SOC Recos: Lumber

We’re teeing up timber companies for two reasons.First, demand for wood isn’t slowing down worldwide. In fact,timber firms in Europe or Asia will take everytree-turned-two-by-four that they can get their hands on andturn it into a pile of shiny euros or renminbis.With demand still increasing and supplies still confined tocertain geographic regions, prices continue to rise. So forgetthe guys in Chicago, and look to the guys in Sydney, Shanghaiand Toronto.In these markets, we’ve seen prices soar by 40 percent-plussince last year. Even if US futures aren’t catching up, theworld is buying as much wood as it can from those willing andable to ship to where demand is still growing.The second reason to look at wood: those folks heated up overglobal warming.Beyond the debate and the ifs, hows or whys, it’s about how tocash in. And this is where wood comes in.Trees are viewed as another means of cashing in on the wholecarbon credit, cap-and-trade scheme. And we all know thattrees, like all other plants, take carbon dioxide in andrelease oxygen during photosynthesis.If you produce carbon, you can buy or plant trees to get theoffset—or, more accurately, a tidy profit. But like most ofthe whole cap-and-trade thing, trees aren’t the scientificversion of a silver bullet when it comes to warming.Some scientists even say trees can actually increase warmingthreats if they’re not planted in the right areas. And worse,like all other carbon-based crops, they release tons of carbondioxide when they’re cut down and processed.But these bits are irrelevant to the big business of beingpro-warming. So grow a tree, get cash now, and get even moreas that tree is turned into two-by-fours.A collection of interesting companies drawn from around theworld is emerging, timber picks to cash in on both the lumberas well as the warming cash bonanza.

Let’s start with a lumber plantation and land company down in Australia, Great Southern Plantations (OTC: GSPLF). Thecompany doesn’t directly buy and operate lands; it packagesland into projects that are sold piecemeal to investors.Shares in the company’s projects are sold directly to largerinvestors and through a nationwide network of financialadvisors. The company continues to hold a stake in many of theprojects and performs much of the active management of theland.It was originally founded to invest in timber-producing land.But it also has other great agricultural products properties,and has expanded extensively into vineyards, organic olivegroves and livestock plantations. All operations are wellplaced to serve markets characterized by high demand. Likemost other companies we like, it pays us a nice dividendyield, currently running above 5 percent.Another commonwealth country, Canada, has vast commercialforestry operations and is well set to cash in on both Asianwood demand and burgeoning carbon credit cash.TimberWest Forest Corp (OTC: TWTUF) trades as an IncomeDeposit Security-style share that, like several PF GrowthPortfolio members, is part stock and part bond. TimberWestisn’t threatened by the minority Conservative government’sincome trust tax proposal, and it pays a fat, 6 percent-plusdistribution.Another Canadian timber play is an income trust with a plan toget out from under the trust tax fiasco. Acadian Timber IncomeFund (TSX: ADN-U) is working on transforming itself into twocompanies. The first is a partnership formed around Acadian’sUS-based forest assets. A good chunk of its revenues would beoutside Ottawa’s reach.The second part is a planned real estate investment trust(REIT) for its Canadian-based assets. It would be exempt fromtrust taxes as long as it fits under the local REIT revenuerules. This is a speculative play, but a 6 percent-plus yieldmakes it one we can swing with.