The Forest Pays Less Than the Treasury Bill

American institutional timberland produced a cash yield of 1.55 percent over the four quarters to June, on the index that has tracked the asset class since 1987. For the 2025 calendar year the figure was 1.65 percent, against an average ten year Treasury yield of 4.29 percent. The gap of 2.64 percentage points is the widest in the index's thirty eight year history.

Appraised values have gone the other way. Across the twelve million or so acres in the index they are up roughly twenty six percent since 2022. The asset is being marked higher while the cash it throws off falls, which means the valuation now rests almost entirely on appreciation. Over the thirty years to 2025 the total return split evenly between the two, about 3.4 percent from each.

The Historical Echo

The last time American timberland changed hands at record prices, the timing was almost exactly wrong, and the record is unusually clean because the transactions were enormous and public.

Between 1997 and 2006 the forest products industry sold more than thirty one million acres of timberland, roughly eighty percent of it to financial investors and timberland investment management organisations. Volume accelerated into the top: 4.2 million acres in 2005, up 61 percent on the year, then 5.9 million in 2006, up another 41 percent. The capstone was International Paper's agreement in April 2006 to sell 5.1 million acres for about 6.1 billion dollars, roughly twelve hundred dollars an acre.

Virginia pine sawtimber peaked at 234 dollars per thousand board feet in the first quarter of 2007. The ownership of the ground transferred at the top of the cycle in the thing the ground produces. That series stood at 114 dollars in the second quarter of this year, a little over half the 2007 level in nominal terms.

What is different now is the shape of the market rather than the direction of prices. Transaction volume has collapsed to about a million acres a year against an average of 2.8 million since 2015. The one large transaction of this cycle, the eight billion dollar combination of Rayonier and PotlatchDeltic that closed in January, was two institutional owners merging rather than new land entering institutional hands. Nobody is selling into this, which is usually a better sign than the opposite.

Where Patient Capital Is Positioning

The stumpage numbers explain the yield. South wide pine sawtimber averaged 23.34 dollars a ton in the second quarter, down 2.78 on the year and below where it stood a decade ago in nominal dollars. Pine pulpwood is 5.40 dollars, down more than fifteen percent on the year.

The cause is a mismatch between the forest and the people who buy from it. Southern softwood lumber capacity grew about thirty one percent between 2017 and 2025, which sounds like strong demand for logs, but over ten major pulp mills closed between 2023 and 2025, removing more than twenty five million tons a year of fibre demand and taking the floor out from under pulpwood. Meanwhile the framing lumber composite is up 8.4 percent on the year while the standing tree is down about ten. The margin is accruing at the mill, not at the stump, and Canadian softwood duties of roughly thirty five percent plus a ten percent tariff are part of why the mill can hold it.

Weyerhaeuser's own capital recycling last autumn states the valuation problem more honestly than any commentary could. It bought 127,000 acres for 459 million dollars at about twenty one times earnings and sold 222,000 acres for over 410 million at about forty five times. The same company, in the same quarter, judged some ground worth twice as much per unit of cash flow as other ground.

For a family holding productive acreage rather than an index, the position is better than the yield suggests, and the reason is biological. An institution with quarterly reporting has to harvest to show a return. A family does not. Timber that is not cut keeps growing, at a rate that does not consult the sawmill, and the volume accumulating in a thirty year old stand is a real return that simply does not appear in a cash yield line. A record low cash yield is a statement about what mills are paying this year. It is not a statement about the forest. The discipline it argues for is the one this letter keeps returning to: buy the ground on what it produces, not on what the last appraisal said, and then be in a position to wait.

The Capital Memo