Contents
 Summary Update
 Timber Prices
 Product Prices
 Timberland Markets
 Economic News
 The FIA “Quarterly
Dashboard”
Summary Update
Timber and Product Prices — Demand for southeastern pine and hardwood
stumpage softened over the third quarter. In the Pacific Northwest, domestic
markets remain strong, keeping delivered prices stable. Northeastern
hardwood markets stabilized as strong demand exists for specific species. In
Wisconsin, veneer markets remain strong, however sawlog markets have
weakened slightly.
Housing starts fell 5.8% during the month of August, ending at a seasonally
adjusted annual rate of 1.142 million units. The new August rate was 0.9%
above the August 2015 rate of 1.132 million units. Over the third quarter, 30year mortgage rates held steady at 3.6%
Timberland Markets — In a relatively quiet third quarter, Pope Resources
purchased 7,300 acres in Washington from Hancock for a reported $31.9
million. Also in the Pacific Northwest, Sierra Pacific purchased 11,500 acres
in Washington from Campbell Global for an undisclosed price. In the
Northeast, Pinnacle sold a 290,000-acre package in Maine to Tall Timbers
Trust for an undisclosed price. Despite the lack of closed transactions, there
are many pending deals and new offerings on the market that investors will
continue to follow through year-end.
Forest Investment
Associates
15 Piedmont Center
Suite 1250
Atlanta, Georgia
30305
Internationally, markets remain active in Latin America, Australia and New
Zealand. Investors continue to await announcements on several pending
international transactions.
TEL: 404.261.9575
FAX: 404.261.9574
www.forestinvest.com
Forest Investment Associates
–1–
3rd Quarter – 2016
Timber Prices
Southeastern — Over the third quarter, pine stumpage markets contracted
slightly as demand diminished across the region. According to Forest2Market®,
the south-wide average price for pine sawtimber decreased 5.9%, ending the
quarter at $27.59 per ton. Demand for pine pulpwood held steady, as prices
increased 0.9%, while pine chip-n-saw prices fell 5.2% over the quarter.
Hardwood stumpage markets weakened, falling 13.1% and 16.9% for hardwood
pulpwood and sawtimber, respectively.
Heavy rainfall across multiple wood baskets will undoubtedly impact prices
going into the fourth quarter of 2016. Scheduled mill outages and increased
demand for pole quality logs will stress demand levels in select markets.
Southeastern Timber Prices
Source:Forest2Market®
Northern Hardwoods — Hardwood markets stabilized during the third quarter
as sawmills attempt to reduce log inventories. Strong demand exists for specific
species, however, demand for black cherry remains lackluster. According to the
Pennsylvania Woodlands Timber Market Report, black cherry prices increased
8.7% during the second quarter (the most recent publicly reported pricing),
ending 22.1% below year-ago levels. Northern red oak prices improved 25.1%
last quarter, holding at 10.7% under year-ago prices. Hard maple prices
increased 23.9% above last quarter’s level, ending down 4.4% year-over-year.
Soft maple prices strengthened 8.4% and ended 0.8% below year-ago levels.
White ash prices climbed 22.6%, ending 4.5% lower than last year’s level.
Demand for hard maple veneer logs remains strong in Wisconsin. However,
sawlogs markets weakened slightly over the quarter. Going forward, demand
and pricing is expected to increase as cooler weather makes for better log storage
conditions.
Forest Investment Associates
–2–
3rd Quarter – 2016
Northeastern Hardwood Timber Prices
Source: Pennsylvania Woodlands Timber Market Report - Northwest Region
Pacific Northwest — According to Log Lines®, Pacific Northwest (PNW)
average delivered prices for Douglas-fir #2 logs improved 1.4% over the quarter,
ending 0.2% over year-ago levels. Whitewoods (i.e., true firs and hemlock)
average delivered log prices increased 5.0%, and concluded the quarter 0.7%
below year-ago levels.
Domestic markets remain strong in both Washington and Oregon. Specific
increases have been seen in and around the I-5 corridor. With this increase,
China export prices have improved, however due to an increase in overseas
freight costs, export prices struggle to compete at full domestic price levels.
Japan export prices also improved over the quarter and continued strong
demand is expected.
Pacific Northwest Log Prices
Source: Log Lines®
Forest Investment Associates
–3–
3rd Quarter – 2016
Product Prices
Lumber and Panels — Demand for lumber and panels continue to be stable,
despite lackluster performance in the housing sector. The Random Lengths®
Framing Lumber Composite Price improved 2.3% over the quarter and ended
19.9% above year-ago levels. The Structural Panel Composite Price saw no
change over the quarter, ending 6.0% ahead of year-ago levels.
Lumber and Panel Prices
Source: Random Lengths®
Pulp and Paper — Pulp and paper prices saw moderate gains over the quarter
as demand for raw materials increased. The benchmark NBSK (northern
bleached softwood kraft) pulp price index slipped 0.5% over the quarter,
finishing 3.6% beyond year-ago levels. U.S. Newsprint (30 lb.) grew 2.7%,
ending the year 12.7% ahead of year-ago levels. Uncoated freesheet (20 lb.)
improved 0.5% over the quarter, while boxboard prices held flat.
