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BULLISH ON TIMBERLAND
Still a Solid Investment in Tough Times
It’s a fact: When the market boomed, timberland boomed. And when the market tanked, so did timberland, but not nearly as much as the overall market.
Many forest owners view their land as investments, generating costs and revenues. Rates of return and discounted cash flow values (present values) can be calculated for a forest like any other investment. But timber has unique characteristics that distinguish it from more typical investments. These differences can be used to the forest owner’s advantage, especially when issues like inflation and taxes are involved. The recent economic downturn impacted timberland investments, but the nature of the investment helped minimize the impact.
Forestry requires an investment in two assets: land and timber. If you want to grow timber you must own or rent land. Thus, you have some level of automatic diversification in a timberland investment. The market may not treat both assets equally, so in market declines one asset may buffer the impact of the other. This is a double-edged sword in that in bull markets both may not enjoy the same level of price appreciation.
By Scott Paden, Tamara L. Cushing, and Thomas J. Straka
Published in March / April 2013 Issue of Forest Landowner Magazine