On June 8^th Brazil announced that its first quarter GDP for 2010 had grown by 9%. This was greater than the 4.5% which most analysts expected. This is more growth than the country has seen in over two decades!

Unlike the world’s top economy, the US, Brazil’s manufacturing sector and its exports to China are growing. This has had a partially negative effect in the inflation department as the inflation rate reached 5.2%, which is higher than the government target of 4.5%.  However to prevent the economy from overheating Brazil’s central bank raised interest rates to 10.25%.

There is still a fear that the US could go into another contraction and the weak growth in Europe isn’t encouraging for most people looking to invest in Brazilian stocks. The United States is Brazil’s main importer of soy beans, coffee and iron ore and a fall in purchases from the US could slow down Brazilian growth. Despite this Brazil has been expanding their horizons with China and India becoming consistent trading partners.

In July Brazil added 181,000 jobs, which brought the total to 1.7 million jobs in the last seven months alone! That’s a lot of jobs if the fact that Brazil has a population of 190 million people is taken into account.

Clearly now is a great time for an investor to looking into buying Brazilian stocks.

Forestry Update is sponsored by Greenwood Management. For more information on investing in Brazil please click here.

“It has a growing population, it’s energy self-sufficient, it’s food self-sufficient,” said Zell, chairman of Equity International, about Brazil, the largest of the South American countries. “It’s growing and, at least for now, they’ve solved the problem of inflation.”

Born and bred in Chicago, Zell made his first fortune buying and selling real estate from distressed owners and ranks 237 on this year’s Forbes list of billionaires. Zell has also acknowledged that at least half of his company’s investments are in Brazil.

Even though elections are coming up in October where the Brazilians will elect a new leader, both of the main candidates have pledged to continue the policies of the current president, Luiz Inácio Lula da Silva.

Compared to the US, which has a 70%, debt of GDP, Brazil only has an 8% debt and the nation has a AAA rating from several major credit rating institutions. Adding to Brazil’s status as an emerging world power are its successful bids to host both the 2014 World Cup and the 2016 Olympic Games.

Forestry Update is sponsored by Greenwood Management. For more information on investing in Brazil please click here.

“Brazil’s economy is extremely steel-intensive and as this economy continues to grow, countries that now count on steel exports from Brazil will have to source materials elsewhere. This will have an impact on the global supply of steel and will cause prices to increase rapidly”, said Spoores.

Spoores was also part of the ‘Demand Drivers – What steel consumers are looking for’ panel that included the executive director of global ferrous products at JP Morgan, Jeffery Kabel, the deputy general manager of Sino steel Futures in China, Dongwei Chen and the principal consultant of the CRU Steel Business Unit in the UK, Chris Houlden. The Latin and American Iron and Steel Trends conference was organized by the CRU Group.

During his speech Spoores urged government officials and the Brazilian steel industry to work together to create a certification program for Brazilian pig iron, which will remove global concerns regarding questionable labour practices and environmental issues over the sources of charcoal. Charcoal of course being one of the key ingredients in the manufacture of pig iron, which is a main component in the production of steel.

Another aspect that is expected to impact the steel pricing is a shift in how iron ore is priced. In the past iron ore had been contracted for annually and only recently has the market shifted to quarterly pricing.

“Even with the change to quarterly contracting for iron ore, the current pricing structure lags the market,” Spoores said. “Iron ore will likely shift to monthly contracts based on spot prices, much like mills execute for natural gas or zinc. This new structure will bring greater volatility to steel prices and both mills and customers need to be prepared for this new reality.”

Forestry Update is sponsored by Greenwood Management. For more information on investing in Brazil please click here.

While these efforts have yielded some positive results, vast expanses of forest disappear each year, even the legal logging companies get in on the act by bribing officials to allow them to over cut and under report their activities. This is one area in particular which experts feel should be examined more closely.

It wasn’t until two years ago that the US passed the Lacey Act, which makes it illegal for anyone to import illegally harvested timber into the US. Up till then there was no international oversight in the area of logging, this led to a culture of corruption, over-exploitation and illegal mining. Europe is following their lead by exerting pressure to develop bilateral agreements with timber producing countries that require third party oversight of the logging process. This was particularly effective in Cameroon, leading to a significant reduction in deforestation rates.

