Individual Private Timberland owners make up 2/3’s of SC Forests – should you stay the Course?

1. Individual Private Timberland owners make up 2/3’s of SC Forests – should you stay the Course?

2. Or in the language of the old hymn “I’m lost, and still not found, I was blind, and I still can’t see”

3. …or perhaps “what good is a course in a minefield?” • Where are we? • Now • When will this pain end? • Where are we going? • Long and short term positioning • Individually (how do I manage my forest?) • Collectively (what can the association do for me?)

4. Where are we? • 60 year lows in timber prices • Land values are dropping • Fewer acres are being reforested • Reforestation costs the same as in 1988 • Ethanol plants are closing • Pellet plants are opening • Chinese are buying logs • And people are asking if your trees are certified.

5. Timber Prices – can this be “real”?

6. This is “real” - depressing

7. But look at trend prices…

8. Land values dropping? • We hear of it “on the street” but there aren’t many small transactions • TMS data for large transactions shows a decline from 2008 to 2009. No data for 2010 as yet, but surely this continues. • Note the fact that value per acre of transactions increased during a time when timber prices were dropping.

9. TMS – United States Timberland Markets: Transactions, Values & Market Research 2000 to mid-2010

10. No surprise - Reforestation acres are dropping

11. New industry activity is high

12. And people from china are buying our logs (from bob flynn at RISI)

13. When will this end? • Based on housing starts, 2015 or later for sawtimber • But face the fact that the southern forest is aging, and supply may overcome demand • The CRP introduced a “bump” in supply that will last a while • Maybe sooner for pulpwood (small trees • Just as CRP (and industry plantings) increased supply, the current lack of planting should create a shortage

14. Pulpwood prices (2011 $) vs acres of plantations reaching age 15

15. Where are we going? • F&W Southeastern Forecast shows (based on 2007 levels of consumption): • Pine pulpwood inventory declines sharply through about 2020, then levels out or increases. • Decreasing supply with increasing demand • Pine sawtimber inventory holds steady through 2020, then slowly declines through 2030. • Stable (or increasing?) supply, who knows when demand comes back?

18. Long and short term positioning • Individually (or how do I manage my forest?) • Collectively (what can the SCFA do to help me?)

19. How do I manage my forest • Think like a contrarian – this is too pronounced a cycle to make decisions based on current conditions.

20. What is a “contrarian” (from wikipedia) • “In finance, a contrarian is one who attempts to profit by investing in a manner that differs from the conventional wisdom, when the consensus opinion appears to be wrong.... • Contrarian investing is related to value investing in that the contrarian is also looking for mispriced investments and buying those that appear to be undervalued by the market.”

21. For landowners, what is the consensus opinion? • Don’t cut trees because prices are low, which means that you don’t plant trees. • This consensus opinion (perhaps not so much “opinion” as lack of demand) is creating a huge shortage in young plantations • So my conclusion is…

22. Stick to your management plan • Carry out scheduled harvests – those trees are, unfortunately, part of a supply glut that could take years to overcome. • Continue to practice weed control and nutrition management based on trend prices, not the current depressed prices • Continue to strive towards a forest with balanced age classes • Look at clonal/varietal trees • Enjoy forestry – things will get better in a while, and you are in it for the long term.

23. What can the association do to help me? • We’re green – sell it. • Southern pine products don’t currently qualify for LEED credits. It isn’t because we aren’t green, it is because we don’t use the certification system preferred by NGBC.

24. Lumber that gets Leed credit can be… TMS – United States Timberland Markets: Transactions, Values & Market Research 2000 to mid-2010

25. And our lumber doesn’t get leed credit??? TMS – United States Timberland Markets: Transactions, Values & Market Research 2000 to mid-2010

26. Map of the world

27. Map of SC

28. This shouldn’t be hard to sell • The reality is that South Carolina’s forest industry is one of the “greenest’ in the world, and we aren’t selling it. It’s time to wake up… • We need our own environmental studies • We need to embrace certification programs that recognize our “greenness” • And we need to sell ourselves – in the US and in the world. • We have a “green” competitive advantage.

29. And of course the association should… • Lobby for a positive business climate • Hold down the cost of certification

30. To summarize • Pulpwood recovers sooner than sawtimber • Stay the course… • Manage according to your plan • Grow your trees as thought the markets will be at trend prices, not the current record lows • Diversify across age classes • Participate in promotional efforts • Association • Sell “greenness” • Hold down certification costs