THE SOUTHEAST

Since the 1950s, forestry in the Southeast region of the USA has been flourishing. Approximately 70 years ago, there were less than 2 million acres of pine plantations in the Southeast - today there are more than 32 million acres. The decisive factor for this development is the transfer of scientific findings to silvicultural processes and measures. The successful cooperation of industry, forest owners, forestry authorities and scientific institutions, paired with excellent climatic conditions, has been trend-setting for research in the Southeast to this day. Scientific research has been carried out since the 1950s in the areas of seed production, improvement of genetic material, land preparation, control of competitive vegetation and the use of fertilizers and pesticides. The knowledge gained there is the fundamental driving force behind the success of the plantation economy in the Southeast USA.

Best Locations

The Salm Schulenburg Group focuses its forestry investments in the Southeast USA on the so-called "Lower Coastal Plain". The area consists of a 100 to 150 mile inland strip along the Atlantic and Gulf coasts, from southern South Carolina to Texas.

The investment area is rural in character, but is defined by a solid timber market throughout the country. Numerous wood processing companies are located in coastal locations in particular, competing for the quantities of timber produced. Another advantage of the Lower Coastal Plain is the high proportion of private forest owners (families, TIMOs, REITs). As in the whole of North America, the property rights are very pronounced, which creates a secure investment environment. The forest investment business model is particularly well-established and respected in the Southeast USA.

CLIMATE AND TOPOGRAPHY

With over 400 different tree species, the Southeast region of the USA has the largest variety of plants on the continent. The Southeast region is characterized by a mild climate in winter, and a tropical climate in summer. In combination with sandy, clay, and dewatered soils, optimal growth conditions prevail for highly productive pine species. Typically, deciduous wood thrives in humid sites, for example, within swampy areas. However, if the sites are sandier and slightly elevated, they provide optimal locations for pines. The relief of the Southeast region is mostly flat to slightly hilly.

Products

In the Southeast USA, the wood is mainly marketed in three different assortments per ton, which is a pure commodity market:

Pulpwood
(Papierholz, Faserholz)

Pulpwood is sold to the pulp and paper industry. Its main products are packaging materials, hygiene products and fibers for the food and pharmaceutical industries. In recent years, the processing of pulpwood into pellets has increased dramatically. The pellets are exported almost exclusively to Europe.

Chip-n-Saw
(Mischsortiment)

Chip-n-Saw is also known as "small sawtimber". The lower part of the log is sawn, the upper part is pulpwood.

Sawtimber
(Schnittholz)

Sawtimber is almost exclusively processed as saw timber for the construction industry.

Sawmill prices fell by up to 45% in 2008 in connection with the economic crisis. This is almost exclusively attributable to the decline in the construction industry. With the recovery of the market in the USA, and the increasing number of building permits for single-family and multi-family homes, we expect timber prices to rise.

In addition to sawmills, the pulpwood industry has been a major customer in recent years. The demand for many end products has remained consistently high, regardless of the economic crisis; in contrast to saw timber, the global economic crisis has had little or no impact on pulpwood prices.

In addition to the current global market situation, the location of the site and the local competitive pressure between sawmills and paper mills are decisive determinants of pricing. The prices achieved for individual product ranges in local markets can therefore deviate significantly from the general price average. A number of current expansion projects in the sawmill industry highlight the strength and potential of the region. In 2018 alone, the total investment in new construction and renovation/expansion of wood processing plants in the Southeast will amount to more than $2.1 billion.

PROPERTY RIGHTS

The Southeast has the most owner-friendly investment conditions in the world. The low share of state land, low legal regulations and a high degree of security through owner-friendly laws speak for themselves. These factors have an extremely positive influence on the fungibility of forest properties. In addition, the ownership structure differs from European standards, in that institutional investors, as well as private and state owners, have recognized the advantages of forestry since the 1980s. Today they already own more than 40% of the large land holdings.

Market - The "Woodbasket"

The Southeast is considered to be the most productive wood basket in the world, covering approximately 16% of Global wood demand. Markets and infrastructure in the region are second to none.

A range of products, sold world-wide, are manufactured from southern yellow pine. Some of those products in the pulp category include paper, container board and tissue. Additionally, many solid wood products are manufactured in the South such as dimensional lumber, plywood, oriented strand board (OSB) and transmission/power poles. Recently, the rise in demand for clean energy has paved the way for pellet mills to begin operations in the South. Increased global wood demand has created log export opportunities in the region, specifically on the East Coast.

The timber market is still recovering from the financial crisis of 2008. This is not only reflected in increasing timber prices, but also a strong willingness to invest capital into wood-using facilities of all types. In 2018, approximately US$ 2.1 billion was spent on expanding and developing facilities in the Southeast region.

Risks

Although the Southeast region of the USA is one of the most attractive global areas for forest investment, there are also risks. There are Operating Cost risks, Macroeconomic risks, and Natural risks:

Operating cost risks describe the fluctuations in cost in day-to-day operations. The largest proportion of cost (from 15-25%) comes from fertilization and plant protection, as well as marketing commissions for felling and thinning. It is indispensable to constantly monitor costs incurred and have detailed knowledge of the timber market.

From a macroeconomic point of view, the close link between timber prices and the US housing market represents a significant risk. A crisis in the construction industry (such as the one that occurred after 2008) has a considerable impact on the price of timber. Establishment of a strong export market weakens this link. Great hopes lie in the opening of new and larger locks in the Panama Canal, which will guarantee access to the Asian market.

Natural risks are relatively low, and include pest infestation (insect or fungi), fire damage, and wind damage. Modern forestry can control these risks through sustainable and intensive management of forests. Some examples include the installation of firebreaks in areas endangered by forest fires, the selection of fungus-resistant plant stock, and the safeguarding of stock stability with targeted forestry interventions. Rarely, loss of stands can be attributed to weather-related forces such as hurricanes or flooding.

THE FORESTRY YEAR

Within the framework of a rotation, various forestry activities are carried out. The timing of these activities is determined by the development of the stock on the one hand and by the current season on the other. The following table provides an overview of when the usual forestry activities typically take place in the course of a fiscal year.