Brazil on the other hand has been trying a different approach by discouraging the sale of commodities such as beef, soybeans and sugar from ranches and farms built on deforested land. The improvement in technology has assisted this approach by allowing the perimeters of farms and ranches to be recording using satellite imagery. This tracking system is accessible to the general public such as companies and civil groups. Each time a farmer or rancher is found to be encroaching on forested land that is audited and results in a hefty fine.

The approach appears to be working as Brazil has announced that an estimated 2,700 square miles of Amazonian forest was cleared in the year ending July 2009 that is down 46% over the previous year. This was the lowest rate since the government started monitoring deforestation in 1988.

So going by these figures let us hope that conservation is finally coming out ahead of deforestation.

Forestry Update is sponsored by Greenwood Management. For more information on investing in Forestry please clickhere.

“Timber is safer than stocks but not quite as safe as Treasury inflation-protected bonds,” he said. “And as long as the sun shines and the rain rains, trees grow.”

Timber also acts as an inflation hedge.

“If you look at commodities, you find a pattern that all of them, except timber, had a declining real price up until 10 years ago,” Grantham said. “But standing timber has a long-term record of modestly rising prices.”

Forestry Update is sponsored by Greenwood Management. For more information on investing in Forestry please click here.

Having decided that you wish to invest in forestry you may find yourself overwhelmed by the choice of companies out there specialising in that field.

Essentially there are two different ways of investing in forestry, directly or indirectly. Direct investments involve the purchase of ownership of the land and the trees grown on that land, either by an individual or a company. Indirect investment on the other hand involves buying shares in an established forestry investment company. While there are pros and cons to both investment types it is generally acknowledged that direct investments generate the higher returns.

Before of course making any decision I have included below some areas you may wish to look into before you go ahead.

Location, Location, Location

Many countries, worldwide offer various opportunities to invest in reforestation with the bulk coming from South and Central America, Australia and New Zealand. It is important to examine the financial and business infrastructure in each jurisdiction, for example: whether the area is well serviced by the infrastructure necessary for the planting, tending and harvesting of the trees. It is also worth noting that once the trees are ready for harvesting they must then be transported for them to be processed. Good transport links are very important and help reduce costs.

Experience, Experience, Experience

This really needs hardly any explanation. Forestry is a very specialised field and therefore the more experienced and expert the manager is then the better the eventual return once the trees are harvested.

Research, Research, Research

Even after making the initial investment regular and comprehensive information should be made available to keep you abreast of all new company information. I find a company newsletter to be the most effective way of establishing this in addition to the company website.

Many forestry investment schemes welcome international investment, indeed it is unusual to find one that doesn’t. In addition there are very attractive tax benefits international investors can claim against the income at harvest. So to conclude, should you be looking for a long term investment then investing in forestry might just be ideal.

The signs are growing that international efforts to shut down illegal logging and enforce timber harvesting regulations are succeeding in slowing the destruction of forests.

In particular the overhaul of logging laws and the injection of zeal into enforcement have led to a significant drop in Brazil’s illegal logging and deforestation rates as a whole.

During a recent trip into an area of once rampant deforestation, Bob Walker a expert on deforestation in the Amazon and a professor of geography at Michigan State University, witnessed the clamp down on illegal logging.

“You had tens of thousands of loggers who were out of work — people were not happy,” Mr. Walker said in an interview. “A lot of the sawmills went broke. I was amazed to see it.”

According to a new report by Chatham House, a British think tank the decline in illegal logging and deforestation rates is also being witnessed by major timber producing countries such as: Cameroon, Malaysia, Ghana and Indonesia.

Due to weak or limited regulations the term ‘illegal logging’ remains somewhat unclear in many producer countries. However progress has been made due to international pressure on countries like Cameroon. An independent regulator now oversees their timber trade, financed by a coalition of donor countries this has resulted in tighter controls over logging in general and reductions in overall deforestation.

Forestry Update is sponsored by Greenwood Management. For more information on investing in Forestry please click here

As the bill made its way though Congress, 13 environmental organisations expressed their concern in an open letter to all the candidates vying for the Brazilian Presidency in the October elections. Rafael Cruz of the environmental watchdog group Greenpeace told IPS that the proposed changes were an ‘historical reversal’ of the 1965 forestry code that is currently in force.

