Stumpage Price Trends: In the Third quarter of 2022 (Q3’22), statewide pulpwood stumpage prices for pine and hardwood declined after a steady increase in the previous two quarters. On average, the statewide pine pulpwood stumpage prices were $11.40/ton, a decline of 19% on a quarter-over-quarter basis but an increase of 12% on a year-over-year basis. Similarly, on average, the statewide hardwood pulpwood stumpage prices were $13.31/ton, a decline of 9% on a quarter-over-quarter basis but an increase of 14% on a year-over-year basis.
On average, statewide stumpage prices in South Carolina were $23.62/ton for pine and $22.37/ton for hardwood trees in the third quarter of 2022 (Q3’22). The average pine sawtimber prices declined over 5% on a quarter-over-quarter basis, and the decline was about 2% on a year-over-year basis. Unlike pine sawtimber, the mixed hardwood sawtimber prices decreased approximately 1% on a quarter-over-quarter basis, and the decline was about 2% on a year-over-year basis. As shown in the figure below, hardwood stumpage prices declined more sharply than pine stumpage prices in the state. Hardwood stumpage prices were higher than the pine stumpage rates in the last quarter, but the trend has reversed this quarter.
Data credit: The sawtimber and pulpwood price data included in this newsletter are published with permission from TimberMart-South Athens, GA 30605 email email@example.com.
Inflation Basics for Forest Landowners: Inflation is at a 40-year high, and many forest landowners are probably wondering how this will impact their forestry investment. Timber is a hard asset, meaning it is tangible or physical and holds intrinsic value. Hard assets are usually considered hedges against inflation, and timber has been touted as an inflation hedge. The average price of gold has increased from $306 per ounce to a current rate of $1,722 per ounce between 1979 to 2022, indicating an increase of 462%. It would take $4.08 today to equal the value of $1.00 in 1979, or a 308% increase, to keep the same purchasing power. This is the idea of an inflation hedge, an asset that maintains its purchasing power over and above inflation. Gold is a hard asset and did manage to keep up with inflation and exceeded it.
The value of a dollar changes over time due to inflation, and as a result, a dollar today will not buy the same value of goods in the future. Inflation is a natural phenomenon in a market economy, and it refers to an increase in prices over a given period. Inflation affects everyone, including forest landowners, since it contributes to the reduction in the purchasing power of the U.S. dollar. Forestry and the business of growing trees have long been considered a good inflation hedge or a way to be immune to general increases in the overall price level. Savvy investors looking for inflation hedges could well outperform the market during inflationary times. Inflation-hedged assets help your portfolio thrive and grow even if inflation strikes the general economy.
Tracking Inflation over Time: The consumer price index (CPI) measures how much more expensive goods and services become over a specific period. CPI is just an index number that measures the value of commodities such as groceries, haircuts, milk, lumber, beer, etc.
This index is one way that we try to measure the dollar’s purchasing power over time. Figure 1 shows historical Consumer Price Index (CPI) values and inflation rates in the U.S. between 1977 to 2021, with values shown on the left axis. The blue line increasing linearly from left to right is the CPI line, increasing smoothly over time.
Timberland hedge against Inflation: Many investors and analysts have suggested timberland as an important long-term investment category that could provide a hedge against inflation and preserve capital. A recent study has shown that forestland values tend to increase over time, keeping pace with inflation. From the comparison of prices for the five major timber products- pine sawtimber, hardwood sawtimber, pine pulpwood, hardwood pulpwood, and pine Chip-N-Saw, the study found that stumpage price only couldn’t be considered as an inflation hedge. However, timberland assets that jointly consider three major factors – tree volume growth, stumpage price change, and land value in combination- could be considered a hedge against long-term inflation over 20 to 30 years. This study also suggested that pine pulpwood and Chip-N-Saw were better hedges than other product categories. If you do not earn, invest, or purchase anything, you don’t have to worry about inflation, but it affects those buying forestland, making planting decisions, or selling their stumpage. It will impact timber prices and harvest revenue values. Timber revenues have to increase above the inflation rate to maintain their purchasing power. Revenue calculations without inflation might look like an attractive investment, but it may not be an increase if recalculated with inflation – this phenomenon is called the money illusion.
Landowners need to clearly explain financial expectations or any minimum rate of return expectations from their forestry investment to their consulting forests. It will help the consulting forester to evaluate options and use financial criteria to decide which seedlings to use, site preparation intensity to apply, and when to cut. Notably, inflation will impact the cost of forestry practices, such as site preparation, planting, and harvesting practices. Forestry costs tend to increase with inflation. It will further reduce the forestry rate of return in constant dollars for the landowners.
Puskar Khanal, Cooperative Extension, Forestry and Wildlife Specialist
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