Historical rates of return for timber have been generally attractive. The past century average recorded an annualized 5% with peaks of annualized 22% in the high inflation period of 1973 to 1981. U.S Timberland Gross Returns for the rocky period between 2006 and 20011 annualized 5.5%.
The NCREIF Timber Index shows an annualized rate of return since its inception (1987) of approximately 12% (see table below for yearly and quarterly breakdown):
|
Year |
Q1 |
Q2 |
Q3 |
Q4 |
Year |
|
1987 |
-0.06% |
4.91% |
11.88% |
7.85% |
24.58% |
|
1988 |
3.98% |
6.33% |
4.43% |
12.70% |
27.44% |
|
1989 |
4.17% |
14.46% |
3.54% |
11.26% |
33.43% |
|
1990 |
2.66% |
3.06% |
1.42% |
3.50% |
10.64% |
|
1991 |
1.65% |
5.70% |
2.47% |
9.24% |
19.06% |
|
1992 |
1.69% |
8.34% |
1.88% |
22.34% |
34.25% |
|
1993 |
1.92% |
17.38% |
1.06% |
1.21% |
21.57% |
|
1994 |
2.47% |
2.99% |
1.48% |
7.80% |
14.74% |
|
1995 |
2.78% |
4.24% |
0.87% |
5.34% |
13.23% |
|
1996 |
2.14% |
0.12% |
1.99% |
6.17% |
10.42% |
|
1997 |
2.89% |
3.12% |
2.35% |
9.50% |
17.86% |
|
1998 |
2.24% |
0.94% |
0.70% |
1.88% |
5.76% |
|
1999 |
1.44% |
0.06% |
2.46% |
6.66% |
10.62% |
|
2000 |
1.64% |
0.70% |
2.47% |
-0.45% |
4.36% |
|
2001 |
0.49% |
0.05% |
0.84% |
-6.54% |
-5.16% |
|
2002 |
0.54% |
0.13% |
0.50% |
0.70% |
1.87% |
|
2003 |
0.61% |
1.67% |
1.45% |
3.75% |
7.48% |
|
2004 |
2.04% |
0.86% |
1.97% |
5.96% |
10.83% |
|
2005 |
1.81% |
3.70% |
0.95% |
11.98% |
18.44% |
|
2006 |
2.31% |
3.49% |
0.85% |
6.46% |
13.11% |
|
2007 |
1.86% |
2.31% |
3.90% |
9.38% |
17.45% |
|
2008 |
4.50% |
1.01% |
0.99% |
2.74% |
9.24% |
|
2009 |
0.73% |
-1.20% |
0.26% |
-4.55% |
-4.76% |
|
2010 |
-0.25% |
0.99% |
-0.10% |
-0.79% |
-0.15% |
|
2011 |
0.75% |
0.66% |
-0.35% |
0.51% |
1.57% |
|
2012 |
0.36% |
0.61% |
0.75% |
5.92% |
7.64% |
|
2013 |
1.53% |
|
Looking forward the expected returns for this asset class would seem to be favorable; GMO (an investment firm with a good forecasting record) has put timber at the top of its 7 year asset class forecasts with an expected 5.9%, higher than expectations for US and Emerging Market equities.
Commodity HQ, another research firm, published the following comments on timber:
“Another major draw to timber is its rising demand all around the world. For now, the U.S. is the largest consumer, but that is predicted to change as emerging markets are stepping up their needs for wood-based products. The next three decades are predicted to see timber use double on a global scale, leaving investors plenty of opportunity to cash in on a developing trend. Another boost for timber is the shrinking supply of forests around the world. Though wood is a renewable resource, global forest lands are dropping on an annual basis, making wood more scarce and its respective price jump.”
Some additional points to note on timber in the United States (source: seekingalpha.com):
- 23% of the total acres in the U.S. are commercial timberland.
- Between 1% and 2% are owned by timber REITs or other publicly traded companies.
- The vast majority of private timberlands are owned by small landowners.
- The South and the Pacific Northwest account for about 57% of private timberland acres and 75% of harvest volume.
- Public ownership accounts for about 12% of timberland acres
- Public timberlands are, for all practical purposes, manages as parks rather than for timber production
Investment opportunities in this asset class come in the form of long duration private deals, TIMOs (Timber Investment Management Organizations), and a few listed REITS such as Plum Creek, Weyerhauser, Potlach and Rayoner. There also two ETF available, CUT and WOOD, but only a portion of their portfolio is dedicated to pure timber (around 35-40%).