Additional Risk Information

Stumpage or timber prices do vary; however, long-term real timber prices have consistently increased.  Timber has always been considered a good hedge against inflation.  Diversification, across timber growing regions and timber products, tends to minimize any risk due to timber prices.  Often prices differ widely in the various timber growing regions and the various timber products.  Investors should have capital tied to all the regions and products.  By controlling the age class structure of the investment, one also controls the timing of product availability.  Age class structure can be used to control much of the risk of varying timber prices.  Also, recall that wood can be stored on the stump.  One is not required to harvest during poor markets; timber is much more flexible than that.

Land price is also a risk.  However, long-term land has produced consistent returns that have more than beat inflation.  Timberland is not high-priced development property.  Its value is in growing trees and, thus, it is correlated with timber prices.  It has not exhibited high volatility and actually is one of the more stable portions of the investment.

Tree growth is also somewhat of a risk.  Trees grow no matter what man does.  The growth is highly predictable via computer models.  By varying age class structure a manager can establish an almost certain pattern of wood flow.  However, mortality is part of the equation.  Fire, insects, and disease can cause mortality or decreased growth.  These losses tend to frighten investors.  However, experienced forest managers know the risk is slight.  Geographic diversification minimizes these risks.  The risks are random and scattered across a timber growing region.  Large geographically-diverse holdings average well under 1 percent mortality from these causes.  Forest mangers know how to manage around them and actually consider them just a normal part of managing a forest.