As the US farmland market is slowing down, returns from
buying forestry land is picking up, lifted by demand from China and recovery in
the US housing market.
US timberland values returned by 9.8% in the year to the end
of March – the strongest annual performance since the third quarter of 2008, as
the world was entering economic crisis, the National Council of Real Estate
Investment Fiduciaries said.
These returns are still lower than those obtained from
cropland, estimated by the council last week at 17.4% over the past year.
However, on terms of price appreciation alone, the forestry
market has nearly caught up.
The timberlands return figure comprised price growth of 7.0%,
with the balance from income.
Growth in cropland values has slowed to 8.4%.
'Strong export demand'
The rising returns reflect in part revival in US
housebuilding, a key source of demand for timber.
"US housing recovery continued at a modest pace, supporting
increased timber harvest volumes across the US," said Mary Ellen Aronow, chair
of the Ncreif timberland committee, and a senior forest economist at Hancock
Timber Resources Group.
However, she also highlighted "strong" export orders for
wood, "in particular demand from China".
This demand was "reflected in record-setting prices for
timber in the Pacific North West," a key US timber-growing region, largely in
Indeed, returns in the Pacific North West were particularly
strong over the year to the end of last month, hitting 18.1%, up from 14.1% in
the previous year.
Ms Aronow forecast continued strength in the sector, terming
"positive" the outlook for both timber and forestry markets.
"The timberland market proved more active during the first
quarter of 2014 compared to the first quarter of 2013, with timberland activity
increasing," she said.
The comments follow the release by Weyerhaeuser, the US
timber giant, on Friday of results showing a 27% rise to $183m in earnings for
the January-to-March quarter, on revenues up 1.7% at $1.98bn.
The profits were swollen by one-off factors such as asset
sales, excluding which earnings growth, per share, was flat at $0.26, although
this was still ahead of Wall Street expectations of a $0.24-a-share result.
The group, based in Washington state, highlighted that
selling prices for logs improved at its western US operations "across export
and domestic markets", with slower growth in prices in the south of the country.
Weyerhaeuser also noted the strength in Chinese demand,
saying it "expects increased Chinese export log sales volumes" in the
April-to-June period, although it forecast lower average prices for its timber
In another sign of the strengthening market,
Washington-based timber operator Northwest Hardwoods, which Weyerhaeuser sold
three years ago, is reported to be up for sale again – for a significantly
American Industrial Partners, which bought Northwest
Hardwoods for $108m in 2011, has hired Goldman Sachs to market the business,
for a sale which could reportedly fetch $700m.
Northwest Hardwoods, which claims annual revenue of $480m,
produces lumber from 14 species of tree, including cherry, maple and oak, and
has 10 mills in seven US states.