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Thousands of Southerners Planted Trees for Retirement. It Didn't Work Out.

The Wall Street Journal. logo The Wall Street Journal. 10/9/2018 Ryan Dezember

STARKVILLE, Miss.—Over the past hundred years, the George family’s farm has been sharecropped, grazed by cattle and planted with cotton. By the late 1980s, Clayton George was growing soybeans and struggling to make ends meet.

A new federal program offered farmers money to reforest depleted land. Pine trees appealed to Mr. George. He bought loblolly seedlings and pulled his pickup into a parking lot where hands-for-hire congregated.

“We figured we’d plant trees and come back and harvest it in 30 years and in the meantime go into town to make a living doing something else,” he said.

Three decades later the trees are ready to cut, and Mr. George is learning how many other Southerners had the same idea.

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A glut of timber has piled up in the Southeast. There are far more ready-to-cut trees than the region’s mills can saw or pulp. The surfeit has crushed timber prices in Mississippi, Alabama and several other states.

It has been a big loser for some financial investors, among them the country’s largest pension fund. The California Public Employees’ Retirement System spent more than $2 billion on Southern timberland, and harvested trees at depressed prices to pay interest on money borrowed to buy. Calpers sold much of its land this summer at a loss. A spokeswoman for the pension fund declined to comment.

It’s also been tough for the individuals and families who own much of the South’s forestland, and who had banked on its operating as a college fund or retirement account. The region has more than six million owners of at least 10 wooded acres, say academics and forestry consultants. Many of the owners were counting on forests as a long-term investment that could be replenished and passed on to heirs.

“If you work and you didn’t want to put all your money in the stock market, you’d buy 40 acres and plant trees and they’d be ready to cut by the time your kid went to college,” said Skip Stead, a timber broker in Lincoln, Ala. “It’s like a 401(k).”

The housing crash 10 years ago worsened the developing timber glut by depressing lumber demand and prompting woodland owners to postpone harvests. Mills closed.

Housing has come back in much of the country, pushing prices for finished forest products such as two-by-fours and plywood to historic highs during the spring and summer building season. Prices for logs, as well, have moved up in the U.S.’s other big timber-producing region, the Pacific Northwest, where supply is kept in check by wood-boring beetles and periodic wildfires.

In the South, timber prices haven’t stopped sliding. Adjusted for inflation, the price of Southern pine is down about 45% since 2007, according to Daowei Zhang, an Auburn University professor of forest economics. So-called saw timber, for making lumber, is at a 50-year low, adjusted for inflation.

Corporate owners of far-flung timber tracts can concentrate logging in regional markets where prices are healthier, such as Savannah, Ga., and Charleston, S.C., which have access to ocean shipping. Timber companies that own saw mills, such as PotlatchDeltic Corp., can buy local logs on the cheap.

Most Southern woodland owners are stuck with whatever the nearest mill is paying. Hauling logs cross-country chasing better prices isn’t an option. It doesn’t take many tree trunks to fill a truck to its 80,000-pound limit on interstate highways. Loggers, paid for each ton they cut and deliver to the mill, are reluctant to make all-day trips.

Some timber harvests are barely worth the effort after the expense of logging, hauling, taxes and replanting. In some areas, there is hardly any margin for the imperfect pines that are pulped for paper and particleboard.

Waiting for better prices carries its own risks, because after a certain age, trees, like people, become more susceptible to disease. Hurricanes can lay down entire tracts. The Southern pine beetle can alter financial plans in days.

Hernando de Soto searched the South for gold in the 16th century but what he found was mostly trees, a primeval forest of longleaf pine that stretched from what’s now southern Virginia to northern Florida and west into Texas.

The British navy gobbled up the colonies’ longleaf for its rot-resistant wood and gummy sap, from which turpentine and pitch were made. In the decades following the Civil War, the pine lands were logged nearly to oblivion. Vast swaths of forestland also were cleared to plant tobacco and cotton.

In the 1950s, the U.S. Department of Agriculture started dangling forestation incentives to stem erosion and prop up crop prices. At the depths of the 1980s farm crisis, when prices for agricultural commodities plunged, the Reagan administration launched the Conservation Reserve Program. Starting in 1986, it promised farmers annual payments of about $30 to $50 for each acre they planted with trees or grasses.

Many seized the offer. By 1994, more than 2.2 million acres of farmland in the South had been converted to pine plantation, much of it in Mississippi, Alabama and Georgia. Other federal forestation programs added about 2.5 million acres more, according to Auburn’s Mr. Zhang.

Meanwhile, timber was gaining popularity as an investment idea. People reasoned that trees would grow, and thus gain value, no matter what the stock market did. Investors large and small snapped up forestland that big paper companies put on the market to take advantage of the interest. Researchers reported in 1998 that residual fertilizer in the soil of former farms was helping trees grow faster.

A crush of maturing trees arrived just as U.S. housing markets collapsed in 2007 and 2008, creating a supply imbalance that in some places has never ended. Even with increased demand from the housing recovery, there remain about 25 years’ worth of softwood supply in the Southeast, said Brooks Mendell, chief executive of Forisk Consulting, which advises timber investors.

In parts of Mississippi and Alabama, the glut is even worse. “It’s unclear we’ll ever have timber prices like we did 10 or 20 years ago,” Mr. Mendell said.

