The Transformation of Timberland Ownership and Markets in North America

sorry about the darkness of the slide
sawlog prices
beetle china
bcs timber

Thanks to Craig Rawlings of the Forest Business Network for posting this here.

It’s not every day I get to hear one of America’s top forest industry CEOs speak on the global state of our industry. Mike Covey, CEO of Potlatch Corporation, recently spent the day in Missoula meeting with University of Montana College of Forestry and business students, faculty, and community members, then concluded his day with an hour-long lecture to over 200 folks on “The Transformation of Timberland Ownership and Markets in North America.”

In his presentation, Mike addresses why timber companies are becoming real estate investment trusts and how a global economy affects the U.S. lumber, timber, and log markets. While the U.S. will probably build some 5-7 million homes over the next five years, China has mandated close to 35 million. Where will they get their building products? A lot of it will come from North America. (By the way, companies looking to diversify their markets through exports will certainly benefit from presentations at the SmallWood Conference this June.)

The University of Montana’s video staff did a great job of filming Mike’s speech and I think you will enjoy watching his one-hour presentation and Q&A from the audience.

Here’s a link to the presentation.. thanks to U of M for posting the video and the slides! Interesting info and slides on China.

One Comment

  1. I’ll probably want to watch Mike Covey, after all, he’s the guy that apparently had the REIT brain phart that started the REIT avalanche.
    One thing I want to make completely clear to everyone here is, the integrated “timber industry” no longer exists, ending for all practical purposes. Mills are now almost completely separated from their supply base, big gyppos basically, and the REITs are only interested in forestry inasmuch as it gathers cash flow until the happy day a buyer comes along and offers more than the long term net present value of timber lands. That’s all. Wood matters only as cash. The REITs don’t care about having a supply to make income from forest products, as long as there’s a mill within haul radius to buy wood, everything’s all good. But direct interest in forest products? That’s over.
    The REIT change was driven by a loophole in tax policy that has cap gains at 15 percent and operating income taxed at 35 percent. PCL (where Covey was) figured this out, had a lot of land and only a few mills, and was able to mask its long-term strategy quite well up until about 2003.
    PCL protected itself with hostile takeover provisions (leading to FRIENDLY mergers) and was able to mow off its cash in Montana (the trees) and buy faster ground in other regions of the country, basically because the cap gains loophole allowed them to offer integrated companies more money up front for the NPV dirt value — stockholders LOVED that, or at least the speculative point-chasers did.
    So, they went from being a small integrated fish in a big pond, to being one of the biggest real estate fish in a pond they own much of, the large-ownership private forest blocks.
    I suppose if cap gains ever re-matches corporate taxation, some mills will try to re-integrate, but NAREIT now has big timber REIT members that like what they have.

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