December 2009

“Bio-Energy plantations are the hottest story in Brazil in 2009”

“The Steel Industry - in a major expansion stage, will need more charcoal (from eucalyptus plantations) to grow”

You might imagine the headlines above are of our making but they are actually a direct quotation from a presentation from director of RISI international timber, Mr Bob Flynn, when addressing a Forestry Association meeting in the USA. RISI is the worlds leading information source for the global forest products industry. It provides forecasts and analysis on the global forest products industry, The presentation highlighted a number of facts which seemed extremely relevant to Greenwood Management and its clients.

"Brazil has more dedicated commercial wood energy plantations than the rest of the world combined."

"Soya industry - major international companies need fuelwood (from eucalyptus plantations) to dry and process soybeans prior to export."

"In both steel and soya, the industry is being pushed to shift demand from native forest to sustainable plantations. Emerging carbon markets also providing a strong incentive for these industries to replace fossil fuels."

"European power companies looking for secure sources of long-term wood supply are also studying projects in Brazil."

It’s not always easy to be objective when you are as deeply involved in the forestry industry as we are at Greenwood Management. Being able to “see the woods for the trees” is crucial in any business, so it’s particularly reassuring to see other independent views confirming our visions. The “Wood for Energy” strategy we embarked upon has received a ringing endorsement from the world’s foremost authorities on the forestry industry.

Good to be ahead of the market though.

Copenhagen, or should it be Hopenhagen?

”Earth doesn’t do Bailouts”.
No idea who coined this phrase but it seems very fitting to the times we are in.

The year has been littered with banking catastrophes. Lehman Brothers were mortally wounded. Governments and taxpayers have come to the rescue of other long standing financial institutions, bringing them back from the brink. Dubai is the latest to weigh in with worrying finances.

The Copenhagen Summit has been set back in the news as result, but whether you're a “climate realist”, a CO2 sceptic, a fervent environmentalist or just sick of the whole "green" debate, there will be no hiding from the big news coming up this December. Like it or not, Copenhagen is set to dominate our news screens.

I thought it might be an idea to put down a quick summary of the Copenhagen climate change event and the implications for managed forestry plantations.

Who’s there?

Representatives from 200 countries. 5,000 delegates. Climate experts. Government advisors and Leonardo DiCaprio.

What is actually happening in Copenhagen?

The 15th meeting of the "United Nations Framework Convention on Climate Change" takes place in Copenhagen, Denmark, from 7 to 18 December 2009. A decision has to be reached on how to replace the Kyoto Protocol. The Kyoto Protocol is the existing international treaty for the reduction of greenhouse gases. Deforestation is one of the most significant contributors to the problem.

The final agreement will be legally binding, making it hard for countries to avoid their responsibilities at a later date.

Why now?

What’s finally concluded this December will be the culmination of thousands of hours of research and debate. It will be the moment when the world has its chance to stop global warming.

What's needed from the talks?

The general consensus of the ideal outcome is simple: A big reduction in carbon emissions is vital and cash has to be found to help poor countries.

Global CO2 emissions have to drop by at least 80 per cent, below 1990 levels by 2050. If carbon emissions aren't cut fast enough, and global warming is allowed to get above 2°C (average temperature has already gone up by nearly 0.8°C), the impact on ecosystems, sea levels, food production, is expected to be disastrous for millions of people. Heavy stuff indeed.

On the positive side

On 13 November the Brazilian government announced a huge commitment to voluntarily reduce greenhouse gas emissions by 38-42% from the projected 2020 levels.

It said that 50 percent of this would come from its deforestation reduction programme. Brazil's voluntary offer to reduce deforestation in the country's Amazon rainforest by 80% is the perfect kick-start for other nations ahead of the climate change conference Brazilian authorities also announced that between August 2008 and July this year, deforestation rates fell by the largest amount in more than 20 years, dropping by 45% from nearly 13,000 square kilometres to around 7,000 square kilometres (see table below).

The head of Brazils Space Institute claimed it was the most significant cut in deforestation since his institute started monitoring rainforest destruction with satellite technology in 1988.

Brazils chief of staff Dilma Rousseff said the figures showed the government had "done its homework" in order to counter illegal rainforest destruction. Since February 2008 the government has staged an "unprecedented" campaign against illegal loggers, involving hundreds of heavily armed agents being sent to remote rainforest towns where the forest destruction was out of control.

Britain's prime-minister, Gordon Brown, wrote to Brazil's president to congratulate him on the actions of his government. UK Foreign Secretary Mr David Miliband said that Brazil had much to teach the rest of the world about forestry management.

”'We are talking about reversing a disastrous trend in deforestation and it is important that we understand not just the dangers associated with deforestation but the complexity of turning things around.

The scale of the voluntary commitments is a good example for other countries to follow. That is a good signal to many other countries that now it is time to get serious.

Many countries will look to Brazil for the nod and the confirmation of whether or not what is on the table in respect of deforestation is appropriate and sufficient”.

To put some perspective on the numbers, here are the areas of natural forest cleared from Brazil since 2000:

The implications for managed plantation forestry

The Kyoto Protocol recommended the use of plantation forests as a way to reduce Carbon Dioxide levels. Greenwood Management’s plantations in Brazil have a relatively small land “footprint” due to the high yielding Eucalyptus hybrids grown within the forests.

Our plantations use significantly less resources in their preparation and harvest and, by growing our forestry close to the end users of our timber; the transport related environmental pollution is also kept to a minimum.

We hope to see the Copenhagen summit address the issue of deforestation head on. No excuses.

'Tis the season to be investing?

We haven't gone all festive just yet...

This is about a report from Goldman Sachs which highlights some facts that investors might consider as the festive season looms on the horizon.

It's never wrong to take a profit they say and, with the stock markets well up from January, the temptation of banking profit gains must tempt a few eager fingers to dial their brokers before the holiday season hits.

However, the latest figures from the Investment Management Association, the trade body for fund managers, show that wealthy investors sitting on large piles of cash have taken a further €2 billion out of cash and moved it into investment markets. In September private investors invested a net €2.7 billion, the sixth consecutive month in which investments have topped the €2 billion mark.

About this time of year, fund managers talk of “de-risking” their portfolios, whether through hedging or moving cash into safe-haven bonds. Financial experts crunch the numbers to se if further advances are round the corner. Is the goose cooked or is there more fun ahead?

Goldman Sachs have some interesting stats based on something as simple as the calendar on your wall. Yes, the view from one of the world’s most influential investment banks is that the festive period is not one to cast aside for shrewd investors, if past performance is a measure of future prospects.

Forget your technical analysis, price per earnings ratios and Bollinger band theory? December and January emerge the two best performing months of the year if viewed from 1974 onwards. According to the report from Goldman Sachs, the chance of seeing positive growth in December or January is greater than 70 per cent. However, in mid-summer months such as June, those chances for growth drop to a mere 44 per cent. Sell in May and go away still applies it appears.

Season’s Greetings

We hope you’ve enjoyed our Greenwood Management monthly updates this year. We will certainly have lots to cover in 2010, with continual expansion of our forestry projects coming through.

All that remains is for all the team at Greenwood Management to wish you a happy festive season and a very prosperous new year!

Regards,

Joe Randall
Greenwood Management

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