Sweden’s forrests buck commodities trend, offer strong earnings
Sweden’s forrest owners are celebrating after parts of the country saw all time high prices set for trades in land plots with attached forrestry rights, according to new data published by LRF Konsult, Sweden’s biggest broker of such assets.
And prices are forecast to remain strong through 2016, countering the broader trend seen across the globe for commodities or commodities related businesses to suffer falling prices.
The key driver of the sector is identified as the continued loose monetary policy pursued by Sweden’s central bank. And because of forward expectations for its key repo rate to remain low throughout 2016, LRF Konsult said that it expects “continued stability” in prices. It also points to a survey conducted together with Swedbank in 2015 of forrest owners, which found that some 62% agree that investments are profitable.
“The proportion of forrest owners that believe prices will continue to rise has also gone up,” LRF Konsult said.
The average price for land with forrest rights in Sweden rose through 2015 to SEK389 (€41.5) per cubic metre of forrest – a gain of 4.8% against 2014 prices.
Prices increased even faster in the south of Sweden, to SEK567/cubic metre, up 5.5% against 2014, and the highest price registered by LRF Konsult since 1995.
In the area defined as middle Sweden, prices went up 6.8% to SEK405/cubic metre on average.
Additionally, while prices in northern Sweden were lower and the price increase just 0.8% on average, LRF Konsult notes that the region has broken a downward trend that lasted five years, after a previous high in prices was noted there back in 2010. Above all, it is inland forrests that have seen significant turnaround in the northern region, as investors have spotted a significant buying opportunity, the broker said.
Another key trend spotted in the broker data is to do with who is buying and who is selling.
LRF Konsult said that typical buyers are older men who already owns some land and want to add more to increase the efficiencies of their forrestry operations. This means that they can often afford to pay more than buyers who are completely new to the sector, and it means that there is a continued hurdle to new buyers.
Male buyers accounted for some 71% of the properties brokered by LRF Konsult through 2015, but it reflects a long term trend. However, women are more present among sellers, accounting for some 44% of the deals.
LRF Konsult said that this may reflect mortality rates: the women selling may often be doing so in order to offload an asset left in estate by their husbands who have passed away.
Looking ahead, the broker said that with stock market volatility and other factors stalking investors, it expected continued high interest to be shown in owning forrests.
The key threat to investors comes from the broader downward price pressures across a swathe of commodities, including oil and base metals, the broker added. An uncertain global economic outlook could affect exports of raw timber, which would hit earnings of forrest owners and affect the price of forrest land.
LFR Konsult’s full price data tables can be downloaded here (in Swedish): http://www.lrfkonsult.se/skogsmarkspriser2015