Economic Outlook
Perspectives from Three Experts
Summer 2020
Photography
The most pressing economic issues for our industry right now are housing starts and trade with China. If either of those are delayed, it is likely that the solid-wood side of our businesses will suffer greatly.
Government stimulus is the most likely solution to housing. The issue with China seems to be in the political arena now. The worst-case scenario is that both are delayed. That could potentially have worse fallout for our sector than the 2008 collapse. Government stimulus may carry us through the shutdown, but it is going to take more action to restart the economy.
But what will we look like long-term? Will the fear of another virus, and the realization that many people can effectively work from home, reduce demand for office space? Will fear of living in multifamily units cause increased demand for single-family housing? Will people want a larger house, including a separated home office? Will demand for small, forested tracts to build a getaway home increase? Will the need to domestically source many strategic supplies increase demand for our products?
It is likely that we are going to see big shifts in how we live and work. How these shifts play out will impact all of our businesses.
— MARSHALL THOMAS, President, F&W Forestry Services
Government stimulus is the most likely solution to housing. The issue with China seems to be in the political arena now. The worst-case scenario is that both are delayed. That could potentially have worse fallout for our sector than the 2008 collapse. Government stimulus may carry us through the shutdown, but it is going to take more action to restart the economy.
But what will we look like long-term? Will the fear of another virus, and the realization that many people can effectively work from home, reduce demand for office space? Will fear of living in multifamily units cause increased demand for single-family housing? Will people want a larger house, including a separated home office? Will demand for small, forested tracts to build a getaway home increase? Will the need to domestically source many strategic supplies increase demand for our products?
It is likely that we are going to see big shifts in how we live and work. How these shifts play out will impact all of our businesses.
— MARSHALL THOMAS, President, F&W Forestry Services
Supply Chain
Suppliers, loggers and truckers are adjusting and repositioning. With grade markets softening, timeframes and from 2010 to 2019. Timber satisfies needs for diversification and safety. What distinguishes timber from other commodities is the pairing of continuous, positive (biologic) growth along with the ability to store volume and wealth over time as business markets cycle. Current market turbulence reminds us that we don’t live in an absolute-returns world; we live in a relative-returns world. In real terms, timberland investments stabilize portfolios.
— BROOKS MENDELL, President and CEO, Forisk Consulting
Suppliers, loggers and truckers are adjusting and repositioning. With grade markets softening, timeframes and from 2010 to 2019. Timber satisfies needs for diversification and safety. What distinguishes timber from other commodities is the pairing of continuous, positive (biologic) growth along with the ability to store volume and wealth over time as business markets cycle. Current market turbulence reminds us that we don’t live in an absolute-returns world; we live in a relative-returns world. In real terms, timberland investments stabilize portfolios.
— BROOKS MENDELL, President and CEO, Forisk Consulting
Investors
Amidst the pandemic, the underlying thesis for timberland holds as well as ever for long-term investors: stability, diversification and security. Timberland is a hard asset and a finite resource; land will always be in demand. If the investment helpfully diversifies portfolios and generates cash as needed relative to other opportunities, then ignore the noise and focus on other issues. Timberlands are doing what they are supposed to do.
Timberland investments benefit from the fact that they comprise a diversified bundle of businesses.A given forest can serve multiple, often countercyclical, markets, including hardwood and softwood, grade and pulpwood, along with non-timber markets such as land, recreation and cell towers.Thirty years of data indicates timberland satisfied its mandate.Since 1990, timberlands outperformed appreciation of the S&P over the longer 20- and30-year timeframes that included three recessions (in 1990-91, in2001, and the Great Recession of 2007-2009), while the S&P 500 outperformed private timberlands for shorter time frames and from 2010 to 2019.
Timber satisfies needs for diversification and safety. What distinguishes timber from other commodities is the pairing of continuous, positive (biologic) growth along with the ability to store volume and wealth over time as business markets cycle. Current market turbulence reminds us that we don’t live in an absolute-returns world; we live in a relative-returns world. In real terms, timberland investments stabilize portfolios.
— BROOKS MENDELL, President and CEO, Forisk Consulting
Amidst the pandemic, the underlying thesis for timberland holds as well as ever for long-term investors: stability, diversification and security. Timberland is a hard asset and a finite resource; land will always be in demand. If the investment helpfully diversifies portfolios and generates cash as needed relative to other opportunities, then ignore the noise and focus on other issues. Timberlands are doing what they are supposed to do.
Timberland investments benefit from the fact that they comprise a diversified bundle of businesses.A given forest can serve multiple, often countercyclical, markets, including hardwood and softwood, grade and pulpwood, along with non-timber markets such as land, recreation and cell towers.Thirty years of data indicates timberland satisfied its mandate.Since 1990, timberlands outperformed appreciation of the S&P over the longer 20- and30-year timeframes that included three recessions (in 1990-91, in2001, and the Great Recession of 2007-2009), while the S&P 500 outperformed private timberlands for shorter time frames and from 2010 to 2019.
Timber satisfies needs for diversification and safety. What distinguishes timber from other commodities is the pairing of continuous, positive (biologic) growth along with the ability to store volume and wealth over time as business markets cycle. Current market turbulence reminds us that we don’t live in an absolute-returns world; we live in a relative-returns world. In real terms, timberland investments stabilize portfolios.
— BROOKS MENDELL, President and CEO, Forisk Consulting
Landowners
Owners that are highly reliant on cash flow - particularly REITS - could be challenged to maintain revenue and dividends. This may lead them to increase strategic land sales to meet quarterly earnings requirements. As time goes on, low interest rates and economic uncertainty will likely lead private owners and speculators to begin looking for acquisition opportunities. Institutional owners (TIMOs and REITs) will be evaluating their positions to determine their ongoing participation in the sector. Some will see this event as a validation of the fundamental reasons to own timberland and either enter the timberland investment space or increase allocations. Others may decide to rebalance allocations or exit the sector altogether.
— DAVID FOIL, President, Forest Resource Consultants
Sawmills
Independent sawmill owners have more flexibility than corporate-owned sawmills during downturns or periods of economic uncertainty. During tough times, independents most often prioritize workforce integrity, protect their banking relationships, take strategic downtime for capital improvements, and maintain a long-term focus. During the same uncertain times corporate owners often prioritize quarterly metrics to satisfy Wall Street and industry analysts. We have already seen significant curtailment of previously committed capital expenditures. We anticipate potential for mergers and/or acquisitions within this sector.
— DAVID FOIL, President, Forest Resource Consultants
Owners that are highly reliant on cash flow - particularly REITS - could be challenged to maintain revenue and dividends. This may lead them to increase strategic land sales to meet quarterly earnings requirements. As time goes on, low interest rates and economic uncertainty will likely lead private owners and speculators to begin looking for acquisition opportunities. Institutional owners (TIMOs and REITs) will be evaluating their positions to determine their ongoing participation in the sector. Some will see this event as a validation of the fundamental reasons to own timberland and either enter the timberland investment space or increase allocations. Others may decide to rebalance allocations or exit the sector altogether.
— DAVID FOIL, President, Forest Resource Consultants
Sawmills
Independent sawmill owners have more flexibility than corporate-owned sawmills during downturns or periods of economic uncertainty. During tough times, independents most often prioritize workforce integrity, protect their banking relationships, take strategic downtime for capital improvements, and maintain a long-term focus. During the same uncertain times corporate owners often prioritize quarterly metrics to satisfy Wall Street and industry analysts. We have already seen significant curtailment of previously committed capital expenditures. We anticipate potential for mergers and/or acquisitions within this sector.
— DAVID FOIL, President, Forest Resource Consultants
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