Timo Pukkala and Seppo Kellomäki of the University of Eastern Finland found that timber prices should affect the selection of species a forestry manager has in his plantation. That is good news for us, since that is how we have put together the JO Global Forestry Investment Fund:
The bulk of our fund, 50% of assets, are aimed at pricey hardwood plantation forestry in Brazil. Clearly, Brazil has vast areas of land so we do not foresee any price appreciation in land prices, however, the timber standing on the land we do believe will increase in price over time as FSC-certified teak is a very scarce resource – and we know for a fact that it will grow in volume over the years.
Now, getting back to the findings of the Finnish researchers, we also invest in European, or more specifically, Eastern European forestry. Here, the case is rather the opposite. The standing timber does produce an annual return, but each tree represents a fairly low value. The land as such, however, is a resource that is not renewable and in densely populated Europe it is becoming ever more scarce. Thus, we expect a quite substantial increase in land prices in Eastern Europe that is still lagging behind forest-land prices of other large forestry nations, such as Sweden and Finland.
Here at Forestry Investment Blog, we also believe that having a combination of different species, mixing species like Acacia and Eucalyptus, for example, helps to maximize returns for investors. We also think that ensuring forestry management techniques and strategies are adapted to suit both environmental and market conditions is vital.
“The study showed what clever forest landowners already know,” Timo Pukkala stated. “When future round wood prices and uses are unknown, the landowner should continuously have several tree species and timber assortments in his forest. Growing only spruce in even-aged stands is risky business.”
He concluded: “We hope that our study will promote diversified forest management, leading to diversified forest structures.”