A market.
***
But overall I'd say we continue to see a pretty steady pace of activity and just to be clear, I'd say the Timberland market as a whole doesn't tend to overreact to the noise that we see in the market around kind of monthly housing stats and things of that nature.
***
Keep in mind, this is an asset class, it's underwritten on a 25-year to 50-year DCF assuming making assumptions regarding long-term sustainable harvest flows and trendline prices and so you know, we tend to not see the private market correct meaningfully relative to these statistics that we see coming on a regular basis. I'd say the China situation is certainly creating some noise in the market.
***
But I'd say overall, discount rates, maybe there's been a bias towards seeking higher IRRs in transactions given the rise in interest rates, but again, Timberland tends to be valued on a real DCF basis and so while the overall interest rate environment fluctuates, it is certainly up over time. I wouldn't say people's view of real long-term discount rates have changed significantly.

 

Ketan Mamtora

***
And then just turning to sort of U.S. south on the domestic side, have you seen with this sharp drop in lumber prices, have you seen any signs of people pulling back on these sawmill projects that have really come up quite a bit over the last 12 months? Are you seeing any signs of people either postponing it or pulling back? Or even sort of any signs of kind of caution on bidding for stumpage?

 

Doug Long

Yes, it's Doug again. So we haven't heard of anybody pulling back on their projects. Again, I think a lot of people feel that this is a short term thing and not the long term. So, I think they are continuing moving forward. And delay that we have heard of so far on the sawmills have been more around resourcing and getting equipments and people to work on the projects. So we haven't heard of anyone who specifically said they are pulling back based on kind of what we believe is going to be a short-term correction. On the stumpage side, as probably we have talked about for the last couple of quarters, we didn't see our southern stumpage prices run up with the lumbar. And we also haven't seen them go down with the lumber. So they haven't been correlated to lumber prices at all. And so, I guess while it would have been nice to see them run up with the lumber, the other side of equation they have been very stable and we have just continued moving forward with what's been going on for the rest of the year.

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PotlatchDeltic Corporation (PCH) CEO Michael Covey on Q3 2018 Results - Earnings Call Transcript

Executives
Michael Covey - Chairman and CEO
Jerry Richards - VP and CFO
Eric Cremers - President and COO

Analysts
John Babcock - Bank of America Merrill Lynch
Paul Quinn - RBC Capital

 

Michael Covey
***
We expect lumber demand will continue to grow faster than supply and that industry operating rates will remain healthy. Factors on the demand side that give us confidence include a healthy rate of household formation, strong employment and wage growth, higher consumer and homebuilder confidence and the fact that houses remain affordable relative to historic levels.

 

It's important to keep in mind that there been a significant amount of noise in the recent housing start statistics including the effect of two major hurricanes and torrential rainfall in Texas. The largest homebuilding market in the country, single family housing units which use about three times as much lumber as multi-family units are up almost 5% year-over-year.

 

In addition, the repair and remodel market segments should remain strong through the old age of U.S. housing stocks and strong home prices. The repair and remodel segment has been growing in the mid to high single digits and accounts for about 40% of lumber demand which is a bit more in new home construction.

 

On the supply side of the equation, it appears that Canadian producers have meaningfully reduced the supply overhang caused by transportation issues in the first quarter. Over the longer-term, fiber availability will constrain Canada's ability to supply the U.S. market.

 

Continuing with a supply theme that is well documented, the lumber capacity additions in the U.S. south will be measured. There are only two major sawmill equipment suppliers and each is requiring deposits to secure a place in line. As we think about the demand and supply dynamics, fundamentals appear much stronger than the current lumber pricing environment.

We expect improvement once we move past what is seasonally the weakest part of the year as well as recent weather disruptions. Field inventories are low which should support pricing recovery.
***
John Babcock

Okay. Thank you. And I was wondering more on the topic of lumber and pricing trends and the fundamentals there, if you could talk first about -- first of all about where inventory stand in the supply chain now versus where they were about a month or two ago? And then also just generally how market conditions look right now and what you think it will take for lumber prices to change directions?

 

Eric Cremers

Yeah, John. This is Eric. Our sense of it talking to our customers is that the inventories in the supply chain are relatively low levels, yet there's plenty of demand and order books are relatively strong. I think there was a Forest products conference that [indiscernible] had out in San Francisco here not too long ago and they reported that inventories were at incredibly low levels, a half months of supply compared to what typically might be one and a half months of supply.

 

So our sense of it is that inventories are relatively low, which gives us optimism going forward that once the seasonal slowdown in housing turns the corner and demand picks back up again that order books with them being strong will get some firming of prices. You're also starting to see some curtailments out in the West, several mills have announced downtime which ought to help the supply demand balance. So like most pundits who were forecasting prices are up I think 10% Q1 versus Q4 that's roughly our outlook as well.

 

So we think we're as Jerry said earlier, we're at or near the bottom in lumber prices and we think we're about to turn the corner.
***
Paul Quinn

Yeah, that's pretty helpful. Maybe just maybe on that timber, we've seen interest rates come up, what are you seeing in that market especially in the U.S.?

 

Michael Covey

Well, we just we just closed on a couple of thousand acre acquisition here a couple weeks ago and what I'd tell you discount rates are we got what we think we got a very attractive transaction here it was a 6% discount rate, but with some 1031 like kind exchange tax benefits it turns out to be about a 9% discount rate. So I don't know that anything is materially changed though if you compare to where we were a year or two ago. We also lost that transaction a couple of months ago that had what we think was a discount rate of 3.5 %. So timber still a highly sought after asset in the South in particular.

 

Paul Quinn

What is driving that strong demand in the U.S. I mean it's obviously got to be disappointing over the last decade. We haven't seen any material increase in sawlog prices on the selling of pine side, so what is driving that demand?

 

Michael Covey

Well, you're right. There haven't been any price increases over the last decade. It has disappointed industry observers. But we talked about a little bit earlier that there's a lot of mill capacity that's going to be coming online in the next those two, three, four years. Our estimates that sawlog demand is going to go up anywhere from 15 to 20 million tons per year that should put the South back into supply demand balance. And when that does you'll see price movements, the same opportunity isn't there on the West Coast or in other parts of the country. I think that's where the opportunity is in the U.S. South.

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