Morningstar Analyzes Timber as an Asset Class

By on October 2, 2009

Daniel Rohr, CFA, provides some interesting insights into the fundamentals behind timber, which Jeremy Grantham and several large college endowments have popularized as an asset class. Rohr examines the history and future of timber in a well-written and enlightening article.

More than 90% of U. S. homes use wood-framed walls and roofs, therefore, home construction consumes approximately 2/3rds of the annual timber harvest. Paper and related products (corrugated packaging, tissue, and so on) are the other major source of timber demand, typically consuming about 33% of the annual harvest. Paper demand has been in a secular decline due to the increasing use of computer technology.

Rohr provides figures that show that there is ample supply of timber in relation to demand, which have fallen significantly due to the recession. An eventual comeback in the housing market should restore some balance, but it probably won’t renew timberland returns to their former glory.


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