NEW YORK,
Nov. 6, 2009
(Viewpoint) -
BCAP Excludes Pulp/Wood Products - Late last week, the Farm Service Agency (FSA) announced new "R"ules tied to materials/products eligible for the $22.50 per green ton credit under its Biomass Crop Assistance Program (BCAP). Pulp, black liquor, and lumber were specifically excluded. Bottom line, we do believe that the timber companies could receive some modest financial benefit by selling their "wood waste" (leaves, branches, tree tops) to facilities that use these materials for fuel (including wood pellets). Whole trees used to make wood pellets may not necessarily earn the benefit if these trees could be used to make "higher-value" products.
Biomass Crop Assistance Program (BCAP) - This effort by the FSA, a part of the US Department of Agriculture (USDA), provides financial assistance to producers or entities that deliver eligible biomass material to designated biomass conversion facilities for use as heat, power, biobased products or biofuels. In fiscal 2009, only $25 million was provided for this program.
End of the Welfare Road for Paper - With this announcement, we see little or no benefit from the BCAP program for pulp and paper producers (unless they own their own timber). There may be some small "sharing" of any future benefits by pulp/paper producers if they burn wood waste provided by timberlands owners. We also see no continuation of any alternative fuels mixture ("black liquor") credits beyond the end of 2009.
Timber Companies May See Some Benefit - The timber owners, such as the three timber REITs (Potlatch Corporation (PCH, $28.06, NEUTRAL [V], TP $26.00), Plum Creek Timber Company (PCL, $32.13, NEUTRAL, TP $30.00), Rayonier (RYN, $38.93, NEUTRAL, TP $39.00)) we follow and Weyerhaeuser Company (WY, $36.66, NEUTRAL [V], TP $37.00), could see some moderate benefit from BCAP and other efforts to monetize what heretofore was viewed as wood waste that is being burned by paper/lumber plants or simply left behind on the forest floor. Given the lack of specificity of future funding levels for BCAP, it is not possible to assess what future benefit, if material, that the timber owners might receive.
No Change in Ratings or Estimates - Because we had not built into our estimates and ratings any significant benefit from either BCAP or a continuation of the black liquor credits, we are making no changes at this time. We continue to favor the "processors" of fiber (containerboard, pulp/paper, and wood products producers) over the "owners" of fiber (the timber REITs and Weyerhaeuser).
C.A. Dillon, Credit Suisse Securities USA
