Trends in North American Forest Products Markets:A TIMO Perspective
Dr. Bruce P. Glass, Senior Forest Economist November 17, 2014
CAMPBELL GLOBAL
Campbell Global LLC Overview
▪ Founded in 1981 & headquartered in Portland, Oregon, USA
▪ Business focus: Timber & timberland resources
▪ US$6.4 billion in timberland assets under management*
▪ 3.1 million acres (1.3 million hectares) under management ▪ Employ more than 300 staff members in 14 states & two
countries
▪ Timber Industry Management Organization (TIMO): – Source & structure timberland investments for clients – Manage client-owned timberland – Market & sell clients’ timberland investments
* Current asset value based on the most recent independent appraisal or internal valuation data.
November 2014 2
CAMPBELL GLOBAL
Assets Under Management
November 2014 3
Source: RISI, CG
Australia Green Triangle 3.7 million m3 softwood sawlog 25% of Australia total production Total Campbell Holdings: ~232,000 acres (~94,000 hectares)
U.S. South 71.92 million m3 softwood sawlog 51% of U.S. production Total Campbell Holdings: ~2.2 million acres (~900,000 hectares)
U.S. Pacific Northwest 47.36 million m3 softwood sawlog 34% of U.S. production Total Campbell Holdings: ~660,000 acres (~270,000 hectares)
CAMPBELL GLOBAL
Key US Macroeconomic Considerations
▪ Most factors needed for wood products demand recovery are in place:
– Improved household balance sheets
– Lenders are taking on increased risk
– Accelerating employment growth
– Consumers loosening purse strings … cautiously
November 17, 2014 4
CAMPBELL GLOBAL
Household Balance Sheets are in Great Shape
November 17, 2014 5
US Household Debt Payments as a Proportion of Disposable Personal Income
Perc
ent
14%
15%
17%
18%
19%
Mar-84
Jun-8
5
Sept-8
6
Dec-87
Mar-89
Jun-9
0
Sept-9
1
Dec-92
Mar-94
Jun-9
5
Sept-9
6
Dec-97
Mar-99
Jun-0
0
Sept-0
1
Dec-02
Mar-04
Jun-0
5
Sept-0
6
Dec-07
Mar-09
Jun-1
0
Sept-1
1
Dec-12
Mar-14
Jun-1
5
Sept-1
6
Dec-17
Source: FRB
CAMPBELL GLOBAL
Lenders Becoming Increasingly Expansive; Mortgage Lending Still Lags
November 17, 2014 6
CAMPBELL GLOBAL
Residential Construction Employment Especially Buoyant
November 17, 2014 7
US Employment Growth
Year
-ove
r-ye
ar e
mpl
oym
ent g
row
th ra
te
-30%
-23%
-15%
-8%
0%
8%
15%
Jan-0
9
May-09
Sept-0
9
Jan-1
0
May-10
Sept-1
0
Jan-1
1
May-11
Sept-1
1
Jan-1
2
May-12
Sept-1
2
Jan-1
3
May-13
Sept-1
3
Jan-1
4
May-14
Sept-1
4
Jan-1
5
May-15
Sept-1
5
Jan-1
6
May-16
Sept-1
6
Jan-1
7
May-17
Sept-1
7
Jan-1
8
May-18
Sept-1
8Total, non-farm Construction Residential construction
Source: BLS
CAMPBELL GLOBAL
Awaiting Return of the US Consumer …
▪ Paying down debt remains a priority for many
– Interest rates will only go up!
