Examining the term structure of interest rates and forestry discount rates and what we may learn from historic trends. It further examines what (if any) relationships may exist between changes in the term structure of interest rates and the performance of timberland returns as measured by the National Council of Real Estate Investment Fiduciaries (NCREIF) Index in the USA.
What will be the future direction of forestry discount rates as the global economy faces headwinds on several fronts. In May 2019 the yield curve, measured as the gap between the 3-month and 10-year US Treasuries, deeply inverted pointing to the likelihood of a global recession within the next ~18 months.
The forest and wood products industry is no exception in being anxious over the impact Brexit may have, with businesses looking at alternative options in the face of a potential meltdown in the market.
It has been predicted for many years and reality has finally come, Australia is now short of softwood log supply. While our softwood harvest has reached 17 million cubic metres the average volume over the last 10 years has been marginally over 15 million cubic metres per annum.
The index is a measure of the residual log value to the forest owner once harvest and haulage costs are subtracted from mill door log prices.