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Bin Mei, University of Georgia, bmei@uga.edu (Presenter)

 

In this study, we examined the three return drivers of timberland investments—timber price change, land value appreciation, and biological growth, in two settings. Timberland returns in the past 15 years were analyzed via a hypothetical loblolly pine plantation bought at age 10 and sold at age 25. Results revealed that timber price had a negative contribution to the total returns. With declining timber prices, annualized average returns dropped from 14.31% for 1982-1997 by 52% to 6.88% for 1995-2010. Looking forward, timberland investment returns in the next 15 years were simulated by Monte Carlo simulations with both random and mean-reverting timber prices. Expected mean returns with random timber prices were found to be 8.35%-10.16%, while those with mean-reverting timber prices were 7.25%-8.56%. Returns with random timber prices were more volatile. Despite different time periods under investigation and timber price assumptions in the simulations, biological growth was identified as the dominant contributor to the total returns.