In 2018, a Wall Street Journal report noted that a large class of would-be retirees were coming to the realization their timber-based retirement plans were a far a less lucrative investment than they had hoped and planned.
During the early 1900s, many millions of acres of forest in the southeastern United States were cut down and turned into farm and grazing land. However, too much land was used for farming. Farmers suffered through a long period of low harvest prices. At the depths of the farm crisis in 1986, the Reagan administration launched the Conservation Reserve Program. The program promised farmers annual payments of about $30 to $50 for each acre they planted with trees or grasses.
As a result of the government incentives, timberland rose sharply in popularity as an investment idea in the years after. Many investors seized the government’s offer. People reasoned that trees would grow, and thus gain value, no matter what the stock market did. Investors both large and small snapped up forestland that large paper companies put up for sale to take advantage of the interest.
By 1994 more than 4.7 million acres of farmland in the South had been converted to pine plantation, much of it in Mississippi, Alabama, and Georgia. But the idea’s popularity eventually led to its ruin. The region has more than six million owners of at least ten wooded acres, most of who want to cut their trees and send them to market at the same time.
Many of the family tree farm owners were counting on their forestland as long-term investments that could be replenished and passed to their heirs. But just as these retirees were ready to reap their thirty-year harvest, a glut of timber piled up in the southeastern United States. There were far more ready-to-cut trees than the region’s mills could saw or pulp. The huge supply of cut trees crushed timber prices in Mississippi, Alabama, and several other states. It left retirees with a lot of trees, but they had little money to show for their thirty-year investment.
Even the largest investors in the country lost money on their timber investments. The timber glut was also a big loser for some large institutional investors, such as the California Public Employees’ Retirement System, which spent more than $2 billion on southern timberland, and harvested trees at depressed prices to pay interest on money borrowed to buy it. The retirement system sold much of its land in 2018, realizing a loss for their overall portfolio.
An investment may be a great idea, but if everyone else is doing it also, it may not be prove to be prudent.
