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Timber REITs and the “Dividend Tax” Cliff, Part I

Timber REITs and the “Dividend Tax” Cliff, Part I | Timberland Investment | Scoop.it
This is the first in a two-part series summarizing implications to timber REIT shareholders from expiry of the current tax provisions specific to dividend income.
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Sponsored by...

Sponsored by... | Timberland Investment | Scoop.it

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.

 

We encourage readers to interact with our site:

  • Click on the Follow  button (upper left), and Scoop.it! will deliver a summary of our new content to your inbox every morning.
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Some useful links

 

Stock quotes, news and financial metrics

These links take you to customized Google Finance pages for timber REITS, indexes and other publicly traded companies of interest:

 

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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KKR puts sandalwood asset Santanol on the chopping block

KKR puts sandalwood asset Santanol on the chopping block | Timberland Investment | Scoop.it
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KKR has put sandalwood company Santanol Group on the market in the latest twist for the plantation industry based in northern Australia.

Santanol Group owns about 2000 hectares of plantations with more than 560,000 sandalwood trees in Western Australia and Queensland.

Grant Samuel is advising on the sale of 100 per cent of Santanol Group in a move which comes after KKR reached a peace deal in a legal dispute with the minority shareholders who founded the company.

The Santanol Group is being marketed as a vertically integrated producer of Indian sandalwood oil and timber for the global fine fragrance, cosmetics, aromatherapy and traditional markets.

It expects to materially increase output as plantations mature.
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The assets include a timber processing facility in the WA town of Kununurra and oil distillation and refining facilities in Perth.

KKR became a majority shareholder in 2013 when it funded the $70 million acquisition of plantations controlled by Elders to add to those held by the Santanol founders.
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Inflation hedging not a main driver of property allocation decisions

Inflation hedging not a main driver of property allocation decisions | Timberland Investment | Scoop.it
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 Inflation hedging is no longer among the top priorities for real estate investors, according to investors at the IPE Real Estate 2018 Global Conference & Awards.

 

A panel of investors argued that protection against inflation was no longer a main driver of asset allocation decisions, due in part to the low levels of inflation seen across the developed world in recent years.

 

Patrick Kanters, global head of real estate and infrastructure at APG, said: “When we think about how we implement strategies for our clients, although inflation is an important reason why they allocate to real estate, it is not the main drivers of portfolio construction.

 

“We allocate to strategies in which we think the supply-demand equation works and strategies that are capitalising well on megatrends.

 

“Eventually, these strategies will also provide an inflation hedge, but this is not at the top of our portfolio managers’ agendas.”

Kanters added, however, that inflation does come up in conversations with clients and that the academic evidence points towards a strong correlation between income from real estate assets and inflation protection.

 

“This has to be put in the context of an environment where we have seen an enormous decline of interest rates and capitalisation rates,” said Kanters.

 

Marco Plazzotta, chairman of the institutional investors committee of Assoimmobiliare, Italy’s real estate investors association, said: “From my perspective, real estate is an evergreen asset class.

“Ten years ago, the discussion was focused on capital growth and total return. More recently, we have been in a deflationary environment and the discussion has turned to yield recovery and long-term income.

 

“Perhaps, we have to be selective in how we in invest in certain countries, to protect the capital against higher inflation rates in the future.”

 

The US market is an example of where being is selective is important due to a bullish inflation outlook, he said.

 

Meagan Nichols, head of real assets investment group at Cambridge Associates, said the firm’s approach to inflation hedging consists of using a basket of assets, as opposed to purely real estate. “I don’t think there is really a perfect hedge, but we have found that putting together a basket of inflation-sensitive securities has more durability.

 

That basket would include things like listed natural resources funds, commodities, potentially gold as well as real estate, infrastructure and credit”, said Nichols.

 

“Our research has told us that the basket approach is the best approach, but it’s theoretical because we have not had a period of high inflation recently.”

 

 

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Harvard Seeks Sale of South America Timber Holdings

Harvard Seeks Sale of South America Timber Holdings | Timberland Investment | Scoop.it
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Harvard University is trying to sell some of its timberland investments in South America to investors who will share management of the portfolio as the endowment retreats from bets on natural resources.

Harvard Management Co. has approached investors to buy minority or majority stakes in as much as $700 million of property in Brazil, Uruguay and Argentina, and become strategic partners at the same time in an effort to reduce the endowment’s risk, according to people familiar with the matter.

The $37 billion endowment hired investment banker Jonathan Prather from Perella Weinberg Partners Group in February, according to the people, who asked not to be identified because the information is private. Perella Weinberg declined to comment.

The move is the latest step in an overhaul of Harvard’s endowment that began in 2016 when the Ivy League school hired Narv Narvekar from Columbia University as investing chief. Narvekar cut the organization’s headcount by almost half, shuttered internal hedge funds, spun out money managers and sold more than $2 billion of buyout and real estate funds.

Narvekar is trying to revamp the natural resources strategy after predecessors made a big wager on the asset class that initially produced solid returns but later backfired. Last year, Harvard wrote down the portfolio by $1.1 billion to $2.9 billion, a loss that included a decision to exit from one of its farm projects in Brazil where it invested at least $150 million.

The portfolio “will take multiple years to reposition,” Narvekar wrote in a September report, adding that “while most assets remain attractive, a few have significant challenges.”

He began unloading properties last year, agreeing to sell a dairy farm in New Zealand with 5,500 cows to private equity firm KKR & Co. for $70 million and a eucalyptus plantation in Uruguay to insurer Liberty Mutual for $120 million.

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Mississippi man pleads guilty in timber fraud scheme

Mississippi man pleads guilty in timber fraud scheme | Timberland Investment | Scoop.it

A Mississippi man pleaded guilty Wednesday to a fraud scheme that prosecutors say took in well over $100 million and victimized more than 300 people, including U.S. Sen. Roger Wicker.

 

Arthur Lamar Adams pleaded guilty to one count of wire fraud in federal court in Jackson in an agreement with prosecutors after earlier waiving indictment.

