Background to forestry
UK commercial forestry plantations are an important source of sustainable softwood timber that is used in a range of industrial activities, including house building and construction and paper production.
With freehold land values underpinning steady returns from timber growth and subsequent harvesting, commercial forestry plantations are attractive assets with acquirers willing to pay a locational premium for well-sited properties.
Beyond returns from timber growth, forestry typically delivers returns from increases in the value of timber, growth in the value of the underlying land and the infrastructure value of the plantations.
In the year to September 2016, UK forestry transactions totalled £79.19 million, represented by 17,444 gross hectares the average sale of which was 195 hectares. The introduction of additional biomass energy installations in the UK and overseas is expected to further increase demand for timber production.
Participating in forestry
Elm Trading currently has interests in two large mid-rotation commercial forestry plantations in Scotland (Glenglass and Easter Bleaton). One of the sites is part way through the productive cycle with young crops and remaining standing timber for harvesting; the other site has crops due into production over the coming years. Forestry also provides a natural hedge to Biomass in Elm’s portfolio; should timber prices fall this results in lower fuel costs for biomass plants thus higher profits and vice versa.
Why forestry is an attractive trading opportunity
- Physical asset with inherent organic growth
- Capital appreciation should be delivered as a consequence of the increasing volume of timber as the crops grow; larger trees can be processed into higher value timber products
- Increasing demand for plantations and land backed assets
- Commercial forests and woodlands are regarded as an increasingly important long term asset class by shareholders in the UK
“Forestry typically has a low correlation to other asset classes”.
UK Forest Market Report 2016