Pulp and Paper Prices ($/short ton)
Source: FOEX Indexes, Ltd., RISI Pulp & Paper Week
Forest Investment Associates
–4–
3rd Quarter – 2016
Timberland Markets
Transactions — In the Pacific Northwest, Pope Resources acquired a 7,300-acre
western block of Hancock’s Seahawk offering in Washington for a reported $31.9
million. Also in Washington, Sierra Pacific is the reported buyer of Campbell
Global’s 11,800-acre Wallace Falls package. However, at the time of publishing,
a transaction price was not yet known.
In the Northeast, Tall Timbers Trust closed on the 290,000-acre Maine property
from Pinnacle. Although an exact price is not yet known, analysts expect the
deal to be worth approximately $100-120 million.
Transactions in Progress – Investors continue to monitor several offerings on
the market, headlined by the 295,000-acre package in Arkansas and Texas from
Hancock. Rayonier is in the process of closing the sale of three separate
properties in Alabama and Mississippi totaling 62,100 acres, with buyer and
price still unknown. In Georgia and Alabama, Forestar took third quarter bids
on a 72,000-acre package, but results are still pending. Finally, in Oregon,
Rosboro took final bids on a 94,200-acre package in the third quarter.
Several packages on the market recently will be monitored closely in the coming
months including packages in the South, Pacific Northwest, and Northeast.
Several of these newer offerings have expedited timelines, with closing preferred
before year-end. Additionally, there are multiple large-scale offerings expected
to hit the market late in the fourth quarter or in the beginning of 2017. All signs
continue to point to a busy transaction year in 2016.
Forest Investment Associates
–5–
3rd Quarter – 2016
Economic News
Housing — U.S. housing starts fell in August to a seasonally adjusted annual
pace of 1.14 million units, down from July’s 1.21 million-unit pace. A rebound
in permits for single-family dwellings suggested demand for housing remained
intact.
Mortgage Rates — 30-year fixed-rate mortgages ended the quarter around 3.6%,
up from a low closer to 3.3% in mid-September, which is very close to all-time
lows.
Jobs — After two strong months of job growth in June and July, August’s job
report ended at 151,000 new jobs for the month vs. a consensus expectation of
180,000. The unemployment rate, however, ended the quarter at 4.8%.
Consumer Confidence — A gauge of consumer confidence rose in September to
its highest level in nine years, a sign that American households are emerging
from the recession’s long shadow and could continue to support U.S. economic
growth. The Conference Board’s consumer-confidence index increased to a
seasonally adjusted 104.1 in September from an upwardly revised 101.8 in
August, its highest level since August 2007, which marked the start of the
financial crisis that led to the severe 2007-09 recession.
Inflation — U.S. consumer prices increased more than expected in August
(0.2%) as rising rents and healthcare costs offset a drop in gasoline prices,
pointing to a steady build-up of inflation that could allow the Federal Reserve to
raise interest rates this year. The so-called core CPI, which strips out food and
energy costs, rose 0.3% in August, the biggest increase since February.
Trade Deficit — The U.S. trade deficit rose more than expected in August as a
rise in imports offset higher exports. Imports hit their highest level since
September 2015, while exports were the highest since July of last year.
Interest Rates — The Fed’s current target rate is 0.25 to 0.5 percentage points,
which was last increased in December of 2015. Last month, the Fed voted to keep
rates the same but three of the 10 voting members wanted an increase. Federal
Reserve Chair Janet Yellen said only one rate increase should be necessary this
year. It is relevant to note that LIBOR, a benchmark reference rate for trillions of
dollars in private-sector debt around the world, has been on the rise since late
last year, recently hitting levels not seen since the 2008-09 financial crisis.
Oil Prices — Oil prices have hit recent highs around $50 a barrel, reflecting
OPEC's decision to embrace production cuts.
U.S. Dollar — The U.S. dollar has seen significant increases against the British
Pound in particular, rising to highs not seen since 1985. Against the Euro, the dollar
has been trading between 1.1 and 1.15 for the entire quarter.
Forest Investment Associates
–6–
3rd Quarter – 2016
The FIA Timber Economics “Quarterly Dashboard”
Southeastern Timber Prices
Source: Forest2Market®
Northeastern Hardwood Timber Prices
Source: Pennsylvania Woodlands Timber Market Report - Northwest Region
Pacific Northwest Timber Prices
Source: Log Lines®
Forest Investment Associates
Pulp and Paper
Source: FOEX Indexes, Ltd., RISI Pulp & Paper Week
-7-
3rd Quarter – 2016
The FIA Timber Economics “Quarterly Dashboard”
Housing Starts
30 yr. Mortgage
1400
7%
000's in thousands
1200
6%
1000
5%
800
4%
600
400
Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16
3%
Aug-06
Source: NAHB.org – http://www.nahb.org/
Aug-07
Aug-08
Aug-09
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Jun-13
Jun-14
Jun-15
Jun-16
Source: The Federal Reserve
Lumber
Index (1982 = 100)
Aug-10
Inflation (CPI)
$260
3.0%
$240
2.0%
1.0%
$220
0.0%
$200
-1.0%
$180
-2.0%
$160
-3.0%
$140
-4.0%
$120
Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16
-5.0%
Jun-06
Source: U.S. Department of Labor, Bureau of Labor Statistics
Forest Investment Associates
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Source: http://www.bls.gov/cpi/home.htm
-8-
3rd Quarter – 2016