▪ Baby-boomer demographics
– Older households tend to spend less than younger households
▪ Consumer purchasing power turning around – Weak US$ turning around now
– Declining fuel prices
▪ Subdued income growth
– Real wages have struggled to beat inflation for last 5 years
– Job quality issues
▪ Income distribution
November 17, 2014 8
CAMPBELL GLOBAL
Median Real Income Growing Slowly; Rising Wages Needed to Fill Gap
November 17, 2014 9
Real Household Income: Comparison of Median with MeanIn
dex
(Jan
uary
200
0 =
100)
80
90
100
110
120
Jan-0
4
Aug-04
Mar-05
Oct-05
May-06
Dec-06
Jul-0
7
Feb-08
Sept-0
8
Apr-09
Nov-09
Jun-1
0
Jan-1
1
Aug-11
Mar-12
Oct-12
May-13
Dec-13
Jul-1
4
Feb-15
Sept-1
5
Apr-16
Nov-16
Jun-1
7
Jan-1
8
Aug-18
Median Real Household Income (Sentier Research)Mean Real Household Personal Income (BEA, Census)
Source: FEA
CAMPBELL GLOBAL
Sawn Timber & Structural Panels Consumption will Recover when Housing Recovers
November 17, 2014 10
Data are in units reported by source. 1 Mbf sawn timber equals 2.36 m3 full sawn volume or 1.57 m3 actual volume. 1 Msf (3/8” basis) equals 0.89 m3.
CAMPBELL GLOBAL
Most Factors Needed for Housing Recovery also in Place
▪ Excess unsold home inventories down
– Shadow inventories declining also
▪ Pent-up housing demand building
▪ Affordability remains favorable
– Despite rising house prices & subdued income growth
November 17, 2014 11
CAMPBELL GLOBAL
Unsold Housing Inventories At or Below Pre-downturn Levels
November 17, 2014 12
Inventories of new single-family and existing houses for sale
Hou
ses
for s
ale
(SA
AR
, tho
usan
ds)
0
1.000
2.000
3.000
4.000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Dec-17
Mar-18
Jun-18
Sept-1
8
New single family Existing
Sources: US Census Bureau, National Association of Realtors
CAMPBELL GLOBAL
Looking Forward to Release of Pent-up Demand from Recession Years
November 17, 2014 13
US Pent-up Demand for Housing
Num
ber o
f uni
ts (m
illio
ns)
-0,75
0,00
0,75
1,50
2,25
3,00
2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: RISI
CAMPBELL GLOBAL
Housing Affordability Remains High
November 17, 2014 14
Comparison of Median Price for Existing Homes with Home Affordability Index
Affo
rdab
ility
inde
x
(i.e.
, rat
io o
f med
ian
fam
ily in
com
e to
qua
lifyi
ng
inco
me)
0
50
100
150
200
Med
ian
pric
e of
exi
stin
g ho
mes
(nom
inal
US$
)
0
60.000
120.000
180.000
240.000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Dec-17
Jun-1
8
Existing home price Affordability (RHS)
Source: NAR
CAMPBELL GLOBAL
Sawn Timber & Structural Panels Consumption Forecast to Rise Steeply
November 17, 2014 15
Data are in units reported by source. 1 Mbf sawn timber equals 2.36 m3 full sawn volume or 1.57 m3 actual volume. 1 Msf (3/8” basis) equals 0.89 m3.
CAMPBELL GLOBAL
WHAT DOES THIS MEAN FOR LOG PRICES?
November 17, 2014 16
CAMPBELL GLOBAL
What Does this Mean for Log Prices?
▪ Cyclic adjustment phase – Recovery in US housing drives expanding demand
• Especially in US South
– Reduction of deferred harvest volume in US South – Softening log demand in China
November 17, 2014 17
CAMPBELL GLOBAL
Significant Deferred Harvest Volumes in US South
November 17, 2014 18
Data are in units reported by source. 1 Mbf International ¼” rule log volume equals approximately 5.8 m3.
CAMPBELL GLOBAL
What Does this Mean for Log Prices? (cont.)
