Buying Land

Risk and Uncertainty Top Forest Industry Concerns in Q3 2020

Risk and Uncertainty Top Forest Industry Concerns in Q3 2020

To track timberland transactions and forest industry capital investments in the U.S. and Canada for the Forisk Market Bulletin, we read press releases and financial reports, and we communicate with foresters, investors and managers of all types. Over this past few months, this exercise in market intelligence found that while timberland deal flow and mill production are up in Q3 2020, risk and uncertainty dominated recent thinking and planning.

Firms in Eastern Canada, for example, reinforced the challenges of moving mill residuals, staffing operations during the pandemic, and managing forest fires. Managers in the U.S. West tell a similar story, except fires are the primary concern. In the U.S. South, the same issues present themselves, with the addition of a fourth: Hurricane Laura, the Category 4 hurricane that struck Louisiana in late August and also affected Texas and Arkansas.

Forest Products Mills and Manufacturing

On the manufacturing side, the framing of risk focused on maintaining workplace safety while continuing production to capture (temporary) outsized margins in lumber and panel markets. Sawmills are running as hard as they can to take advantage of strong lumber prices. As one market participant put it, “there is no surge in the system” and “orders are everywhere.” Mills are balancing productive operations with staffing challenges from COVID infections and quarantines.

Timberland Transactions

On the timberland side, there is less direct COVID exposure in the field. Consequently, executives tended to be more concerned about the risk and return equation of their assets. To paraphrase a concept shared by many: “the risks of concentrated timberland portfolios are increasing.” Fires, hurricanes, weather patterns and shifting capacities across forest industry sectors have raised questions about suitable discount rates and diversification.

Timberland transactions did pick up in Q3 2020 relative to Q2. Over 400,00 acres of institutional timberland parcels and packages exceeding 5,000 acres traded hands, sit pending or went to market over in July, August and early September in every major U.S. region: Lake States, Northeast, Northwest and South. In addition, the number of smaller deals, from a few hundred acres to two or three thousand acres, increased markedly. Executives we communicated with all shared versions of the message that “dispositions are at record highs” and “we’re really active” in this market segment.

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About the author

Brooks Mendell, Ph.D.

Brooks Mendell, Ph.D. is President and Founder of Forisk Consulting, a forest industry, timber REIT, bioenergy and timber market research firm. Dr. Mendell has over fifteen years of operating, research, and consulting experience in forest business and finance. Mendell has published over sixty articles and two books on topics related to timber and timberland REITs and markets, forest business management and operations, and communication skills.

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