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Does It (Still) Pay to Own Timber?
Point taken about potential biomass related revenues (e.g., cellulosic ethanol). However, we chose to err on the side of conservatism here, as we did with the treatment of revenues from CO2 sequestration. On the real price change point, we accept that 1% to 2% real has been a North American TIMO rule of thumb. However, in trying to construct a valuation framework for timber as a broad global asset class, we chose to use the IMF's data for the historical evolution of global softwood and hardwood prices. Clearly, it is possible to take issue with their methodology, from weighting to quality adjustments; to cite just one recent example, new technologies that make softwood more durable should expand the range of its potential uses, and thus add to demand and upward price pressure. Again, we took the most conservative approach. The bottom line remains the same: any attempt to value timber as a global asset class is unavoidably "noisy" and uncertain; however, even a conservative approach leads to the conclusion that timber is likely undervalued over a medium term time horizon.
On Oct 02 05:21 PM jbfiacco wrote:
> Two points.
> 1. On the demand side, you have missed the very important woody biomass
> market (being driven by renewable fuels, global warming and energy
> self sufficiency issues) and its evolving impact on stumpage prices.
> 2. Historical timber prices have risen at a real rate of about 2%.
> You appear to have a mathematical miscalculation on your chart. Your
> data shows a 1% real increase not a 0.1%.
Oct 3 01:23 PM
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