▪ Cyclic adjustment phase
▪ Trend phase – Expanding log demand
• Domestic & foreign
– Contracting Canadian timber supply – Potentially expanding US South timber supply
November 17, 2014 19
CAMPBELL GLOBAL
North American Export Prospects: China’s Fiber Demand not a Passing Fad
November 17, 2014 20
China Fiber DeficitVo
lum
e (m
illio
n cu
bic
met
ers,
roun
dwoo
d eq
uiva
lent
)
0
150
300
450
600
2011 2016 2020
Demand Supply Gap (Imports)
Source: IWG
CAMPBELL GLOBAL
But Where will the Needed Product Come From?(Boiling Frogs)
November 17, 2014 21
BC Interior Merchantable Softwood Log Harvest: History and Forecast
Mer
chan
tabl
e lo
g vo
lum
e (m
illio
n cu
bic
met
ers)
0,0
15,0
30,0
45,0
60,0
19951997
19992001
20032005
20072009
2011
2013 (est.) 2015
20172019
20212023
History IWG forecast (2012)Historical average (1995-2013) IWG forecast average (2012-2024)
Note: Merchantable includes sawlog and "low-grade" logs Sources: BC MoFR, IWG
-19% (≈ 9 million m3)
CAMPBELL GLOBALNovember 17, 2014 22
Maturing Age Classes Approaching Harvest in the US South
CAMPBELL GLOBAL
How Much Southern Timber will be Harvested?
▪ Available harvest & haul capacity
▪ Operability, e.g., ground conditions, economic margin
▪ Over-mature age classes, especially natural regeneration
▪ Other harvest restrictions, e.g., conservation plantings, etc.? ▪ Conversion from timberland to ‘higher & better’ use
November 17, 2014 23
CAMPBELL GLOBALNovember 17, 2014 24
Sawlog Prices Tracked Sawn Timber Prices Through the Downturn in US West Coast Region …
Delivered Price for Douglas-fir #2 Sawlogs in Lower Columbia River Region Compared with Douglas-fir Lumber Price Index
2013
$/M
bf lu
mbe
r
200
300
400
500
600
700
2013
$/M
bf S
crib
ner l
ong
log
scal
e
200
300
400
500
600
700
800
900
1.000
1.100
1.200
Jan-0
4
Aug-04
Mar-05
Oct-05
May-06
Dec-06
Jul-0
7
Feb-08
Sept-0
8
Apr-09
Nov-09
Jun-1
0
Jan-1
1
Aug-11
Mar-12
Oct-12
May-13
Dec-13
Jul-1
4
Feb-15
Sept-1
5
Apr-16
Nov-16
Jun-1
7
Jan-1
8
Aug-18
Lower Columbia River Douglas-fir lumber (RHS)
Sources: Loglines, WWPA
Data are in units reported by source. 1 Mbf Scribner long log scale equals approximately 6.5 m3 log volume. 1 Mbf sawn timber equals 2.36 m3 full sawn volume or 1.57 m3 actual volume.
CAMPBELL GLOBALNovember 17, 2014 25
… But Sawlog-Sawn Timber Price Tracking Slow to Re-emerge in US South
Pine Sawtimber: Comparison of Stumpage and Delivered Prices in Southeast Texas (TMS Region 2) with Southern Yellow Pine Lumber Price (2x4, #2 kd, Westside)
2013
$/M
bf lu
mbe
r
0
200
400
600
800
2013
$/to
n
0,00
20,00
40,00
60,00
80,00
Mar-08
Sept-0
8
Mar-09
Sept-0
9
Mar-10
Sept-1
0
Mar-11
Sept-1
1
Mar-12
Sept-1
2
Mar-13
Sept-1
3
Mar-14
Sept-1
4
Mar-15
Sept-1
5
Mar-16
Sept-1
6
Mar-17
Sept-1
7
Mar-18
Sept-1
8
Stumpage Delivered Logs SYP 2x4, kd, Westside (RHS)Sources: Timber Mart-South, Random Lengths
Data are in units reported by source. 1 (short) green ton equals approximately 0.82 m3 log volume. 1Mbf sawn timber equals 2.36 m3 full sawn volume or 1.57 m3 actual volume.