Environmentalists find the bill particularly controversial as it proposes declaring an amnesty for illegal logging on more than 40 million hectares of savannah and forest in the Amazon region recorded since 1996. In the letter environmentalists point out that this would pardon an equivalent of 14.6 billion tonnes of carbon dioxide emitted illegally.

According to the lawyer Rebelo, reform of the Forestry Code is necessary as at present agricultural development and with it the supply of food for the Brazilians in greatest need are at risk from the existing rules.

Another controversial point in the bill is the removal of a nationwide requirement to maintain a portion of larger properties in legal reserve.

“In the Amazon forest alone, that could mean the elimination of legal reserves of up to 70 million hectares,” states the environmental groups’ letter. Assuming that half of those areas are already deforested, “even so, the legislative bill removes legal protection from at least 35 million hectares of forest,” the letter says.

In addition the bill also proposes that each Brazilian state can use its own criteria to reduce upwards of 50% from the federally defined areas of permanent preservation, which act as buffer zones along rivers and lakes in an effort to protect these water sources. This will allow the release of 12.8 billion tonnes of carbon dioxide stored in the vegetation of the Amazon. This amounts to three times Brazil’s goal for reducing emissions of greenhouse gases released through deforestation. Brazil even announced that goal during the climate conference in Copenhagen last year.

Despite this the bill was approved last Tuesday by a special committee of the Forestry Code by 13 votes in favour to five against. Now the proposal will be put for consideration in the House floor before a vote in the Senate.

Despite this victory for the agricultural sector, (members of the caucus and representatives of rural producers applauded the approval) not everyone was thrilled, in particular the representatives of family farms and small holders left disappointed.

Forestry Update is sponsored by Greenwood Management. For more information on investing in Forestry please click here

The tax breaks associated with forestry aren’t to be sneezed at either, there is no income tax or CGT payable and once forestry investments have been owned for over two years they are free of inheritance tax liability.

While yields can be somewhat volatile, due to the nature of the product the investment can be stored on the stump until the market value goes back up. This is the advantage with forestry plantations as opposed to other crops as once the trees are mature they can be left to increase in value.  In 2007 forestry saw a 31.6% total annual return, this fell in 2008 to 7% but that was still well ahead of the commercial and residential property sectors and the stock market.

However, this is a long term investment, it can take anywhere between six to ten years to harvest a plantation, during which time there’s no income. This type of investment would suit those looking to add to their pension fund or those that already have a steady stream of income coming in.

Forestry Update is sponsored by Greenwood Management. For more information on investing in Forestry please click here

Over the next seven years Brazil will have hosted two of the most important World events, the World Cup in 2014 and the Olympic Games in 2016. This means that in the lead up to these events Brazil will need to make large infrastructure investments to stimulate growth in the civil construction works, services, logistics and transportation sectors.

At the moment it is predicted that Brazilian company investments in the coming seven years will meet the optimistic economic outlook in Brazil. Currently foreign exchange reserves exceed US$260 billion, Brazil’s credit rating has risen to investment grade and the GDP is expected to increase to 6.5% by the end of this year.

Riding on the back of this economic wave the pulp and paper industry supplies products for all other sectors. The challenge then will be to show the international community that the Brazilian pulp and paper industry is ready to expand its operations but not at the expense of the land it occupies.

In addition according to a survey conducted by the National Agriculture Confederation (CNA), the Brazilian Association of Forest Plantation (ABRAF) and the Brazilian Sugarcane Industry Association (UNICA) Brazil has 72 million top soil hectares available for cultivation.

So the land is there then, ready to meet demand for food production, biofuels and the forest based sector. Currently Brazil has 6.3 million hectares of planted forest, which supply raw material for the wood, furniture, steel and pulp and paper industries. This is equivalent to 0.7% of the Brazilian territory.

According to the Brazilian pulp and paper sector an important part of their thesis in climate negotiations is that with the expansion of planted forest areas there will be a rapid growth of planted forests and the resulting high CO2 capture rate will directly aid the fight in global warming.

Their goal then is to validate forest carbon credits as a mechanism to offset emissions. They are so confident in the auspicious progress of these negotiations that they are submitting this proposal via the Brazilian government to the United Nations Climate Change Conference (COP16) in Mexico this November.

Forestry Update is sponsored by Greenwood Management. For more information on investing in Forestry please click here