 

The U.S. Securities and Exchange Commission, which is pursuing a separate civil suit against Adams, says he began defrauding investors as early as 2004. Authorities say the 58-year-old Jackson resident persuaded investors to loan him money, promising interest rates of 12 percent to 15 percent a year and repayment over 12 to 15 months. Adams told investors he was buying rights to cut timber cheaply and then selling them for higher prices to sawmills.

 

U.S. District Judge Carlton Reeves set sentencing for Aug. 21. Adams faces up to 20 years in federal prison and a fine of $250,000.

***

Assistant U.S. Attorney Dave Fulcher told Reeves that Adams confessed to FBI agents. Fulcher said that "except in a few instances," Adams had no timber rights, and knew that he would use some of the money to repay investors and keep the fraud going in a classic Ponzi scheme. Federal officials say Adams skimmed some of the money to pay personal expenses and used some to begin real estate developments near the Mississippi towns of Oxford and Starkville.

 

Adams offered notarized deeds to cut timber as collateral, but as one of the first lawsuits filed in state court shows, those deeds were bogus. A plaintiff named Sherri Hughes says Adams and a salesman for the scheme persuaded her to loan Madison Timber Properties nearly $170,000, but when she tried to cash her monthly check after the SEC froze Adams' accounts, she was turned away by a bank. Hughes' company, Highway 22 LLC, then tried to file its deed for a purported 400-plus-acres (160-plus-hectares) of timber rights in Monroe County, only to be told by courthouse workers that no such parcel or landowner existed in county records.

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Trump Gives the Gift of High Lumber Prices

Trump Gives the Gift of High Lumber Prices | Timberland Investment | Scoop.it

It appears that every time the U.S. picks a fight with Canada over its alleged subsidies of softwood lumber — which comes from coniferous trees such as pines, firs and cedars — U.S. lumber prices go up. The match is likely even closer than the chart above indicates, given that threats of tariffs (“countervailing duties,” to be precise) and follow-up tariff increases also affected prices.

The U.S.-Canada softwood lumber war first flared up in the early 1980s. Imports of lumber from Canada had been on the rise as environmental restrictions cut back on logging in U.S. National Forests, and the U.S. timber industry began to complain that Canadian local, provincial and national governments, which own almost all of the country’s forest land, were charging such low prices for timber that it amounted to an unfair subsidy. That has remained the chief complaint ever since. Various bi- and multi-lateral trade organizations have been charged with evaluating it, and as my former Bloomberg Opinion colleague and longtime softwood-lumber-trade-dispute aficionado Megan McArdle put it in a column last year:

When trade bodies get around to ruling, those rulings are often mixed: “Yeah, okay, maybe there’s some subsidy in there somewhere, but you Americans are wildly overreacting, so cool it with the huge tariffs.”

After that happens, the tariffs go down again and lumber prices drop … until another president decides to make a stink about Canadian softwood lumber. Donald Trump started doing that soon after taking office, and now the average duties on Canadian lumber are up to 21 percent. Unlike some of Trump’s other trade actions, this clearly does not signify a major departure from past presidential practice. But it’s worth asking whether it makes any sense.

The main beneficiaries of these softwood lumber trade spats appear to be owners of the land on which softwood-lumber-producing trees are grown. Most timberland in the U.S. is in private hands, and the biggest owner by far, according to the latest survey by Forisk Consulting, is Weyerhaeuser Co., a publicly traded real estate investment trust that has seen its stock price rise about 20 percent since the beginning of 2017.

***
Investment returns on timber in U.S. have been on a long decline, but they do seem to have perked up in the past during softwood lumber trade disputes.

Sam Radcliffe's insight:

Southern timberland owners have not benefited from the tariffs -- sawtimber stumpage prices have not risen in line with lumber prices. Western timberland owners have fared better. Lumber manufacturers (including Weyerhaeuser) though have by far been the biggest beneficiaries.

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Gresham’s law may end up felling forestry investments

Gresham’s law may end up felling forestry investments | Timberland Investment | Scoop.it

 

Gresham’s law states that bad money drives good money out of the market. That is, we hoard the good stuff, trusting it to hold its value, while offloading the dross. That resonates with Tony Dalwood as boss of Gresham House, the Aim-quoted alternative investment company. So it should — and not just because his business is named after the Elizabethan financier Thomas Gresham.

 

Managers of esoteric assets are natural proponents of Gresham’s law, hoping to buy and hold the best investments while selling or sidestepping the rubbish. But where money-market watchers and economists point out that when debased currencies dominate circulation, trust reduces and everything is assumed to be of the lowest quality, managers such as Tony Dalwood talk about the illiquidity premium.

 

They argue in essence that illiquid assets that can’t be sold in a hurry, such as fields and forestry, perform better in the long run. Investors who are able to tie up their capital for long periods and can wait for decades for a bet to pay off, are compensated for the uncertainty.

 

That is why last week Gresham House tripled its bet on forestry by paying £25m for FIM, which manages 83,000 hectares of forestry worth £600m. Gresham now owns more than 100,000 hectares of prime pinetums in the North of England, Scotland and Wales.

 

Forestry, explain bulls, is renewable, uncorrelated to stock markets, diversifies investors’ portfolios and protects them against inflation.

 

And it is a market where demand outstrips supply. The UK imports between half and three-quarters of what it needs to build houses, depending on exchange rates and commodity prices. Less than half of the country’s 3m hectares of forests are investment grade. And not much of the good stuff comes to market. Owners of the best investable plantations of croppable trees in the UK hold on to it, sometimes for generations because of the generous tax breaks.

 

Most ordinary savers don’t own any trees barring what is in the garden. Most pension funds have less than 1 per cent in timber.

The exceptions are the big endowment funds. By 2016, Harvard Management had invested more than 11 per cent of its $35bn funds directly into farms, vineyards and timber plantations from California to Chile. In 2010 the Church of England began switching out of agricultural land into forests. Now less than 4 per cent of the Church’s £8bn endowment fund is tied up in arboreal assets, some of which is managed by Gresham. It is now about the largest owner of UK forests after the Forestry Commission.

