VARDAMAN VIRTUAL FORESTRY COMPANY

PREDICTING FUTURE TIMBER DEMAND, SUPPLY, AND PRICES

Two weeks ago, John Jackson asked on our Discussion Forum, “Can anyone give evidence that timber supply will not outstrip demand in the future thus putting pressure on prices?”  An accurate answer to this question would be invaluable to all timberland owners.  So far our readers haven’t attempted the impossible task of predicting even one second of the future.  JMV&CO staff members who did so would have been fired. 

Everyone who invests in assets of any kind, even U.S. Treasury bonds, would give a pretty penny to get an answer to such a question about his assets.  One of the most popular stocks in Jackson, MS, is WorldCom, which grew up and has its headquarters here.  In one of the most-public of marketplaces, the NASDAQ, it traded at $61+ early this year and slightly under $16 a few days ago.  Those who rode it from top to bottom may be sad now, but at least they knew all about the company assets and prospects in exquisite detail.  Some of the keenest stock-market analysts comment daily, in detail, and for the record on the probable course of WCOM in the near future.

“Timber” is about as far from WCOM as you can get.  First, every tree big enough for a fencepost can be called timber, and the term also applies to pine or hardwood pulpwood, pine or hardwood sawtimber, utility poles, and veneer logs of all species.  Second, trees cover 205,000,000+ acres south of a line from eastern TX and eastern OK to Washington, DC; 70% of it is owned by individuals, families, and other private entities.  Third, either timber or timberland trades somewhere in this area perhaps 520,000 times each year, but almost all trades except those handled by JMV&CO are secret.  Even if you knew the total consideration, you’d still have to know the species, volume per acre, size of trees, logging conditions, etc.  Fourth, the buyer in each trade can haul it no more than 100 miles to manufacture into something used by ultimate consumers.  He can pay for it only what his market allows him to pay; when prices of his product fall too low, it doesn’t matter how much or how little of his raw material is available.

 

In such a situation, it is hard to know what forecasters mean by a “Wall of Wood” or a “Glut of Fiber.”  What species, size, quality, volume per acre, location in the 13-state area are involved?  When will all these trees appear?  Who are the forecasters?  Is their record as good as the genuine expert who predicted that 2000 would be almost a record for hurricanes in the U.S.?  We think that these forecasts are meaningless for our readers.

Finally, there is a huge difference between investors in the two classes of assets.  WCOM investors can tell you what their stock is worth to the nearest penny every day, whereas most timber owners haven’t the faintest idea how much they own.  JMV&CO does what it can to help here.  We post details and bids on all timber sales on www.se-timbersales.com and estimated stumpage prices at each office each month on www.vardaman.com.  Knowing the value of what you own and the prices at which similar tracts sold are the first step in approaching the knowledge level of WCOM investors.  At least you will know how much it is worth today. 

The next step is predicting its growth.  We can do this very accurately with PPIC’sâ, with lesser accuracy with PTAEDA2-1.V and loblolly-pine plantations, and quite accurately natural stands.  Call on us.  We’ll be happy to explain the process and do it for you if you don’t want to do it yourself.

We suggested in http://www.vardaman.com/greensheets/whatare.htm that stock prices of the major forest products companies give a clue (but only a clue) to short-term movements.  When their stock prices begin to move up, it’s because investors think that the companies will make more money, and making more by getting better prices for their products is the first step in paying more for timber.  We’ve attached charts of A.Weyerhaeuser, B.Georgia-Pacific, C.International Paper, and D.Temple Inland.  The downward movement of all four this year up until mid-September seems to have predicted the present situation.  We hope that the upward movement in progress now indicates better timber prices..  We’ll see.