UK forestry plc is in rude health, with hungry sawmills and processors keen for product according to Savills Spotlight on UK forestry and as a result softwood timber prices are rising, nearly 30% in 2017 and just under 50% over 2018.
James Adamson comments, “When asked why, the easy answer is to say that it is due to the weak value of Sterling, but in reality that was largely priced in over 2017. The actual answer lies in the fact that both global and UK timber supply should be considered relatively finite as replenishing global timber resources is unlikely to be able to keep pace with fellings.”
This combined with mounting pressure to limit climate change will provide strong friction to expanding the global timber harvest further into the natural forest resource. Finding a balance between not over exploiting our domestic timber resource with the ability to upscale domestic production is also limited, meaning from a supply standpoint, timber deliveries are relatively unresponsive to increasing demand, and therefore open to demand led price inflation.
Hardwood values are also increasing, but not at the same pace, perhaps rising 25-30% over two years. It is becoming clear that it is harder to avoid making decisions on managing woodland on the grounds of poor timber returns and we believe that woodland along with other natural assets on estates and farms should be an income opportunity worth exploring.
But the buoyancy of forestry is not just in timber prices - the capital market for forestry and woodland is also doing very well with a further rise in average values recorded in 2018, continuing a trend that began in the early 2000s. During 2018 the UK investment forestry market traded £118 million of property, with average values up around 10.5% compared to 2017. The average hectare of softwood is now worth just over £8,000; a pound invested 20 years ago is now worth a respectable £5.05.
There is also renewed optimism over tree planting, with greater focus on the potential climate change benefits rather than simple land-use change or investment. According to the Climate Change Committee to meet Greenhouse Gas capture targets up to 1.5 million hectares of new woodland would be needed to store carbon by 2050, an increase of nearly 50% over existing woodland cover.
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