This post includes content from the Forisk Market Bulletin, which provides timely market intelligence and tracking of timberland transactions and forest industry capital investments in the U.S. and Canada.

While timberland deal flow and mill production are up, risk and uncertainty dominated recent conversations with forest industry professionals and timberland investors. For example, in Eastern Canada contacts reinforce the challenges of moving mill residuals, staffing operations during the pandemic, and managing forest fires. We hear the same story in the U.S. West except fires are the primary concerns dominating manager meetings and media coverage. [One timberland owner in the Pacific Northwest said, “our competitors are absolutely suffering from fire damage and I don’t know what they’re going to do.”] In the U.S. South, the same concerns are present 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 feeling 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.

The pace of timberland transactions picked 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 the past ten weeks 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 at TIMOs, one timber REIT and two forestry consultants 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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