 

The Church’s bet has paid off. Its woodland portfolio returned 24 per cent in 2016 and 12 per cent over six years, against an average return for timber of 15 per cent over five years. The Royal Institute of Chartered Surveyors says commercial forestry land has been the top-performing UK asset type in the past 15 years. Land prices alone have risen from £2,000 in 2006 to £8,600 per stocked hectare in 2017, easily outperforming farmland. That is aside from the income from selling planks.

 

However, not all is rosy in the arboretum. Harvard has drastically written down its $4bn natural resources portfolio in the past two years. In September, Narv Narvekar, the fund’s new chief executive cited market “challenges”. The message was that illiquid assets were tricky to value, it was easy to pay too much at the outset, returns might be illusory and repositioning the portfolio would take many years.
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Gresham House invests in UK land, which may obviate the problems and local politics that have felled rivals.

 

Still, it is all very well to talk about illiquidity premia and diversifying into uncorrelated markets, but it is a bit of a nonsense when the benefits of diversification are nullified by illiquidity.

 

Theory is no help if you cannot make an exit when necessary and when you do, Gresham’s law prevails and everyone loses faith in the asset class.

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Judge Invalidates Western Wisconsin Sand Mine Permits For Meteor Timber

Judge Invalidates Western Wisconsin Sand Mine Permits For Meteor Timber | Timberland Investment | Scoop.it

A judge says the state Department of Natural Resources improperly granted Meteor Timber, a Georgia-based company, permits to destroy western Wisconsin wetlands to make way for a sand processing plant.

 

Administrative Law Judge Eric Defort ruled Friday that the DNR improperly granted the permits because the agency lacked enough information to determine the environmental impact, Meteor's mitigation plan wasn't adequate and the project would cause significant adverse impacts.

 

But Chris Mathis, a project manager for Meteor Timber, says the firm disagrees with the judge's decision to invalidate the company's wetland permits.

 

"While we respect the decision handed down by Administrative Law Judge Defort today, we at Meteor Timber disagree and do believe that the economic and environmental benefits of this project merit further discussion and thought," Mathis wrote in an email to WPR. "We understand that this process is a lengthy one, with much deliberation, and we will continue to work toward ensuring that this project can benefit the local communities that will be impacted."

 

Meteor Timber wants to build a $70 million plant to process industrial sand in Monroe County. The plans call for destroying 16 acres of wetlands. The DNR awarded the company permits last year, drawing a challenge from Clean Wisconsin and the Ho-Chunk Nation.

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Forecast: US Housing Starts Outlook, Q2 2018 Update

Forecast: US Housing Starts Outlook, Q2 2018 Update | Timberland Investment | Scoop.it
Forisk’s Housing Starts Outlook combines independent forecasts from professionals in the housing industry. Currently, these include Fannie Mae, Freddie Mac, the National Association of Home Builders (NAHB), PNC, and Wells Fargo. Forisk applies long-term assumptions from the U.S. Energy Information Administration (EIA) and Harvard’s Joint Center for Housing Studies to establish the peak and trend over the next ten years (Figure).

Overall, Forisk projects 2018 housing starts of 1.29 million, up 7.5% from 2017 actuals. Forisk’s 2018 Base Case peaks at 1.56 million housing starts in 2023 before returning to a long-term trend approaching 1.53 million. For comparison, our January 2018 Base Case last quarter estimated 1.28 million starts for 2018 with a peak of 1.57 million housing starts in 2024. The independent housing forecasts captured in Forisk’s Housing Starts Outlook reflect a range of expectations for 2018. For example, Wells Fargo leads with a 2018 forecast of 1.31 million, while the National Association of Home Builders (NAHB) trails with its most recent forecast of 1.27 million.
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Endowment Index Declines 0.36% in Q1

Endowment Index Declines 0.36% in Q1 | Timberland Investment | Scoop.it

The Endowment Index calculated by Nasdaq OMX ended a rollercoaster first quarter down 0.36%, after having risen 5.51% in the first 26 days of the year.

 

After gaining 17.6% in 2017, the index looked poised for another strong year as it surged along with the equity markets in January. However, it made an abrupt U-turn when concerns over rising US interest rates led to a correction in global markets. According to Nasdaq OMX, the index peaked on Jan. 26, up 5.51% from the end of December. However, the volatile markets helped push the index to a loss of 2.34% on Feb. 8, before rebounding to end the quarter slightly lower. The loss was below that of the S&P 500, which fell 0.76% during the same period.

 

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Of the index’s 19 components, 11 posted loses, while eight saw gains during the quarter. Natural resources-timber was the top performer, rising 2.58%, followed by gold, and emerging markets, which increased 2.09% and 1.20% respectively. Domestic real estate weighed down the index, falling 8.12% during the first three months of 2018, while natural resources – metals & mining, and emerging market bonds lost 4.18% and 2.16% respectively.

 

For 2017, the top earners were natural resources-metals and mining, emerging markets equity, emerging markets equity-China, natural resources-timber, international real estate, and equity-international developed.


The index represents an asset allocation used by major universities’ endowments, which includes stocks, bonds, and alternative investments, such as hedge funds, private equity, and real assets. It is intended to provide an objective tool for portfolio comparison, investment analysis, research, and benchmarking. Its methodology is based on the portfolio allocations of more than 800 higher learning institutions managing over $500 billion in total assets. Contained within each of the 19 components are more than 30,000 underlying securities, with a current target allocation of 52% alternatives, 36% equity, 8% fixed income, and 4% liquidity, which is represented by the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF, which seeks to provide investment results that correspond to the performance of the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index.

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Conservation groups oppose development changes proposed for Maine woods

Conservation groups oppose development changes proposed for Maine woods | Timberland Investment | Scoop.it

Conservation groups in Maine on Wednesday urged state officials not to expand the distance limit that determines where subdivisions and commercial projects can be built in the state’s Unorganized Territory.

