Timberland as an inflation hedge
Posted by John T. Reed on
When I was writing the second edition of my book on hyperinflation and depression, it occurred to me that timber REITs might be a good way to invest in a commodity that would hold its value during inflation.
Maybe not.
U.S. timber has lately suffered from a couple of big problems: federal government decided to encourage planting timber years ago and Hurricane Michael destroyed something like $1.6 B of living trees.
The federal encouragement was too effective. Too many people simultaneously planted trees that are now full grown and due it be sold. The bulge in supply is depressing prices big time.
Michael simply damaged trees cause them to fall 90% or wrote in many cases. That party fixes the oversupply problem for timber owners whose trees were not damaged. But it may impoverish owners of the damaged trees.
So if you do invest in timber—which I had not yet done—make sure it is geographically diversified. Also, there is probably some way to see if there are any oversupply periods in the future based on how many trees were planted in each year and how many years they take to be ready for harvest. Because they take decades to mature, oversupply ought to be easy to predict—assuming there are stats on the plantings. Nowadays, they use drones and satellite photos for a lot of that sort of thing in real estate nowadays.
Building recessions like in 2007-8 and thereafter also create price drops through reductions in demand.
Tariffs and trade treaties also affect timber prices especially here in the U.S. and Canada. So timber is not stable or predictable in a number of important ways in spite of being predictable in some ways
Maybe not.
U.S. timber has lately suffered from a couple of big problems: federal government decided to encourage planting timber years ago and Hurricane Michael destroyed something like $1.6 B of living trees.
The federal encouragement was too effective. Too many people simultaneously planted trees that are now full grown and due it be sold. The bulge in supply is depressing prices big time.
Michael simply damaged trees cause them to fall 90% or wrote in many cases. That party fixes the oversupply problem for timber owners whose trees were not damaged. But it may impoverish owners of the damaged trees.
So if you do invest in timber—which I had not yet done—make sure it is geographically diversified. Also, there is probably some way to see if there are any oversupply periods in the future based on how many trees were planted in each year and how many years they take to be ready for harvest. Because they take decades to mature, oversupply ought to be easy to predict—assuming there are stats on the plantings. Nowadays, they use drones and satellite photos for a lot of that sort of thing in real estate nowadays.
Building recessions like in 2007-8 and thereafter also create price drops through reductions in demand.
Tariffs and trade treaties also affect timber prices especially here in the U.S. and Canada. So timber is not stable or predictable in a number of important ways in spite of being predictable in some ways
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