Lumber Futures and Timberland Investment

Abstract

Using 20 years of data, we derive a pricing model for timberland market values. We examine the relationship between lumber futures, capitalization rates, anticipated inflation, anticipated construction, and timberland value. Using an ordinary least squares regression model and Johansen's (1988) cointegration technique, we find that timberland market values have a longrun significant positive equilibrium relationship with lumber futures and building permits. Capitalization rates have a significant negative relationship as expected. In the short run, unanticipated shocks in the independent variables provide a permanent change in timberland market values.