 

The Land Use Planning Commission is considering a change in policy that would allow zoning changes to occur in unorganized areas of the state within at least 10 linear miles of the boundary of a designated “retail hub” community — an area that encompasses 1.8 million mostly undeveloped acres, not including land protected from development by conservation restrictions.

 

Under the commission’s current policy, any new subdivision or commercial development in unorganized townships has to be within one road mile of existing similar development.

 

The commission has said that the so-called one-mile rule is overly blunt and can result in a “leapfrogging” effect in which each development can serve as a springboard for another development a mile or less down the road, without concern to how close it may be to any of more than 40 retail hubs identified by the commission. And it doesn’t differentiate between types of commercial development, or whether some types of commercial development may be suitable in the area where they are proposed.
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“We believe the [proposed] rule changes threaten the scenic beauty” of the Unorganized Territory, Claire Polfus of the Appalachian Trail Conservancy told the commission Wednesday during a meeting in Bangor. “This type of development could cause habitat fragmentation and public safety concerns.”
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Under the proposed policy, any land less than two miles from a public road and less than 10 aerial miles from a retail hub — or in such a hub — would be considered “primary” locations for subdivision or commercial development. Land that is less than five miles away from a public road and which abuts a retail hub community would be considered “secondary” locations for potential development.
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Some opponents at the meeting said the proposed changes could affect scenic byways, allowing development along forested stretches of public roads where it currently is not allowed.
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Some at Wednesday’s meeting voiced support for the proposed changes. John Kelly of land management firm Prentiss & Carlisle called the current one-mile rule “arbitrary and a bit inflexible.”
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The commission expects to schedule more public hearings on the proposed changes before possibly taking a final vote sometime this fall.

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Timberland Prices Rise and Fall, but Ultimately Return to Trend

Timberland Prices Rise and Fall, but Ultimately Return to Trend | Timberland Investment | Scoop.it

In June of 2011, Pete Stewart wrote one of Forest2Market’s most popular blog posts to date titled “Are $350 per Acre Timberland Prices around the Corner?” He had just returned from a beach vacation and the blog post focused on some of his observations about coastal housing prices and the trends he recalled over a period of years.

***

However, the economic theory that all pricing returns to trend line proved to be the most significant market dynamic that Pete observed in his comparison. While it is an important concept generally applied to commodity pricing, it can be applied to other pricing trends as well.

***

The initial post was written in a very different economic climate over six years ago, so we thought that it might be a good time to add another observation into the mix and reassess Pete’s premise with fresh data and perspective.

To that end, we started with information for timberland sales that occurred in 2017, and we developed an average to represent that year. Going back to Pete’s original blog post and adding the updated 2017 average gives us the following data points to look at in a trend line—this time from both an actual or nominal standpoint, as well as a CPI/inflation-adjusted look with all observations in 2017 dollar equivalents.

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At a fundamental level, the real price trend for timberland from 1977 to 2017 is almost flat, with an annual change of around -0.3 percent for the data points and +0.3 percent for the linear trend line based on the beginning (1977) and final (2017) values. This assessment is by no means meant to assert that there hasn’t been significant variance from the trend line; there definitely has been variance, but the overall movement over time is back toward a long-term trend.

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U.S. trade rep shows no urgency on Canadian softwood lumber trade dispute

U.S. trade rep shows no urgency on Canadian softwood lumber trade dispute | Timberland Investment | Scoop.it
U.S. Trade Representative Robert Lighthizer has little faith that the Canadian softwood lumber trade dispute will be resolved anytime soon, he revealed at a March 21 hearing on U.S. trade policy agenda.
 
“Right now, I would say there’s probably not much going on in terms of those negotiations,” said Lighthizer. “Are they part of NAFTA? Not as far as I am concerned. As far as I am concerned this a function of the trade laws working the way Congress designed them to work.”
 
The answer comes after Texas Representative Kenny Merchant said that Texas home builders are concerned that lumber tariffs have escalated lumber prices by 40 to 60 percent over the past year. Merchant asked if there was relief in site.
 
“To me, it is unlikely I think, I wouldn’t put it at zero but it’s unlikely that I’m going to end up solving this issue or trying to resolve this issue,” Lighthizer added. “Right now the positions are kind of intractable.”
 
The National Association of Home Builders (NAHB) reported that lumber prices between January 2017 and now are enough to increase the average price of a single-family home by $6,388 and a multifamily housing unit by $2,430. These costs will have to be incurred by both the builder and the consumer.
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Meteor Timber Appealing Court Decision That Struck Down Wetland Permit

Meteor Timber Appealing Court Decision That Struck Down Wetland Permit | Timberland Investment | Scoop.it

Atlanta-based Meteor Timber is appealing a judge’s decision to invalidate wetland permits it was issued by the Wisconsin Department of Natural Resources to fill 16 acres of wetland in Monroe County as part of a proposed $75 million frac sand processing and rail loading facility.

 

On Friday, May 4, Administrative Law Judge Eric Defort ruled the DNR improperly granted Meteor Timber permits because the agency lacked enough information to determine the environmental impact of the project and whether a plan to alleviate wetland impacts would work.

 

In a statement, Meteor Timber project manager Chris Mathis said the company has proved to the DNR that it’s application was thorough and made clear the project would provide a net environmental benefit for the state.

 

"Today, we filed an appeal of the administrative law judge determination on our Department of Natural Resources permit," said Mathis. "We believe our permit application and the 30-plus months of continued work with the department clearly demonstrate the permit was comprehensive and should allow the project to go forward. We look forward to a robust discussion and intend to follow the process to its rightful conclusion that will allow this $75 million project to proceed, and the local community to flourish."

 

Another document sent to WPR by Meteor Timber mentioned the DNR has "the sole discretion to concur with the administrative law judge or reverse the decision if the agency believes there are significant factual or legal errors. Meteor Timber believes there are errors which merit a second review by the state agency with decades of experience in environmental permitting."

