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Timber companies


turar
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Jeremy Grantham keeps mentioning that timber is one of his favorite areas. Does anyone own timber companies or have any insight or ideas?

 

 

Unlike gold, which over the centuries has depreciated in real terms about 1/2% per annum, timberland has had positive real appreciation of about 1 1/2% percent per annum over the last 600 years.  :)

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BIP, Brookfield Infrastructure is owned primarily by BAM.  BIP owns timber assets in the northwest and is currently only exporting douglas fur to Asia.  BIP management says they are exporting at a 70% sustainable rate while prices are depressed so they can export at a 120% rate when prices come back.

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Related to timberland / timber harvesting, is lumber distribution, which firms tend to make an ok margin on timber pass-thru, ie somewhat inflation indexed.  My preference nowadays is TBL.NT, the notes of Taiga Building Products, which are presently near par but yield 14 pct. I prefer the notes to the common, which has some trading potential though; I'd rather have the cash flow.  Another distribution company is HWD.UN, which distributes hardwood lumber; I've owned them in the past, not at present though.  Volatile, housing linked.

 

Big thing with timberland itself, is avoid intermediaries.  Too much can get lost in hands of managers / organizers.  If you really want to do a long term investment, consider buying the land yourself.  Maybe not when interest rates are low though; have to search bargains.  My preference re land, though, has been productive cropland; again, like getting that annual income.

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  • 2 years later...

I have looked into Timber a number of times, I've posted about it a few times as well (links at the bottom).  There are a few pink sheet pure plays, a few London traded global plays.  I've found the best way is to just buy the land directly.

 

If you trawl Craigslist in rural cities you can find deals for less than $500/acre.  Sure you have to pay for a cruise and a harvest, but you'll get the highest yield, and your expenses will be under your control.  I still haven't pulled the trigger myself because of the gas drilling, everything thinks they're sitting on a gold mine so land prices are jacked up.  One way to play this is to buy timberland in states that don't allow drilling yet.  I've seen plots in NY that are less than $500/acre, 50 acre+ plots.  I've heard there are similar plots in KY.

 

http://www.oddballstocks.com/2011/12/small-cap-pure-timber-play-keweenaw.html

http://www.oddballstocks.com/2011/10/timber-as-investment.html

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WHat about trusts like Weyerhauser and Plum Creek?

 

Weyerhaeuser is, in my opinion, the best way to play a rebound in timber and home building.

 

Plum Creek is cheaper on a price per acre of land but has no where near the upside that WY has simply because Plum Creek is much more  of a pure play land holder and Weyerhaeuser, in addition to having millions of acres of land, has a huge amount of lumber mills, pulp and cellulose fibers plants,  a newspaper joint venture, and they also are one of the largest home builders in the country.

 

Weyerhaeuser's net income benefits about $4.5 million monthly pre tax for every $10 increase in the price of lumber and OSB. This is just in their lumber business. So, if lumber were $100 higher and holds for a year at that price, the pre tax income benefit to WY's wood products division would be about $540 million annually. In the old days of a strong housing market, WY was generating huge amounts of cash in lumber, pulp, home building, and timber.

 

The land value alone on WY is about $18/share. If you go back and look at even the worst of times, WY's share price didn't fall much further than $16-18 per share. At that point you would essentially be buying timber at liquidation value and getting everything else for free.

 

 

 

 

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WHat about trusts like Weyerhauser and Plum Creek?

 

Weyerhaeuser is, in my opinion, the best way to play a rebound in timber and home building.

 

Plum Creek is cheaper on a price per acre of land but has no where near the upside that WY has simply because Plum Creek is much more  of a pure play land holder and Weyerhaeuser, in addition to having millions of acres of land, has a huge amount of lumber mills, pulp and cellulose fibers plants,  a newspaper joint venture, and they also are one of the largest home builders in the country.

 

Weyerhaeuser's net income benefits about $4.5 million monthly pre tax for every $10 increase in the price of lumber and OSB. This is just in their lumber business. So, if lumber were $100 higher and holds for a year at that price, the pre tax income benefit to WY's wood products division would be about $540 million annually. In the old days of a strong housing market, WY was generating huge amounts of cash in lumber, pulp, home building, and timber.

 

The land value alone on WY is about $18/share. If you go back and look at even the worst of times, WY's share price didn't fall much further than $16-18 per share. At that point you would essentially be buying timber at liquidation value and getting everything else for free.

 

What is liquidation value of timber?  Do you take timber prices at the low, then tack on costs? 

 

Here's the great thing about timber, if there's a bad year you can do nothing, nothing at all and the value of your asset increases (the trees grow bigger).  Here's the problem with that, if you're a company like WY or Plum Creek you have fixed charges you need to cover even in the bad years when there's no crop.  The conservative way to play this is to stock pile cash in surplus years and spend it down at the low point in the cycle.  Unfortunately most of these companies don't run that way.

 

This is why I think the best way to own timber is in a really asset-lite structure preferably personally with title.  In down years you don't have to do anything, in up years save the surplus cash.

 

Seems like this might be a great idea for a savvy individual.  Start a fund, buy a bunch of land, keep expenses REALLY low, and sell the heck out of it to hedge funds and institutions that want exposure to this asset class.

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This is why I think the best way to own timber is in a really asset-lite structure preferably personally with title.  In down years you don't have to do anything, in up years save the surplus cash.

 

Seems like this might be a great idea for a savvy individual.  Start a fund, buy a bunch of land, keep expenses REALLY low, and sell the heck out of it to hedge funds and institutions that want exposure to this asset class.

 

I believe there is a firm in Oregon that does something similar. It's called Campbell Group and they create investment vehicles to invest in timber assets.

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