(edit title) Forestry investments in Sweden. Buy, Sell, or Hold? Options

[GBane]

Hello,

I've been looking at Forestry investments in Sweden. I'm from Canada and a majority of our forests are owned and operated by large timber corporations so for me this is a foreign concept. From my understanding, in Sweden, most forests are owned and operated by private individuals or families. According to the most readily available information, on the internet, you should be able to realize yields of 5-6% per year and as much as 60% increase in real property value over 5 years (12% per annum.). Anyway, these are my questions:

1. How are you earning yield off your forestry investment per year? Ie. Are you selling rights to a lumber company to take your lumber?

2. The average land parcel is 45 hectares with the average cost is 350 Kr/m3. This means you're looking at 16,200,000 kr for a like parcel. With a yield of 5% you're looking to earn 810,000/year. The ROI is unreal (If you account for selling the property after five years.) So where is the downside apart from the obvious risks of ownership? Is it taxation?

3. What's your responsibility of ownership for a forestry property?

4. Any suggestions for further sources of information? (Please save "Have you tried google?" for worthy idiotic questions.)

Look forward to hearing if anyone has more information.

[johnjohn]

If one received 60% increase in land value in 5 years, 12% per annum don't you think every institutional investor worldwide would have long bought up every hectare already.

[GBane]

Institutions do already. Upwards of 30% or more of institutional portfolios are based on real assets. Including but not limited to mines, forestry, and petroleum etc. That's kind of like suggesting because oil is so profitable why not just buy all of it.

[Hamsterdam]

Keep your grubby hands off our tree Cannuk!. Keep your own wood in your own hands.

[GBane]

Keep your grubby hands off our tree Cannuk!

Just that one TREE? But all the rest I can have?

[skogsbo]

Institutions do already. Upwards of 30% or more of institutional portfolios are based on real assets. Including but not limited to mines, forestry, and petroleum etc. That' ... (show full quote)

Institutions do already. Upwards of 30% or more of institutional portfolios are based on real assets. Including but not limited to mines, forestry, and petroleum etc. That's kind of like suggesting because oil is so profitable why not just buy all of it. ... (hide full quote)

your figures are but a dream, do some homework tonight and I'll answer fully tomorrow.

First, cost per hectare in Sweden now, then 5 and 10 yrs ago.
18cm plus diam Spruce kr/m3
18cm " Pine "
12-18cm for the above
wood pulp kr/m3
firewood kr/m3
harvester cost per kr/hr
forwarder cost " "
planting cost (per plant + time)
1st stage thinning cost versus return
2nd " " " " "
Average time for 1st, 2nd and final harvest

The above figures, will allow you to calculate a break even point, ie 2,5,35yrs etc...

Next google hurricane gudrun, and find a graph for the timber price that year, plus the 5 after.

OK, well done, see you tomorrow.

[PDX]

