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What’s wrong with this picture?

Many thanks to Dr. Jack Lutz for his excellent newsletter and striking charts of historical Southern Pine stumpage and product prices.


The first chart, nominal prices, looks like many commodity price series.

It's the second chart, deflated by the US CPI, which stands out. Real prices for Southern pine stumpage peaked before 2000. Even in the great housing boom of 2003-2008 prices for this commodity stumpage were dropping.


Real Southern Pine Stumpage Prices


Contrast the Southern pine chart with a chart of real prices for Brazilian tropical hardwood logs where there are real price increases for the last 15 years.

Real Tropical Hardwood Log Prices


What's going on?


We believe there are four fundamental forces that explain the difference in the two charts:


1) Over the last 20 years a large amount of capital has gone into planting softwood forests domestically, and increasingly, in areas like Brazil.


2) During the same time, tropical deforestation has removed approximately 0.75% – 1% per year from native tropical forest growing stock.


3) There are no barriers to entry in planting commodity species whereas there are insurmountable biological barriers to entry in planting high-value tropical hardwoods.


4) The working characteristics of Southern pine plantation timber planted over the last 20 years is much lower than pine produced earlier years ago reducing the value of the raw material. (The Southern Pine Grading Association recently changed strength ratings as tests on typical pine lumber showed characteristics approximately 50% lower than 20 years ago.)


We expect to see continued flat to negative real pricing in commodity plantation species and increased real pricing in native tropical hardwoods.

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