The ultimate agricultural investement

If you dont feel comfortable owning something for ten years dont own it for ten minutes Warren
Buffet.
Global demand for hardwood has itself been multiplied by 25 times in the last 40 years. With the
economic growth of developing countries and the worlds population growing at its highest ever rate
this bullish trend is likely to continue. Although 13% of the worlds surface is covered in forests
concerns over global warming has resulted in a global crackdown on illegal logging and
deforestation. Supply is being severely restricted and this along with the increase in demand is likely
to drive timber prices higher in the years to come.
Historically the price for timber has risen by about 6% a year for the last 100 years. This beats the
average inflation rate during this period by 3% every year. It is unheard of for a company to
consistently rise the price of its products by 3% a year.
Forests can offer a very attractive safe haven from the recent volatility in global stock markets. Trees
grow year in and year out. Trees in good growing areas grow at about 6-8% a year. They grow
through recessions. They grow through wars. They grow through stock and real estate crashes. This
means that they give you built in investment growth. Despite being a resource investment, forests
are not constantly depleting. Unlike a gold mine or an oil well trees will grow back. Forestry is a
sustainable investment.
Forestry is one of the only investments that can deliver returns even when its price has collapsed. If
market conditions have driven the price of timber down there is no need to cut down the trees.
Unlike other agricultural investments like fruit and crops where the commodity is only ripe once
forests do not have to be harvested every year. Forests allow investors to bank it on the stump
when market conditions are unfavourable. The trees will continue to grow at 6% a year no matter
what the price of timber.
This is not to imply that timber is an absolutely risk free investment, but with the ability to bank it on
the stump, investing in timber does come with an extra safety net. As long as the sun shines and the
rain rains the trees will grow. If the trees are not harvested they get bigger and more expensive.

The ultimate agricultural investement
From 1971 to 2010, an investor in timber saw an average annual return of over 14%- turning
10,000 into over 1.5 million. That beats stocks and bonds over the same period.
Here are the rough numbers on where timberland returns come from:

1% Land value increase
6% Biologic growth of the trees
3% "Stumpage" price increase (the price of the actual wood)
Timberland can be a good alternative investment in a bear market. One of the worst-
ever bear markets in stocks began in the late 1960s and lasted until 1980. An investor
in stocks during that time lost money, due to inflation. However, as the graph shows an
investor in timberland during this period never had a losing year. More often than not,
the returns were in the double digits.
Managed timberland according to a study conducted by the University of Georgia
generates returns four times higher than non-managed lands. Managed timberlands
have professional managers who cultivate the trees, look after them, and harvest the
trees and their products at the right time. They look to earn extra cash by selling
hunting rights, harvesting straw and a good manager will look to sell some land when
property developers offer sky high premiums for the land. The forest manager takes a
cut of everything that the forest earns. However, this cost is comparable in magnitude to
brokerage fees.
As an added bonus wealth held in the form of a commercial forest becomes free of
inheritance tax (IHT) after you have owned it for two years because it qualifies for
business property relief.
Investing in forestry will not give the overnight returns that trading will. However, as a
long term 10-20 year investment it is almost unbeatable. Investing a forestry company
could be a perfect investment for a student that is saving for the long run and wants to
go to sleep without having to worry about risky investments.