Ending environmental hubris: Logging -- yes, logging -- can fuel Oregon comeback

The Oregonian

Published: Saturday, July 30, 2011, 4:30 AM

By Guest Columnist Robert S. Smith

While still struggling with 9 percent unemployment, the powers that be in the great state of Oregon have done a remarkable job ignoring the obvious concerning job creation.

Due to abundant rainfall and a mild climate, Oregon is one of the best places on Earth to grow trees. Before federal timberlands were placed off limits because of the northern spotted owl, the Willamette National Forest was the most productive in the world in terms of softwood lumber.

We may have been willing to tolerate this environmental conceit 20 years ago, but it is a luxury we can ill afford today. Yes, demand for wood in North America collapsed after the housing bust of 2008. But there has been a surge in demand from across the globe, primarily from Asia, Japan, South Korea and China that is driving up demand for timber from the United States. And as the growth of these emerging economies continues to outstrip that in the West, they are going to use a lot more timber.

Oregon is uniquely situated to benefit from the newly ascendant Pacific Rim economies. With our vast supply of world-class softwood lumber, an experienced workforce and window on the North Pacific, we can meet this demand more efficiently than anyone else.

Worldwide demand for softwood lumber rose 18 percent in 2010, continuing a trend that started in early 2009. In the first quarter of 2011, global wood consumption is up 20 percent compared with the same period last year. Environmental hubris should not prevent us from taking full advantage of this opportunity.

Support for this argument can be found from sources as far afield as legendary value-investing guru Jeremy Grantham. He claims that timberland is the single-best long-term investment there is. According to Grantham, timber has risen steadily in price for more than 200 years and has returned an average of 6.5 percent a year over the past century.

Grantham is not alone in his enthusiasm for timber. During the past few decades, top university endowment and pension funds have plowed an estimated $40 billion into timberland. The Harvard Endowment Fund currently has about a 9 percent weighting in timber. This only makes sense when you consider that trees continue to grow through bear markets, financial meltdowns, recessions and wars. Furthermore, unlike other agricultural commodities, trees do not have to be harvested. If prices or markets are not quite right, wood can simply be "banked on the stump."

And let's not forget that timber is a hard asset. It is increasingly important for individuals and institutions to be hedged against inflation with a portion of wealth stored in real assets.

But what good does all this stored value do if the vault remains locked? Let's tell the political class to simplify things: This is Oregon. What do we do better than anyone else? We grow trees. So let's put the "folks" back to work and make some real money harvesting trees and processing lumber.

Time is of the essence. Douglas fir logs rose 19 percent in price in the fourth quarter of 2010 alone. This will only be exacerbated by this year's tsunami in Japan. Once ports, roads and power are working there again, demand for lumber and plywood will explode. Supplying Japan's rebuilding needs will be a global undertaking. This could employ much of rural Oregon for years to come.

The supreme irony here is that in the wake of the Great Recession and disillusionment about jobs and the future, Oregon is actually in a position to have one of the nation's best economies rather than one of the worst.

What we need to do is to shake off the chains of an old, failed ideology and forge a new business paradigm based on Oregon's rich natural resource endowment and burgeoning global demand. We have what the world wants.

Let someone else worry about turning switch grass and cow poop into energy.

Robert S. Smith is president of Peregrine Private Capital Corp. Smith has been a registered investment adviser and financial planner for 24 years. Contact him at www.PeregrinePrivateCapital.com.