I have also always understood forestry investment in Nordic countries to be about capital preservation/inflation protection/diversification of investments rather than a money-making machine.

~~~PDX~~~

[skogsbo]

yeah, you won't make much annually, especially if you contract out all the work and do none yourself. But, they do hold their value, given that trees grow for anything from 30-100 plus years before harvesting, any annual or even decadal (made up word) fluctuations are ironed out. It's a good investment for your kids or grandkids!

Plus if you borrow heavily to buy a forest, you can only pay off the interest of the loan from forest revenue tax free. The repayment element is taxed. Which means you need a second income to clear the debt. It just needs some accounting work, but not impossible to solve.

I do all the cutting and forwarding to roadside myself, so the revenue for us is much higher, otherwise when contracting out between 40-66% of the final harvest revenue could go to felling and extraction costs, depending on how far they need to drive it to the pick up point. Then you replant and you'll get no revenue for the rest of your lifetime from that sector, but it won't loose value much, despite not having any standing trees that can be harvested immediately on it.

Where I probably save money is in never buying firewood, or in the 30m3 of wood that we planked locally over 2 days, which is going to be used to start reboarding the outside of the house. This alone saved us 10s of 1000s of krona. You just can't buy 28cm wide 6m long planks that easily!

[John.Smith]

Take Skogsbo and PDX's advice. I am not sure where you got your data from but it is highly unrealistic!

There are other forestry investments outside of the Nordic countries that do potentially have reasonably quick returns. One example are plantations in Brazil used to make charcoal for the local pig-iron plants. The reason why this is (economically) good is that the trees used (eucalyptus) grow fast and the market for the end product is local thus reducing transport costs etc.. If I recall correct the start --> finish investment times are typically 10-12 years from planting to selling the charcoal.

The downsides of such an investment are however that even though Brazil has enjoyed great growth in the last 10 years, the economy is slowing down... way down. Also, currency fluctuations will have potential top hamper the final revenue when transferred outside of the State. Not to mention that Brazil like a lot of other South American countries has a touch of political instability to it. A LOT can happen politically in 10-12 years

There are other such short term forestry investments out there typically designed as investment packages. May be more what you are looking for perhaps.

[byke]

The 1980's called.
Ikea wants its pine back.

Seriously, who buys pine any more?
All the good trees left sweden a long time ago.

[Puffin]

Seriously, who buys pine any more?

Seriously - what do you think houses are built of?

There is huge demand given by the level of logging going on at the moment in central Sweden

Indeed there was one of the big UK DIY stores using it as a positive point in their advertising

•Made from high quality, slow-grown Scandinavian Pine that produces tight, compact growth rings - giving you a stable deck board.
•We only use trees at least 80 years old. Combined with modern methods of kiln drying, this makes the wood more stable and less prone to splitting

Although a rather sad fate for an 80 year old tree to end up as decking at Wickes

[Puffin]

Next google hurricane gudrun, and find a graph for the timber price that year, plus the 5 after.. OK, well done, see you tomorrow.

Part of the aftermath of Hurricane Gudrun - although in some areas they are still clearing up years later - pity the people who were left without heating/water that winter

[byke]

Seriously - what do you think houses are built of?

Bricks?
Otherwise as the big bad wolf says : "I will huff and I will puff and I will blow your house down."

I do believe sheds however are made from wood.

There is huge demand given by the level of logging going on at the moment in central Sweden
Indeed there was one of the big UK DIY stores using it as a positive point in their advertising

Best part, notice how they describe it as "Scandinavian".

[skogsbo]

Seriously, who buys pine any more?. All the good trees left sweden a long time ago.

It would seem everyone wants good quality pine, what do you think all those trimmings around doors and skirting boards are made of in your 'brick' houses. Spruce/Larch 550kr/m3, best Pine 900kr/m3... price kind of speaks for itself.

Sweden exports soft woods globally.

Part of the aftermath of Hurricane Gudrun - although in some areas they are still clearing up years later - pity the people who were left without heating/water that winter

yeah it was grim, it did to the elderly Swedish foresters, what foot&mouth did to UK farmers, only without the compensation!

Best part, notice how they describe it as "Scandinavian".

As all things British is best, when you go to B&Q next, look at the big packs of 3"x2", see what company names are on the plastic wrapping.

I think labelling stuff as Scandinavian is just marketing.

[byke]

As all things British is best, when you go to B&Q next, look at the big packs of 3"x2", see what company names are on the plastic wrapping. I think labelling st ... (show full quote)

As all things British is best, when you go to B&Q next, look at the big packs of 3"x2", see what company names are on the plastic wrapping.

I think labelling stuff as Scandinavian is just marketing. ... (hide full quote)

Far from it, however the difference between you and me is I call a turd a turd.
Rather than dress it up as something it is not.

Interesting fact however, and that is that many "scandinavian" woods are sold cheaper in the UK than in Sweden.
Now either thats because other nations dont see the value in this "cheap wood" or because its over valued in Sweden.