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Timber market firmness lifts US forestry returns

 

US timberland investors enjoyed the strongest start to a year since the world economic crisis, as domestic wood demand rebounded.

According to the National Council of Real Estate Investment Fiduciaries (Ncreif), timberland returned 1.75% to investors over the January-to-March period, the strongest first-quarter result since 2008.

The "quite strong" start took to 10.6% total returns for the past year, including the seasonally high returns of 6.0% achieved for the October-to-December quarter.

And it reflected the improved performance of the domestic forestry sector.

"Increasing ebitdda (earnings before interest, taxation, depreciation, depletion and amortisation) returns show that timberland managers are capitalising on the renewed demand for wood in domestic markets," said Ryan Reddish, Chair of the Ncreif timberland committee.

Buoyant timber

The US timber market has bucked global trends by remaining buoyant in 2014, supported by a healthy domestic economy and the knock on effects on boosting property markets and encouraging housebuilding, a huge user of timber.

The US has also seen prices for wood pulp, used in paper and other manufacturing products, and woodchips increase.

Ncreif data show the strongest returns, of 3.44%, were seen in the Great Lakes region, where chip and log prices are at a record high in the first quarter of the year, according to Wood Resources International.

"Obtaining adequate fibre supplies remained a serious challenge," in the region US-based Wood Resources International said in a report last week, adding that "prices remained high despite the reasonable snow levels and standard temperatures".

Forestry closing the gap

Timberland in the North West saw the lowest returns for the quarter, at just 0.88%, according to Ncreif.

Nonetheless, US forestry is closing the gap with farmland as an investment.

Data released by Ncreif last week showed farmland returns for the first quarter returning 2.08%, the worst first quarter result since 2009.

However, permanent cropland, including fruit and nut orchards, bucked the trend in returning 3.64%, the strongest first quarter results in eight years.