 

Meteor said a number of Defort’s findings in his decision are contradicted by conditions included in the permit issued by the DNR. Also, the document criticized the court for making its decision without "acknowledging the testimony of the department’s five witnesses (or any of the Meteor witnesses), but based solely on the testimony of a former department staffer who helped to draft the conditions of the permit she later testified against."

 

Finally, Meteor was critical of the court’s finding that the DNR was not allowed to issue an amended wetland permit for the company. The DNR initially approved Meteor’s wetland permit in May 2017. An amended permit was issued by the agency in August of that year.

 

Meteor’s statement said the DNR has amended more than a dozen wetland permits in past examples. "We believe the aforementioned samples are illustrative of a number of errors which cannot be allowed to stand for both this project and for Wisconsin as a whole."

 

In response to Meteor's appeal, Clean Wisconsin's communication manager Jon Drewsen said the organization is "looking at the petition for review and do not have a comment at this time."

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Sumitomo Forestry's NZ unit posts record annual profit after buying Hancock forests

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Sumitomo Forestry NZ, the local unit of the Japanese timber conglomerate, posted a record profit last year after buying the timber plantations of US forestry investor Hancock in 2016 to secure more supply for its wood processing plant.

The timber company posted a profit of $48.9 million in the year ended Dec. 31, 2017, from a loss of $18.4 million a year earlier when its earnings were hurt by a $62 million reduction in the value of its plantations, according to its latest financial accounts. Sumitomo's 2016 accounts included nine months of contribution from Hancock's Tasman Pine Forests which it bought for $369 million. Sumitomo’s NZ forests were valued at about $310 million in 2017, up from $296 million in 2016 and just $24 million in 2015, its accounts showed.

Sumitomo set up wood processor Nelson Pine Industries outside of Richmond, near Nelson, some three decades ago. The plant is one of the world’s largest single-site medium-density fibreboard (MDF) makers, most of which is exported under the GoldenEdge brand, and it also manufactures laminated veneer lumber (LVL). The company already had about 5,000 hectares of forest and the Hancock purchase gave it freehold interest in about 20,437 hectares of forest land and leasehold interest in about 155 hectares of forest land in the Nelson/Tasman region.

For Sumitomo, securing supply of wood helped shore up its existing investment in manufacturing at a time when increased demand from China has been pushing up the price of logs and prompting many forest owners to ship their raw logs to Asia's largest economy.
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David Sacks: How Blockchain Will Change Investing

David Sacks: How Blockchain Will Change Investing | Timberland Investment | Scoop.it
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There’s a lot of hype about turning property into digital tokens and trading it on a blockchain—but so far no one is actually doing it. That’s going to change this year, says “PayPal Mafia” member David Sacks, and the first thing we’ll trade are real estate tokens.

 

Sacks is worth heeding. He’s best known as the first COO of PayPal—where he built a payment giant alongside other mafia members like Elon Musk and Peter Thiel—but is also a serial entrepreneur who recently launched a $350 million venture fund focused on crypto.

 

On Thursday, speaking at Token Summit in New York, Sacks explained why he is bullish on “security tokens,” which are the blockchain’s version of traditional securities like shares or derivatives (my colleague Polina Marinova has a nice explainer here).

 

According to Sacks, the advantage of tokens is they reduce or eliminate the “illiquidity discount” for assets that can’t be publicly traded. This discount means people pay less because they’re worried an asset will be hard to resell.

 

Sacks cited the professionally managed real estate market, which is worth $7 trillion but is not very liquid. He thinks it’s possible to unlock a huge amount of value by letting people buy and sell chunks of real estate with tokens—each token would correspond to ownership in a piece of property, and could be easily swapped on a blockchain.

 

Sacks believes this newfound liquidity will attract more capital to real estate, and also create a derivatives market for property.

 

“It will lead to a world where you can short real estate. You can go long Manhattan and short San Francisco,” he told the audience.

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Catchmark Timber Trust (CTT) Announces $1.39 Billion Acquisition of 1.1 Million Acres of Prime East Texas Timberlands from Campbell Global

Catchmark Timber Trust (CTT) Announces $1.39 Billion Acquisition of 1.1 Million Acres of Prime East Texas Timberlands from Campbell Global | Timberland Investment | Scoop.it
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CatchMark Timber Trust, Inc. (NYSE: CTT) announced today an agreement to acquire 1.1 million acres of prime East Texas timberlands for approximately $1.39 billion in a joint venture with a consortium of institutional investors, including BTG Pactual Timberland Investment Group, Highland Capital Management, Medley Management Inc., and a major Canadian institutional investor. The property is being sold by Campbell Global, on behalf of the institutional owners of the property, in a transaction expected to be completed within 45 to 60 days, subject to customary closing conditions.
***
The approximately $1.39 billion transaction has been structured by Campbell Global as a sale of the general and limited partnership interests of the entities that own the timberland assets. CatchMark will fund its investment of up to $227.5 million in the joint venture through borrowings under its multi-draw term loan and cash on hand. CoBank ACB will act as the agent for a lender syndicate and provide a $750 million financing facility, of which up to $650 million will be funded at closing.

 ***

The transaction provides CatchMark with the following attractive investment attributes:

  • High Quality Asset: The timberlands feature an above-average site index (74 feet at age 25) and a maturing age class profile with access to top quartile mills and strong nearby end markets (Austin, Dallas, and Houston).
  • Attractive Basis: A $1,264 per acre acquisition cost basis, before transaction costs, compares favorably to regional industry benchmarks and positions the joint venture to generate potential premium returns.
  • Value-Add Opportunity: A rapidly improving inventory profile will result in enhanced harvest potential and provide the opportunity to restructure operations to optimize future cash flow and value.
  • Significant Growth to Existing Investment Management Business: In partnering with new, blue-chip institutional investors which are making a substantial capital commitment, this latest venture complements and expands CatchMark's joint venture strategy which has produced strong financial results in its first year.
  • Immediately CAD Accretive: The transaction is estimated to be 2-3% CAD accretive in year one. The joint venture will deliver to CatchMark contracted income from asset management fees and the potential for attractive promotes.

