Money indeed grows on trees in South Carolina!
The forestry and forest products business contributes more than $21 billion to the state economy and creates at least 84,000 jobs.
All South Carolinians should be thankful to our forest landowners for conserving and managing their forest land, and being critical economic players to the state economy. We have more than 262,000 family forest landowners actively contributing to the state’s green economy.
The Wall Street Journal recently published a forestry-related article titled “Thousands of Southerners Planted Trees for Retirement, It Didn't Work Out.”
The article compared timber investments with traditional 401(k) investments and noted some forest owners were disappointed with current sawtimber prices and the financial performance of their timber assets.
The article indicated that a “wall of wood” caused by tree plantings from the Conservation Reserve Program is partly to blame for the current market conditions. With South Carolina as one of the Southern states, the "wall of wood" is indeed a reality for many forest landowners in Palmetto state.
What is "wall of wood"?
The words refer to current oversupply of mature trees partly due to the Conservation Reserve Program's tree-planting incentives back in late 1980s.
Those additional trees planted in early 1990s were ready to harvest right around the recent economic recession of 2008, but many landowners in South Carolina chose to ride out the recession and harvest those trees after the housing market recovery.
However, scars of the recession have lasted longer than expected and the housing market has yet to bounce back to a prerecession level.
So the CRP plantation spike is only partly responsible for current oversupply and the depressed market condition, along with weak timber demand conditions also being a major culprit.
"Wall of wood" carries a negative connotation because it is a major factor contributing to reduced timber prices in South Carolina.
Normal market rules apply to the sawtimber market as well.
Too many people selling the same product in the same market creates an oversupply situation and prices drop. Too many landowners trying to sell mature trees at the same time without a significant increase in demand has reduced the timber price.
Will it go away?
Of course, nothing is permanent, so it should go away.
But how long will it take for timber prices to improve again depends on timber demand and the overall health of our economy.
Timber demand is largely derived from the housing market.
The market for selling timber is not encouraging right now, but patience is a virtue in any investment. Judicious planning and knowing the right time to harvest and replant trees will help navigate current market conditions. It takes so many years for trees to grow to a right-size product category.
Landowners should work closely with their forestry advisers or consulting foresters and plan their actions today with good understanding of the future market conditions.
Growing healthy and quality trees is only half the work. The other half is understanding and successfully navigating the timber market.
We suggest landowners seek advice from forestry and economic professionals available at the Clemson Cooperative Extension, the South Carolina Forestry Commission or the Forestry Association of South Carolina.
These agencies/organizations provide free outreach and education service to forest landowners in South Carolina.
Money indeed grows on trees for smart investors.