Timber

Timber is a renewable resource that grows in value—about 7% per year—as it grows in size.
Timber is different from food crops such as corn. When end markets are oversupplied, corn farmers must harvest their crop and sell at depressed prices. When end markets for timber are soft, timberland owners simply allow their trees to grow in both size and value until conditions become more favorable. Harvests are then increased, and timber is monetized at higher values.
There is more to timberland investment than the wood. When commercial and residential real estate markets are hot, timberland owners have the option of selling land to real estate developers. And developers are not the only buyers of timberland. Timberland is also sold to conservation or recreational groups at premium prices.
Underneath some timberlands lay large deposits of oil, gas, or coal. Timberland owners may extract value from these deposits by leasing their land, and collecting royalties from the companies who produce these commodities.
The average American each consumes a 100-foot tree each year.
During the three worst market downturns of the 20th century (1911-20, and 1966-81), timber outperformed the S&P 500 by a wide margin. During the Great Depression timber was up 233%. The real price of stocks fell 71%.
Timberland has significant tax advantages over other types of investments. Because land (including, in effect, the standing timber) is treated as a capital asset, profits on the sale of timberland (or harvested timber), held for more than one year, are taxed as a capital gain.

Sources: Society of American Foresters, Rick Weyerhaeuser-The Lyme Timber Company, Plum Creek Timber

Back to Featured Trends