***
John Rasor, CatchMark's current Chief Operating Officer, will transition to serve as President of the newly formed joint venture company, which will be named TexMark Timber Treasury (Triple T Timberlands). CatchMark's Senior Vice President of Forest Resources Todd Reitz will transition to oversee operations for CatchMark's existing properties.

 

Rasor has strong existing relationships with the largest wood supply customers in the East Texas market and both he and Jerry Barag have familiarity with the to-be-acquired Texas timberlands after operating in proximate markets when they ran TimberStar. At TimberStar, Barag and Rasor acquired more than 1.2 million acres of timberlands in Texas, Louisiana, Arkansas, and Maine on behalf of a consortium of institutional investors for $1.35 billion. They structured the acquisition, using the first and only timberland REMIC securitization completed to date totaling $800 million, and sold the properties for $1.9 billion less than four years later.

 

Forest Resource Consultants and American Forest Management will execute land management and accounting functions on the Triple T Timberlands, respectively, as they do at other CatchMark-owned properties.

 

Raymond James acted as financial advisor to CatchMark in the transaction; Alston & Bird LLP and Smith Gambrell & Russell, LLP served as legal advisors to CatchMark. Gibson Dunn and Proskauer Rose served as legal advisors to the group of institutional investors. Perella Weinberg Partners LP acted as financial advisor and Greenberg Traurig, LLP, Schwabe, Williamson & Wyatt and Polsinelli PC served as legal advisors to Campbell Global and its institutional investors in the transaction.

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Bank of America merges investment units

Bank of America merges investment units | Timberland Investment | Scoop.it

Bank of America has merged its specialty asset management group with its alternative investments business and has appointed Nancy Fahmy as head of the combined group.

 

The bank’s specialty asset management group manages timber, farm and ranch land, oil, gas and mineral interests, real estate as well as private businesses.

 

The alternative investments business offers access to hedge funds, private equity, real estate, precious metals and non-traditional mutual funds.

 

In the new role, Fahmy will report to the vice chairman of global wealth and investment management at Bank of America and head of the chief investment office and investment solutions group at Merrill Lynch and US Trust Keith Banks.

 

Fahmy previously managed the capital markets and the alternative investments business. The bank will appoint a new capital markets at a future date.

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Study: Wildfires Burn More Severely On Private Timber Plantations Than Public Forests

Study: Wildfires Burn More Severely On Private Timber Plantations Than Public Forests | Timberland Investment | Scoop.it

Fast forward five years and the scar of the Douglas Complex is at the center of new research looking at what causes some wildfires to creep along at low intensity and others to rip through the forest, scorching everything in its path.

“The perception for a long time has been that high-biomass forests will burn more severely,” said Harold Zald, forestry researcher at Humboldt State University in Northern California.

Zald is author of a new paper published in the journal Ecological Applications.

The checkerboard of ownership allowed Zald and his fellow researchers to compare different variables across property boundaries. He looked at weather during the Douglas Complex, and, not surprisingly, that was the dominant driver of fire severity.

But they also looked at things like how forest management and tree age affect how severely the wildfire burned.

And what they found flipped the common narrative.

“Management and forest age were really important, but oddly enough how much biomass was there before the fire was not important,” Zald said.

In fact, he found that the private timberland in the Douglas Complex burned 30 percent more severely than the public lands.

University of Washington Tacoma fire researcher Maureen Kennedy said these kinds of studies should be approached with a degree of caution.

“Each individual fire tells its own story. So a lot of these individual fires you’re going to find different factors in that moment … that are really more about the story of that fire,” she said.

Zald acknowledges this. He said he probably wouldn’t support extrapolating these findings to the Rockies or even northeast Oregon. But he says parts of the analysis should stand up across different landscapes and regions.

“Plantation forestry, due to both the tree ages and the homogenization of fuel … making things simpler. It’s easier for things to burn in a simpler pile of fuel. I think that basic finding holds,” Zald said.

Study co-author Chris Dunn of Oregon State University says federal forests (BLM- or Forest Service-managed) still burn severely. And the exclusion of fire in the 20th century likely means the wildfires across public lands are burning hotter than they did historically.

But he said tree plantations on commercial timberland play a larger role in severe wildfire than is often acknowledged.

“To me it means that they share in the responsibility in this checkerboard landscape to the overall picture of fire risk,” Dunn said. “It’s not the full picture, but it’s part of it. But if they contribute to part of it, then they share in that responsibility.”

Whether that means paying a greater share to help fight fire or changing how logging is done to reduce risk or something else entirely, what “responsibility” means here is not a question scientists will answer.

That will be up to communities, businesses and policy makers to decide how to deal with the increasing threat of severe wildfire going forward.

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Sen. Wicker and wife victims in $100 million Ponzi scheme

Sen. Wicker and wife victims in $100 million Ponzi scheme | Timberland Investment | Scoop.it

U.S. Senate Roger Wicker is one of the investors that a Madison businessman is accused of bilking in what authorities call a Ponzi scheme involving more than $100 million.

 

Arthur Lamar Adams, 58, is scheduled to enter a guilty plea Wednesday. Adams is accused of defrauding at least 250 investors in at least 14 states. He is charged with two counts of wire fraud and one count of bank fraud.
***
The Associated Press on Thursday reported that Wicker invested through the Alexander Seawright Timber Fund LLC, incorporated by noted Jackson lobbyist Brent Alexander and attorney John Seawright, who both work for the Baker Donelson law firm. A firm spokeswoman told the AP that Baker Donelson did not represent Adams and the work was personal business of Alexander and Seawright.

 

Charges against Adams say he paid $4 million in commissions to two unnamed recruiters.

 

Adams' company bought timber rights from landowners and then sold the rights for higher prices to lumber mills. The investors were to provide their money for loans to purchase the timber rights.

Adams entered into investment contracts with investors, promising a 12 to 13 percent interest rate return over roughly a year.

 

But federal prosecutors and regulators say it was all a lie and nothing more than a Ponzi scheme.

