Contents Summary Update Timber Prices Product Prices Timberland Markets International Update Economic News The FIA Quarterly Dashboard Summary Update Timber and Product Prices Demand for sawtimber in the Southeast contracted over the quarter. Both pine and hardwood pulpwood markets also weakened. Pacific Northwest export markets continue to trend upward. Domestic markets in this region also remain robust for all products. Northeastern hardwood markets continue to be strong for many benchmark species. Export pressure has kept demand high for both lumber and export logs in this region. In the Lake States, veneer log sales and overall demand for hard maple has remained steady over the quarter. During the month of February, housing starts reached a seasonally adjusted annual rate of 1.288 million units. This rate was 2.96% above the revised January rate of 1.251 million units and 6.18% above the February 2016 rate of 1.213 million units. The average interest rate for 30-year fixed rate mortgages declined over the first quarter from 4.32% in December to 4.14% in March. Timberland Markets Only a few transactions closed in the first quarter of 2017. In the South, Timberland Investment Resources (TIR) acquired an 11,400-acre package in Alabama from Timbervest for $21 million. In the Pacific Northwest, Olympic Resource Management (ORM) sold 6,400 acres in coastal Oregon to Greenwood for $26.2 million. In the Lake States, BTG Pactual sold 14,000 acres in Wisconsin to Keweenaw Land for $13 million. Forest Investment Associates 15 Piedmont Center Suite 1250 Atlanta, Georgia 30305 Although news on completed transactions is slow, 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 1 st Quarter 2017
Timber Prices Southeastern Southeastern solid wood demand saw mixed results over the quarter, while both pine and hardwood pulpwood markets weakened. According to Forest2Market, the south-wide average price for pine sawtimber dropped 4.9%, ending the quarter 9.6% below year ago levels. Pine pulpwood prices fell 10.0%, in the first quarter; however pine chip-n-saw prices increased 4.1% over the same period. Hardwood sawtimber prices held steady, decreasing only 0.6%, while hardwood pulpwood fell 7.9% ending the year 27.5% below year ago levels. Developments surrounding the U.S.-Canadian Softwood Lumber Agreement continue to loom over sawtimber markets in the Southeast. Further rulings and determinations from the U.S. Commerce Department are expected in May. Parties on both sides of the border continue to support a deal to encourage stability in the North American lumber markets. Southeastern Timber Prices Source:Forest2Market Northern Hardwoods Timber markets in the Northeast continue to be strong for most species. Exports to China have kept demand high for both lumber and export logs. Cherry exports to China have increased along with a slight demand increase from domestic sources. According to the Pennsylvania Woodlands Timber Market Report, black cherry prices increased 1.2% during the fourth quarter (the most recent publicly reported pricing), ending 18.7% below yearago levels. Northern red oak prices fell 11.7% last quarter, ending 6.6% under year-ago prices. Hard maple prices declined 4.9% over the quarter, ending down 8.1% year-over-year. Soft maple prices improved 10.7% and ended 11.1% ahead of year-ago levels. White ash prices rebounded slightly over the fourth quarter, increasing 8.9%, ending the quarter 11.1% below last year s level. Pricing for hard maple in the Lake Sates has remained steady. Veneer log sales continued to be stable throughout the winter months. Overall, prices have not significantly changed from 2016. Pulpwood demand and pricing continues to decrease. Forest Investment Associates 2 1 st Quarter 2017
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 2.4% over the quarter, ending the year 5.9% above year-ago levels. Whitewoods (i.e., true firs and hemlock) average delivered log prices increased 4.4%, and concluded the year 10.3% ahead of year-ago levels. Chinese demand for Douglas-fir and Whitewood continues to trend upward, while log prices for Whitewoods remain slightly lower. Domestic demand is strong for all products, and continues to be higher in areas with little to no export demand influences. Wet weather has impacted mill inventories and is expected to continue influencing markets. Pacific Northwest Log Prices Source: Log Lines Forest Investment Associates 3 1 st Quarter 2017
Product Prices Lumber and Panels Over the first quarter of 2017, lumber and panel markets reached levels not seen since the second quarter of 2013. The Random Lengths Framing Lumber Composite Price improved 12.0% over the quarter and ended 16.5% ahead of year-ago levels. The Structural Panel Composite Price increased 9.2% over the first quarter, ending the year 13.8% ahead of year-ago levels. Lumber and Panel Prices Source: Random Lengths Pulp and Paper The benchmark NBSK (northern bleached softwood kraft) pulp price index rebounded over the quarter, increasing 7.1%, ending the quarter 11.6% above year-ago levels. U.S. Newsprint (30 lb.) remained unchanged for the second straight quarter, but ended the quarter 5.5% ahead of year-ago levels. Uncoated freesheet (20 lb.) prices continue to fall slightly, dropping 2.0% over the quarter. Demand remains flat for boxboard, as prices remain flat for the third consecutive quarter. Pulp and Paper Prices ($/short ton) Source: FOEX Indexes, Ltd., RISI Pulp & Paper Week Forest Investment Associates 4 1 st Quarter 2017
