Domain Timber Advisors: Timber, lumber to see mild softening of prices as weather improves and supply of available raw material increases; seasonal norms to affect Q2 in line with historic trends

May 7, 2024 (press release) –

1. 
   How did the timber and land markets perform in Q1? 
   1. Stumpage prices for the “Big Five” southern wood products (pine pulp, chip-n-saw, hardwood, pulpwood and sawtimber) increased quarter-over-quarter according to Timber Mart South. Current sawtimber prices are also up slightly compared to a year ago, while pulpwood has declined mildly over the same period.
   2. Domain offered, and reached agreement on, multiple acquisition opportunities in the quarter and found the brisk pace of activity on both buy and sell sides of land markets continued.
2. Based on the first quarter’s performance, what is your timber outlook for the second quarter of 2024 and beyond? 
   1. We see seasonal norms affecting the second quarter in line with what we have seen historically.  The expectation will be for a mild softening of prices as the weather improves and supply of available raw material increases.
3. How did macroeconomic factors, such as higher interest rates, elevated inflation, etc., affect timber during the quarter?
   1. Reasonably steady U.S. housing starts at levels above 1.3 million, have sustained demand for lumber even with elevated interest rates.  Given demographic demand, we expect these levels to remain consistent.
   2. Domain continues to see robust demand for land purchases by non-institutional private buyers despite elevated interest rates.  Many buyers we work with tend to trade in cash and not debt.
4. With increasing focus on ESG (Environmental, Social and Governance) criteria, how are timber companies adapting their practices to meet sustainability standards, and what implications does this have for investors?
   1. We believe increased scrutiny of, and commitment to, ESG criteria only tends to benefit most forestland assets.  Forestland lends itself to supporting elements across all three Environmental, Social and Governance categories.  We tend to focus on the “E” because of the sustainability benefits inherent within this asset class, but there are numerous societal benefits to well-managed forests, and appropriate governance benefits all asset classes and investors.  The primary adaptive factors from our perspective are better documentation of the practices we already employ and continual expansion of our approach to ESG based on investor perspectives.  As an example, we recently improved our screening process for new acquisitions in direct response to the ESG focus and client requests.
5. Can you provide insights into any technological advancements or innovations in the timber industry that could affect its future growth prospects?
   1. As forestland owners have become more efficient at growing their volume-per-acre through improved silviculture and seedling stocks, mills continue to enhance processing efficiencies. As an example, mill recovery rates have improved over time in part through the application of new technology like continual imaging and scanning of stems as they make their way through the mill.  
6. How do timber investments compare to other alternative asset classes in terms of risk and return potential, and what role do they play in a diversified investment portfolio?
   1. We view forestland investments as stabilizing for a portfolio, especially when considering the uncorrelated biological growth engine of the trees and Domain’s ability to extract additional value through a robust small-tract land-sales program or by engaging renewable energy revenue streams (most recently by working with solar power developers across our clients’ properties).

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