 

Adams created false timber deeds and required investors not to file their timber deeds unless his company defaulted on the loan agreement by failing to make a payment.

 

Prosecutors say Adams was using money from investors to pay other investors or by obtaining bank loans. At one point, his company, Madison Timber Properties, had less than $1,000 in accounts.

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CatchMark Timber's (CTT) CEO Jerry Barag on Q1 2018 Results - Earnings Call Transcript

CatchMark Timber's (CTT) CEO Jerry Barag on Q1 2018 Results - Earnings Call Transcript | Timberland Investment | Scoop.it

Craig Kucera – B. Riley FBR

Hey, good morning, guys. Thank you. I’m curious about the pricing environment on acquisitions that you’re seeing out there. Are you seeing any softness related to higher interest rates? Or are you seeing the inverse, maybe some tightening on the expectation for perhaps better sawtimber pricing in the future?

Jerry Barag – President and Chief Executive Officer

Pricing for timberlands specifically has been just pretty darn flat. There doesn’t seem to be any fundamental pressure to propel prices higher, although there are expectations both in the U.S. South and in the Pacific Northwest of higher and robust prices. But those expectations were really built into prior quarter, prior year expectations for growth and prices. So it hasn’t developed into overall higher prices. Interest rates have not had any perceptible impact in a negative fashion on cap rates or product prices as well. So it’s just been flat prices for timberland with the expectation of higher prices for timber.

Craig Kucera

Got it. And one more for me. I know you guys have sort of identified that a lot of timberland is likely to retrade here. Are you seeing any large portfolios out there? And kind of can you just give us an update on what you’re seeing in the marketplaces where lies some of those larger portfolios?

Jerry Barag

Yes, there are and they’re coming, and there’s many of them yet to hit the market. But some of them are in final stages as we can tell of being brought to the market, and so I think you’ll see a fairly robust pipeline of offer deals between now and the end of the year. And then there’s many others. There’s many things that we’re working on that are actually off market, private deals. So as I’ve said before and as I continue to say, our pipeline is very full. It’s robust, and it’s a high-quality pipeline of high-quality products.
***
Paul Quinn – RBC Capital Markets

Hi, thanks very much. Good morning, guys. Just a question. I talked to a number of people in timberland. Everybody is talking about the dirt of M&A deals out there, especially quality deals, and you guys, you don’t turn around on your call. You’re talking about the excellent M&A opportunities and a robust pipeline. What’s the major disconnect between the two?

Jerry Barag

We’re better than everybody. It’s hard to say. I mean there have been opportunities out there. As I’ve said, several things that we’ve worked on and are working on are off-market private transactions that for whatever reason, we’ve been able to source and have gotten in front of. And then it’s probably our ability to look differently at some of the opportunities and converting those.

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Confusion Following the Death of the Conservation Easement “Enhancement Regulation”

Confusion Following the Death of the Conservation Easement “Enhancement Regulation” | Timberland Investment | Scoop.it

In Wendell Falls Development, LLC v. Commissioner, T.C. Memo. 2018-45 [Here], the Tax Court seemed to determine that there is no deduction allowable for a conservation easement that “enhances” the value of other property owned by a donor taxpayer. The case involved a developer, Wendell Falls, that placed a conservation easement over certain property located within one of its ongoing development projects. Wendell Falls, then sold the easement-encumbered property (which was restricted to use as a park) to Wake County at what it claimed was a “bargain price.”

 

At trial, none of the expert reports provided by the IRS nor the taxpayer determined that the contribution of the conservation easement “enhanced” the value of any other property owned by the taxpayer. However, disregarding the experts' opinions, the Tax Court concluded that the conservation easement enhanced the value of other property owned by the taxpayer – becausethe court inferred that the presence of a park benefited the yet-to-be-sold, adjacent lots. The Tax Court then took the unprecedented step of determining the presence of such enhancement caused the entire conservation easement donation to be nondeductible, citing U.S. v. American Bar Endowment, 477 U.S. 105, 116 (1986).

 

The Tax Court's decision marks a radical departure from prior conservation easement jurisprudence, as well as the Treasury regulations pertaining to the valuation of conservation easement donations. The regulations specifically dictate how any increase in the value of other property owned by a taxpayeror related person is to be handled in the context of a “before and after” conservation easement valuation. The regulations account for this possibility by requiring any appraisal to account for the value of any such “enhancement,” by reducing the amount ofthe charitable deduction by such enhancement value. Indeed, the “substantial benefits” the court determined enhance the value of the eased property should have merely reduced the value of the taxpayer's claimed charitable deduction.

 

The Tax Court focuses on the taxpayer's apparent “expectation” of substantial-enhancement benefits when donating the conservation easement. The expectation being that the property would continue to be utilized as a park once encumbered by the conservation easement and owned by Wake County. The court's opinion seems to blur the line between expectation of a post-contribution use that may result in enhancement value to other property owned by the taxpayer (which reduces the value of a charitable deduction) and quid pro quo (which disallows a charitable deduction altogether). Indeed, the Tax Court reasons that the taxpayer's deduction “is not allowable because of this expectation.” It is likely that many other donors could have the same or a similar expectation with respect to their properties once eased.

 

In Wendell Falls Development, LLC, the experts for the taxpayer and the IRS all agreed that the conservation easement did not enhance the value of the taxpayer's other property. The Tax Court, however, disagreed with both experts, finding that the donation of the conservation easement createdan (unspecified amount of) enhancement to the value of other property owned by the taxpayer. Although this disregard of the unanimous conclusion of the experts was itself notable, the Tax Court's ruling that the presence of such enhancement caused the entire contribution to be nondeductible is significantly more consequential.

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A new program begins for forest property owners

A new program begins for forest property owners | Timberland Investment | Scoop.it
Land owners wondering how to protect their wooded property while continuing to benefit from sustainable timber harvests now have another option: the New England Forestry Foundation of Littleton, Mass.

Private forest owners can receive lifetime income while ensuring permanent protection for their forests through the foundation’s responsible management and its Pooled Timber Income Fund, according to fund managers.