Southern mill owners—who buy logs from landowners and resell them as poles, lumber and pulp—anticipate wide margins for years because their raw material is so cheap. Billions of dollars of new saw mills and mill expansions have been announced by the likes of Georgia-Pacific and Canada’s Canfor Corp. Lumber is more practical than logs to haul long distances to stronger markets.

The arbitrage inspired last year’s merger of Deltic Timber Corp. and Potlatch Corp. Deltic’s three Arkansas mills offered profits amid depressed prices for Potlatch’s Southern timber. The combined company quickly added a second shift to a mill in Ola, Ark., and a more efficient kiln for drying wood at another mill.

More mills could help timber prices, but building one of today’s modern computerized mills, and finding the skilled labor to run it, is a complex task. “Can they install a mill in a rural town in Mississippi and be able to go hire a hundred workers who want to work in a saw mill?” asked PotlatchDeltic Chief Executive Michael Covey at an investor conference in New York this summer. “It’s going to take a few years for those Southern log prices to tip back up.”

In the woods behind a subdivision in suburban Birmingham, Ala., this July, loggers downed all but the most aesthetically pleasing trees on George Lutz’s 60 acres. He had plunked down some of his retirement savings to buy the property after the housing crash a decade ago and planned to develop residential lots. He was counting on the timber to recoup much more of his cost.

“If it wasn’t my retirement, I probably wouldn’t cut,” he said.

The 65-year-old enlisted Rick Nelms, an Alabama consultant and procurement forester, to squeeze as much as possible from the harvest. Mr. Nelms is what is known as a timber cruiser, able to move through the woods and size up trees and estimate their value at a glance. He used to procure timber for a big paper company but now drives around Alabama and Mississippi advising an array of dentists, retirees and heirs on land deals and timber sales.

On Mr. Lutz’s property, he watched the operator of a machine called a knuckleboom-crane yank trunks through a “delimber” to shave off the branches.

Mr. Nelms waved to the operator and shouted, “That’s a pole.”

The man in the crane looked down at the thick log he was about to lay on a pile of trunks destined for a mill that would saw them into lumber. It’s bent, he said.

Mr. Nelms assured the operator the log would straighten out on the truck under the weight of the other big logs destined to become utility poles. The crane operator set the trunk aside.

It was worth the trouble to sort the trees carefully. A run-of-the-mill power pole could fetch about $50 a ton at the mill, Mr. Nelms said, and logs big enough for larger transmission poles could be worth as much as $130 a ton delivered. Saw logs, on the other hand, got only about $20 a ton.

Nearby, a truck that was headed for a pulp mill 40 miles away pulled two trailers stacked with about 150 tree trunks, each about 40 feet long and too skinny, knotty or crooked to make poles or lumber. Mr. Lutz would pocket just $3 a ton after expenses, amounting to around $75 for the whole load, according to Mr. Nelms.

Before the housing crash, he could have expected three to five times that much, but since then, many more trees in Southern forests have grown to maturity.

a man that is standing in the dirt © Provided by The Wall Street Journal.

Mr. Lutz’s trees were sorted into seven product types, including saw logs. It was a natural stand, so there was plenty of hardwood, which was a plus. Long a nuisance for plantation growers because they compete with pine for sunlight and nutrients, deciduous trees fetch much better prices these days. A river system that flows to Alabama’s Mobile Bay offers a way to ship the hardwood to overseas buyers.

Over toward Mississippi, outside of Reform, Ala., George Ballard harvested 100 acres where a mix of trees had sprouted naturally after an earlier clear-cut. The hardwood here was a blessing, returning $26 a ton instead of the $4 to $12 a ton his pine trees fetched after expenses, depending on what product they were destined to become.

The economics are much worse for 1,000 acres he owns across the road. Mr. Ballard, 62, clear-cut both tracts after he bought them in 1987. Unlike the smaller parcel that he left to grow back naturally, he spent more than $200,000 planting the larger property with rows of pine. Some lucrative sales had prompted him to go all-in replanting there and on other land he owned.

“I got $6,000 an acre and we thought, ‘We’ve got to plant everything with pine bushes,’” Mr. Ballard said. “We thought the future was pine trees.”

Pine trees that would have been worth $45 a ton “on the stump” back then might return $14 a ton now, he estimates. For income, he leases forestland to hunters. He built a small lake and a cabin, planted some cleared spots with clover to provide food for deer and other wildlife and set up some blinds. Four men from Birmingham pay him $65,000 a year to drive out on weekends and hunt whitetail deer and turkeys in season.

Mr. George, the Mississippi farmer who planted cropland to trees under a federal conservation program in the 1980s, moved to Memphis and became a cotton exporter. Now, with the pine trees mature and ready to harvest, he has to consider his father’s estate planning and a son in college as he figures out what to do.

Some of his trees have outgrown nearby saw mills and will have to be pulped for lower prices. Whether Mr. George, who is 57, harvests now or holds out for higher prices, he will ultimately have to decide whether he wants to commit to trees again.

“I’m not sure if we’ll replant or let it go to pasture,” Mr. George said. “We’d have to dynamite the stumps, though.”

Write to Ryan Dezember at ryan.dezember@wsj.com

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