As U.S. inflation soars to its fastest pace in 40 years, investors are turning their attention to other asset classes to protect their investments, while timber begins to emerge from over-the-counter.
Wood prices have soared over the past year as demand for wood, cardboard and other products soared during the pandemic. According to TimberMart South, the average price of pine sawn timber across the South increased by 10% year-on-year and the price of mixed hardwood sawn timber rose by 11.6% in the fourth quarter.
Those rates outpaced consumer prices, which soared 7.5 percent in January after accelerating its 7.1 percent growth in December — the strongest growth since February 1982.
"Historically, timber has been directly linked to inflation," Domain Timber Advisors' Joe Sanderson told Insider, adding that this makes it a good hedge against rising prices of goods and services.
Sanderson is the Managing Director and CEO of Domain Timber Advisors, an Atlanta-based investment management firm that specializes in timber investments and manages more than $550 million in assets.
He also said the asset has demonstrated its long-term ability to conserve capital by tracking inflation and has shown much less volatility compared to other forms of investment. The heaviest determinant of wood may be the biological growth of trees.
The hot print of inflation has sparked expectations that the U.S. Federal Reserve will raise interest rates more aggressively this year, starting with the next FOMC meeting on March 15-16.
So before hawkish central banks determined to rein in inflation, investors are now scrambling to find safe havens.
Timberland could be one of them, Sanderson suggested, saying investors could benefit from positive cash flow and appreciation.
In fact, Jeremy Grantham, a value investor, co-founder and long-term investment strategist at GMO, once called wood the "perfect investment," especially for long-term investors who look at 20 years or more.
He told The New York Times in 2010: "Timber is safer than stocks, but not as safe as U.S. Treasury inflation-preserved bonds." As long as the sun shines and the rain is abundant, the trees will grow. ”
What happens when inflation stops soaring?
Sanderson says there are other reasons to invest in woodland. One of them is from an environmental, social and corporate governance perspective.
"From an environmental point of view, this is great because wood absorbs carbon from the atmosphere and stores it at a very high rate," he told Insider, adding that it will help investors achieve their carbon neutrality goals.