Timbervest provides insight on pellet production, export activity

By Katie Fletcher | April 16, 2015

Timbervest LLC, an Atlanta-based company that manages timberland assets and investments, has been actively selling and purchasing timberland acreage in a variety of states.

“We just completed investing our last Timbervest Partners III fund, which was a $410 million fund,” said Bill Boden, chief investment officer with Timbervest. “We’re now back in acquisition mode, looking for different deals around the country that meet our investment criteria.”

This year, the company has also been selling assets from its TVP I investment fund. Over the last year, Timbervest sold over 40,000 acres of assets primarily in Florida, Georgia, New York, Pennsylvania, South Carolina and Vermont for a combined $65 million. “We’re excited to be able to take advantage of strengthening markets to sell certain properties and complete these high-value transactions,” Boden said. “Each property contained high-quality timberland, which provided consistent cash flow and excellent wood harvesting opportunities.”

According to Boden, Timbervest currently manages around $1.2 billion in assets in forested lands across roughly 16 U.S. states. Timbervest invests in the land, and makes it available to a variety of buyers, including purchasers of wood for pellets. Boden believes an increasing amount of woody material has been used for the pellet export market. “For the last couple of years we’ve made a fair amount of acquisitions on properties in the U.S. South, U.S. West Gulf, even mid-Atlantic states that were by design with some export-centric theme to them,” Boden said. “That has served us well because the pricing on that material has been very strong, particularly on the younger product—the pulpwood classes and even the small sawtimber classes—and I think that has been a direct response to the demand elements coming out of foreign markets, particularly Europe for pelletized wood.”

Boden said that Timbervest has seen a sustained pressure point barring a directional change of environmental concerns applied across the globe for more sustainable types of feedstock for power generation. He added that this pressure compounds with limited areas able to sufficiently grow large amounts of fiber to meet certain quality requirements sustainably. “The U.S. is blessed to have some of its forest base meet some of this criteria,” Boden said. “I think that will continue to invite users to try and access the feedstock going forward.”

Boden made mention of the increasing amount of plant capacity coming online over the past decade in the U.S. South, West Gulf region, which has impacted feedstock pricing. “These facilities have a definite impact,” Boden said. “If you draw a circumference around those plant locations—50, 70, 100 miles is approximately their wood basket—there is a clear effect on the pricing in those areas.”

While the U.S. South has experienced increasing export growth, Boden said a very minor amount of total pellet exports has been coming from the West Coast. This, he said, is due to the given mosaic of characteristics of western timberland markets, such as the differences in feedstock, location, land ownership and infrastructure.

Even so, the West may hold some promise in delivering pellets to the Asian market. A potential impacting factor here is the Panama Canal expansion project, which is set to be completed in 2016. The project should make it more feasible for the U.S. South to ship pellets to Asia, cutting the travel distance by close to half. “I think the expansion of that canal will be another interesting theme to come to play in this, because the Asian markets have not been a major component of our export side of this pellet business to date,” Boden said. “It’s not certain at this point, but you’re going to really do a lot to the shipping costs and logistics between these two markets—from the supply side to the demand side—through that new, larger capacity canal, so we’ll see what effect that has, but it could be another demand driver for a lot of our U.S. markets.”

Timbervest traveled to Asia last fall and found that, to date, Asian users have been sourcing much of their pellet material from hardwood species in rural Southeast Asia countries. Boden said that the pellet it creates burns with a lot of particulate matter, and that the pressure is being mounted for these nations to source a cleaner type of pellet.

Boden and the team at Timbervest believe now is a good time to invest in timberland. “Now that the housing business is coming back modestly, but generally reasonably strong, that’s a good thing for the more mature classes, which have been really dormant for seven to eight years, or more,” Boden said. “There is a lot of potential profit to be made by owners holding those types of forests today going forward. I think it’s a pretty good time to be an investor in the space, particularly in areas where you have good productive lands that grow a lot of fiber.”