Can Timber Hedge against Inflation? An Analysis of Timber Prices in the US South

The US South is one of the world's leading timber producing regions. This article analyzes stumpage prices, the price a landowner receives for standing timber product, without the influence of growth or consideration of land price. Under the framework of Fisher's hypothesis and the real capital asset pricing model, we investigated stumpage prices' ability to hedge against inflation in 12 US southern timber regions using Timber Mart-South data. Prices for five major timber products, including pine sawtimber, hardwood sawtimber, pine pulpwood, hardwood pulpwood, and pine chip-n-saw, for each individual timber region and all regions combined were analyzed in a system by rolling regression and weighted least squares. Using instantaneous quarterly returns, no uniform conclusion could be drawn for either individual regions or the timber portfolio the inflation hedging ability varied greatly by product and by time. Using 40-quarter average returns on the timber portfolio instead, it was found that pine pulpwood and chip-n-saw could hedge against both expected and unexpected inflation. Hence, stumpage prices alone should not be viewed as consistent or persistent hedges against inflation unless they are held for a long period.