Timberland Markets Transactions In the South, Timberland Investment Resources (TIR) acquired an 11,400-acre package in Alabama from Timbervest for a reported $21 million. In the Pacific Northwest, Olympic Resource Management (ORM) sold 6,400 acres in coastal Oregon to Greenwood for approximately $26.2 million. In the Lake States, BTG Pactual sold 14,000 acres in Wisconsin to Keweenaw Land for $13 million. Transactions in Progress While there have been few closed transactions thus far in 2017, there are many offerings on the market. The largest offering currently on the market is a 1.1-million-acre package in east Texas from Campbell Global. The massive property, held by CalPERS, is being offered in four separate blocks by investment banker Perella Weinberg. Rayonier announced the acquisition of 95,100 acres in Georgia, Florida, and South Carolina from three separate sellers for a combined price of $217 million. Forest Investment Associates was the majority seller of these assets. Also in the South, investors continue to monitor a 317,000-acre Southern hardwood package from Forestland Group covering four states. In Oklahoma, Molpus Woodlands Group is taking bids on a 14,800- acre package. In the Northwest, Molpus is also marketing 23,800 acres in Idaho. In the Lake States, the aforementioned Keweenaw Land Association is selling its 182,000-acre footprint in Michigan and Wisconsin in an investment banker-led process. The first quarter of 2017 was relatively slow, but several offerings came to the market in March. Deal flow is expected to pick up throughout the summer months, and investors will keep a close eye on current offerings. Forest Investment Associates 5 1 st Quarter 2017
International Update General Overall demand for wood products on a global basis remained strong highlighted by China s continued reliance on wood imports, the slow but steady improvement in the U.S. housing sector and improved economic performance in the EU. Important headlines dominated the international timberland landscape during the first quarter. Chile experienced a historically significant fire season driven by high temperatures, low relative humidity and strong prevailing winds from the south. At the end of February, 1.2 million acres countrywide were affected by the fires of which, approximately 693.2 thousand acres were planted forests. The surge of volume from salvage activities is already impacting local timber markets. Chatter about the potential reversal of the 2010 AGU opinion that limits the ability of foreigners to acquire rural property in Brazil remains ongoing. Stakeholders from political, private and economic vantage points support such a change to help increase the level of foreign direct investment in agriculture, mining, infrastructure and forest businesses. The unprecedented 11-quarter recession in Brazil continues; however, some economic indicators suggest that the economy is establishing a bottom. In New Zealand, timber growers are enjoying relatively robust pricing for domestic logs while export log markets remain steady albeit slightly affected by volumes of South American wood products headed for Asia. During the quarter, Red Stag, a Rotorua based sawmill, announced it had completed its previously announced expansion projects bringing total wood consumption to over one million tons of logs. Forest Investment Associates 6 1 st Quarter 2017
Economic News Housing U.S. home building jumped in February to near a 9-1/2-year high of 1.288 million units, up more than 6% from year ago levels. Mortgage Rates Defying conventional wisdom, mortgage rates declined at the end of the quarter, notwithstanding the Federal Reserve s move to increase short-term rates by a quarter point. Average 30 year rates ended the quarter around 4.1%. Jobs In a surprise end to the quarter, nonfarm payrolls came in at 98,000 in March though the unemployment rate fell to a 10-year low of 4.5%. Payrolls had been expected to increase by 180,000. An average of 19,000 manufacturing jobs were added in the three months through February, and that is the best three months for hiring by manufacturers since late 2014. Consumer Confidence Consumer sentiment edged up to 98 in April, according to the University of Michigan. Rising consumer confidence is a result of the Current Economic Conditions Index being near all-time highs. The index is currently at its highest since 2000. Inflation U.S. inflation at the wholesale level fell in March for the first time in seven months. The producer price index slipped 0.1% last month to mark the first decline since August. Still, some inflationary pressure is building for the first time in several years and prices could rise even higher. Over the past 12 months wholesale costs have risen 2.3%, the biggest increase in five years. Trade Deficit The U.S. trade deficit declined sharply in February as imports from China fell by a record amount and American exports rose for a third straight month. The deficit fell to $43.6 billion in February, 9.6% below January's deficit of $48.2 billion. Interest Rates The yield on the 10-year Treasury note ended the quarter around 2.4%, but through mid-april had dropped to around 2.15% Oil Prices Oil prices ended the first quarter around $50s per barrel. Experts believe that any sustained rally for global oil prices continues to be challenged by a steady rise in U.S. oil production. U.S. Dollar Since President Trump s election, investors have pumped cash into American equities markets, driving up a dollar which had already been on the rise. It is up more than six percent against a basket of six major currencies in the last year. In an unusual move for a sitting President, Trump has voiced concern that the dollar is getting too strong. Forest Investment Associates 7 1 st Quarter 2017
The FIA Timber Economics Quarterly Dashboard Southeastern Timber Prices Northeastern Hardwood Timber Prices Source: Forest2Market Source: Pennsylvania Woodlands Timber Market Report - Northwest Region Pacific Northwest Timber Prices Pulp and Paper Source: Log Lines Source: FOEX Indexes, Ltd., RISI Pulp & Paper Week Forest Investment Associates - 8-1 st Quarter 2017
Index (1982 = 100) 000's in thousands The FIA Timber Economics Quarterly Dashboard Housing Starts 30 yr. Mortgage 1400 7% 1200 6% 1000 800 5% 600 4% 400 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 3% Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Source: NAHB.org http://www.nahb.org/ Source: The Federal Reserve Lumber Inflation (CPI) $260 $240 $220 $200 $180 $160 $140 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% $120 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Source: U.S. Department of Labor, Bureau of Labor Statistics -5.0% Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Source: http://www.bls.gov/cpi/home.htm Forest Investment Associates - 9-1 st Quarter 2017