Why invest in timber and forestry?

Why invest in timber and forestry?

When it comes to investing, the first question that arises is what to invest in. Which assets are more secured from possible losses? Where is the invested money safe?

One of the very good possibilities for investment is the investment into timber and forestry. Why it is so, we explain below.

Investing in timber

Timber is a profitable asset whose value keeps growing – literally, by growing. Forest as a crop grows naturally, without much manipulation. Besides, such a great number of trees can be regarded as a solid living thing. It can’t be moved or stolen. This makes timber tangible – as you can quite literally control the growth of your trees and your investment.

The harvest of the trees that are old enough to be harvested, is where the profit comes from. So it’s a little different with younger trees. The income here comes from actually “lending” the land on which these young trees grow by granting access to e.g. hunters. Income is also received from selling the fallen branches, needles, or leaves. Sometimes there is some use for them. Needles, for example, are widely used in landscaping.

Forestry is a sustainable investment. Not only is wood a renewable resource, but the green cover helps the planet reduce carbon levels in the atmosphere. This is especially important in the era of global warming. So it is important for social and environmental life. But there are also economic benefits of forests.

Demand for wood

The demand for wood in the world is increasing. Because the supply of certain hardwoods can’t be increased rapidly, the prices of wood increase. Additionally, history has shown that wood prices generally don’t follow the fluctuations of the economy. The demand for timber has been increasing with the development of forest-related products. Even paper recycling had a very small effect on demand. An important property of wood as an asset is that during the inflation spikes, the price of the wood actually strongly increases. This means timber acts as an inflation hedge. According to an investor with a world name, Jeremy Grantham, timber has the potential to easily outperform other asset classes.

someone is cutting wood

Low correlation with other asset classes

Different factors determine the price of commercial timberland differently from other asset classes. As a result, timber prices are also not correlated to returns of other asset classes – be it stocks, real estate or bonds. This fact makes investing in timber and forestry a great part of an investment portfolio. Timberland can also be seen as a natural warehouse. In it, the “stock” in form of trees can be stored until the markets and demand rebound. Of course, natural disasters like fires, hurricanes, tsunamis and unfavorable weather conditions could harm the trees and reduce the stock. However, even huge disasters so far haven’t reduced the number of investors much. The reason is that the damaged stock still remains valuable and can be sold to lumber or paper companies or be replanted for future purposes.

Even though the land to grow forests can be leased, most investors still buy the land. However, the land is limited and the demand continues to grow, because of the population and the commercial expansion. The advantage is that in some locations the land can be labeled as “better use” land. This means it can be sold to developers for a higher price. Or it can turn out as an additional benefit for those who own timberland.

Timber is easy to invest in

Purchasing forests works as a real estate transaction because when you are buying timberland, you are ultimately buying land. To do this, you have to sign the paperwork or go through a mortgage process.

On the other hand, there are ways to invest in woodlands without directly owning it. One way is through a Real Estate Investment Trust (REIT). A timber-focused REIT will get you into timber for as much money as you can comfortably afford – from a few hundred to millions of dollars. Another way is to invest through exchange-traded funds (ETF). Here, the liquidity makes it easy to sell off your positions quicker if needed.
eucalyptus tree seen from bottom

What timber to invest in

To invest into the varieties of trees that grow fast is especially profitable. This also means that they produce timber faster and the empty territory can be covered faster with trees again. This way, the ecology and the biospheres and habitats of other flora and fauna around the place where the trees are plated and cut down are not damaged.

The eucalyptus family contains one of the fastest-growing species. That is what makes them popular for planting – now grown in 90 countries. Some species of eucalyptus are known for their hard timber and their high-grade pulp, which can be used to make paper. Moreover, their adaptability to a range of climates and soil types makes them ideal for plantations.

At TreeCoin, we cultivate particular eucalyptus hybrids. These hybrids unite a very fast growth rate with the great wood quality (as well as pests resistance), highly suitable for the use in water-rich Paraguay. Additionally, the trees are very water efficient, which means that to grow 1m3 of wood, less water is needed than with many other trees. When you invest in planting eucalyptus trees, not only do you and the wood industry profit but ultimately, so does the planet too. Afforestation means more oxygen, less swampy areas, and better chances for agriculture as well as profit for the local workers and community in Paraguay.

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