Participants donate their woodlands to the foundation, and the timber on it contributes to a pooled income fund from which donors receive an even stream of lifetime income and an initial charitable tax deduction. On the death of all beneficiaries, the timber reverts to the foundation, and the donor’s lands become part of the foundation’s network of more than 140 community forests.

The New England Forestry Foundation does its own forest management plan for how it oversees the property, emphasizing sustainable forestry practices.

With more than 140 donated properties around New England, the fund continues to pay local property taxes on the land, since it continues to generate income for donors, according to program director Sophie Traficonte.

“It’s a really great tool for people who want to conserve their land, but really can’t afford to do that,” she said. “They get this income over time, and the tax deduction initially. I think it will really be a good incentive for people. They won’t even have to pay land taxes anymore, because we’re owning it, so we’ll do that.”

Land that has been placed in the state’s Chapter 61A reduced assessment program remains in that program.

The New England Forestry Foundation has leased timber from two Nature Conservancy preserves in Massachusetts for inclusion in the pool, in Sheffield and Middlefield, totaling nearly 300 acres. Both demonstrate how conservation and good forestry can work hand in hand, said program officials.

The foundation owns forests in Heath, Rowe, Conway, Buckland, Hawley, Deerfield, Warwick and Orange in Franklin County.
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Dayton urges Legislature to fund landowner incentive to boost timber industry

Dayton urges Legislature to fund landowner incentive to boost timber industry | Timberland Investment | Scoop.it

Gov. Mark Dayton this week called on the Minnesota Legislature to support funding for several additional budget priorities this session.

The proposals, outlined this week in a letter to legislative leaders, involve an $8.72 million incentive program to increase timber harvesting on private lands and bolster Minnesota’s forest products industry, and would invest $969,000 in a grant program that would continue state support for the Suicide Prevention Lifeline in Minnesota.

Minnesota’s forest products industry is struggling due to a timber shortage, said Dayton in a news release Thursday. In response, he has proposed a new $8.72 million program to motivate private landowners to harvest and sell timber to mills in Minnesota.

“Minnesota’s forest products industry supports 64,000 jobs and contributes over $17.6 billion to our economy every year,” said Dayton. “This new timber harvest incentive will help address the timber shortage that is straining this important Minnesota industry, while continuing responsible and sustainable forest management. I urge the Legislature to approve the incentive this session, for the benefit of tens of thousands of Minnesota workers whose jobs and livelihoods depend on it.”

According to the Minnesota Department of Natural Resources, Dayton’s proposed incentive program would increase the amount of timber harvested on private land by approximately 350,000 cords, or 20 percent, over the next two years. The proposal would increase timber availability to the forest product industry, encourage sound forest management on private lands, and help support tens of thousands of forest industry jobs in Minnesota.

The incentive comes on the heels of a new timber harvest target plan recently announced by the DNR which reduces the aspen harvest on DNR-managed timberlands by 40,000 cords. Local and forest products industry officials voiced concern about the reduction and how it would impact local mills.

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U.S. hits Canadian forestry industry with more duties

U.S. hits Canadian forestry industry with more duties | Timberland Investment | Scoop.it

The American government hit the Canadian forestry industry with more duties late Tuesday as it upheld counterveiling duties on Canadian newsprint.

 

The United States Department of Commerce said in a statement that a preliminary investigation found Canadian exporters underpriced uncoated groundwood paper by between 0 and 22.16 per cent.

 

Uncoated groundwood paper includes newsprint, as well as book publishing, printing and writing papers.

"President Trump made it clear from the beginning that we will vigorously administer our trade laws to provide U.S. industry with relief from unfair trade practices," Commerce Secretary Wilbur Ross said in a statement.

 

The department said it determined Canadian exporters have sold newsprint in the U.S. at as much as 22.16 per cent less than fair value and it will collect cash corresponding to those rates.

It noted that the maximum margin of 22.16 per cent is lower than the up to 54.97 per cent rate alleged by Washington-based North Pacific Paper Company, which made the petition to the department to impose the tariffs. It complained Canada was dumping newsprint into the American market and unfairly subsidizing its industry at home.

 

Canada is the largest exporter of newsprint in the world, with a market dominated by Resolute Forest Products (TSX:RFP), Kruger and Catalyst Paper Corp. of British Columbia.

The department calculated a dumping rate of 22.16 per cent for Catalyst Paper Corp., and all other producers excluding Resolute Forest Products and White Birch, which were both found to have dumping rates of zero per cent.

 

The department's investigation into the alleged dumping began in August 2017, and an International Trade Commission investigation began the following month.

 

The department said a final determination in the investigation will be made in August.

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High lumber prices turn down volume on Canada/U.S. softwood dispute

High lumber prices turn down volume on Canada/U.S. softwood dispute | Timberland Investment | Scoop.it
British Columbia’s major lumber producers continue to book substantial profits on near record lumber prices almost a year after the U.S. Department of Commerce first hit Canadian producers with punishing duties.

The benchmark price for 1,000 board-feet of top-quality western Canadian two-by-fours hit US$540 about a month ago, according to the trade publication Madison’s Lumber Reporter, compared with US$315 at the start of 2017 before U.S. interests re-ignited the ongoing trade dispute.

Bottlenecks in rail transportation plaguing all industries are one reason lumber prices have spiked so high, but solid demand has also allowed producers to simply pass the price of tariffs along to consumers in prices, said Susan Yurkovich, president of the B.C. Lumber Trade Council.

“Who knows how long these prices will hold, but for now (they are) mitigating the impact of duties for Canadian producers,” said Yurkovich, who is also CEO of the Council of Forest Industries, one of the forestry sector’s main industry groups.

The U.S. Department of Commerce levelled preliminary duties against Canadian lumber producers last April, on the complaint of the U.S. Lumber Coalition following expiry of the last Canada/U.S. Softwood Lumber Agreement.

Final duties were set last fall at between 20.8 per cent and 22.1 per cent, depending on which company it is, and so far, Yurkovich said it is consumers that have felt them the most.
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