CAMPBELL GLOBALNovember 17, 2014 26
Different Set of Drivers Influencing Pulpwood Prices, Especially in US South
Delivered Softwood Fiber Prices in the US South Central Region
2013
US$
/gre
en to
n
10,00
22,50
35,00
47,50
60,00
Sept-1
1
Mar-12
Sept-1
2
Mar-13
Sept-1
3
Mar-14
Sept-1
4
Mar-15
Sept-1
5
Mar-16
Sept-1
6
Mar-17
Sept-1
7
Mar-18
Sept-1
8
Wood chip Pulpwood Pellet-grade wood chipIn-woods biomass Mill residue biomass
Sources: IWR, WBMR
Data are in units reported by source. 1 (short) green ton equals approximately 0.91 tonnes.
CAMPBELL GLOBALNovember 17, 2014 27
Expanding Consumption of Pulpwood Anticipated for OSB & Bioenergy Production
Roundwood Demand in the US South for Pulp, Oriented Strandboard, and Bioenergy Production
Volu
me
(mill
ion
cubi
c m
eter
s)
0
33
65
98
130
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Pulp Oriented strandboard Bioenergy, including pellets
Source: FEA
CAMPBELL GLOBALNovember 17, 2014 28
Will Upsurge in North American Wood Pellet Production Have Legs?
Comparison of Natural Gas Prices in the USA, Germany, and Japan Compared with Average Crude Oil Price
Nom
inal
cru
de o
il pr
ice
(US$
/bar
rel)
0
45
90
135
180
Nom
inal
nat
ural
gas
pric
e (U
S$/B
TU)
0,00
5,00
10,00
15,00
20,00
Jan-9
6
Dec-96
Nov-97
Oct-98
Sept-9
9
Aug-00
Jul-0
1
Jun-0
2
May-03
Apr-04
Mar-05
Feb-06
Jan-0
7
Dec-07
Nov-08
Oct-09
Sept-1
0
Aug-11
Jul-1
2
Jun-1
3
May-14
Apr-15
Mar-16
Feb-17
Jan-1
8
US Germany Japan Mean crude price (Brent, Dubai, WTI; RHS)
Source: IMF
CAMPBELL GLOBAL
Outlook for Rising Real Prices for US Softwood Sawlogs
▪ US housing recovery slowly gathering traction
▪ Strong export demand
– A boon to western timber growers ▪ Log demand & price recovery in the US South awaits:
– Accelerating US housing recovery, in conjunction with
– Tightening SPF sawn timber supply from Canada
– A matter of timing: Which will come first?
▪ Increasingly fierce competition for fiber at woodshed level:
– Pulpmills, pellet mills, OSB mills
November 17, 2014 29
CAMPBELL GLOBAL
What Does This Mean for Timberland Value?
▪ Major value drivers: – Price
• Sawlog prices typically double pulplog prices
• Cyclic log price adjustment • Longer-term US demand & supply fundamentals drive trend
prices • Outlook for rising real softwood sawlog prices
– Discount rate • Currently compressing, reflecting:
• Product price expectations • Demand for timberland investments • Availability of investment opportunities
November 17, 2014 30
CAMPBELL GLOBAL
QUESTIONS ARE WELCOME
November 17, 2014 31
CAMPBELL GLOBAL
APPENDIX
November 17, 2014 32
CAMPBELL GLOBALNovember 17, 2014 33
About US$44 Billion in Assets & 30 Million Acres Under Management (12/31/2013)
Source: Timberlink
CAMPBELL GLOBALNovember 17, 2014 34
US Private Timberland Ownership Increasingly Dominated by TIMOs & REITs
Change in Ownership Status of Timberland Formerly Owned by the US Forest Industry,
by Ownership Category
Shar
e of
ow
ners
hip
(are
a ba
sis)
0%
25%
50%
75%
100%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Conservation Financial Integrated REIT
Notes: (1) Includes REIT conversions; (2) Timberland data from USFS (GTR-NC241 & GTR NRS-27); (3) Totals may not add due to rounding
28%
22%
44%
6%
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