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TRANSCRIPT
Pine Plantation Investment Returns
4 State Forestry on the Grow Conference Idabel, OK
2012
Barry Shiver [email protected] www.forestech.us CHFORES E
Where do investment returns come from?
Land Price Appreciation Stumpage Price Changes
Biological Growth
Product Transfer
A sure bet to increase investment returns
Follow the advice of the old adage…
“Buy low, sell high. Aren’t there any other eternal truths?”
…but not always possible
Controllable ways to increase investment returns
Spend less (positive) and get more (positive)
Spend more (negative) and get more (positive) This is what we typically get with silvicultural
spending
Spend more (negative) and get the same or more sooner (positive) Sometimes the added expense requires an earlier
payback to optimize returns Time value of money
Ways to Increase Investment Returns (without the need for a clairvoyant)
Improved tree genetics
Regeneration treatments Chemical site preparation, herbaceous weed control,
tillage, fertilization
Intermediate Treatments Woody release, fertilization, timely and properly
conducted thinnings in some markets
Tree genetics
We haven’t quite found this gene yet!
Tree genetics
Until the early 1980’s most seedlings planted in the South were unimproved
Genetics cooperatives focused on increasing growth and disease resistance (particularly fusiform rust)
By the late 1980’s most organizations planted 1st generation improved seedlings.
Now, at least 2nd Gen and some 3rd Gen are widely available along with CMP and varietal seedlings
Genetics as an investment enhancer
Advanced genetics seedlings = $5-$10
more/thousand
1st gen = 9%-17% green
weight gain
Example: Planting 600 per acre with advanced genetics =
only $3-5/acre more cost
Produces an additional 10 to 25 tons/ac! Some of it more valuable solid wood
Genetics- further benefits
First Generation Gains Incidence of disease is lower by about ½ Incidence of sweep, fork, etc. lower by about 25%
Additional gains for 2nd Gen based on progeny tests were 10-15% more again with only small increases in price
CMP seedlings are more expensive, but gains from having both parents known are large, particularly for good form traits
Have you figured out the math yet?
While a rigorous analysis of ROI could be made, this one is so obviously good that it is not needed.
Clones a.k.a. Varietals
When perfected, clonal seedlings have the ability to: significantly increase volume, decrease stand variability, and produce a stand of trees that virtually all qualify for solid
wood The stem quality and pruning characteristics of
selected clones are outstanding
Major obstacle right now for most landowners is the upfront price.
Varietal L3514 O3621 O3621 Q3802 L3514 Q3802 Q7766 Q7766 Q7766 Avg
Location-Age GA-6 GA-6 FL-8 FL-8 FL-8 LA-6 NC-5 NC-5 NC-5 Gain
Survival 7.0 8.0 7.7 11.4 11.4 10.0 9.3 10.4 4.7 8.9
Height 4.0 0.0 7.4 9.6 -2.6 25.0 26.0 22.2 24.7 12.9
Dbh 6.0 7.0 4.5 1.7 -1.3 -6.0 20.5 6.6 15.1 6.0
D2H (ft3/ac) 1.0 1.0 29.8 23.8 12.4 31.0 79.0 74.3 27.8 31.1
STP 28.0 28.0 48.3 46.5 39.2 24.0 13.9 9.8 7.5 27.2
Percent change for varietals vs. 2nd Gen open pollinated for different tests.
Stem Quality is a Big Factor
2nd Gen Varietal
Yes, but are they a good investment?
The biological growth and form improvement of varietals are obtainable with pines and have been obtained in S. America and other places with different species
Especially where solid wood prices are high and can be counted on to be high in 15-25 years even the high prices of varietals may be justified
For organizations that will own a stand for only a portion of even a short rotation the investment is not necessarily bad, but more uncertain
Answer? Maybe.
Ways to Increase Investment Returns (without the need for a clairvoyant)
Improved tree genetics
Regeneration treatments Chemical site preparation, herbaceous weed control,
tillage, fertilization
Intermediate Treatments woody release, fertilization, timely and properly
conducted thinnings in some markets
Site Preparation
Prior to the 1980’s site preparation in the South was typically minimal mechanical such as Chopping or more intensive involving tillage such as bedding or disking
Tillage helped survival, but neither did NOT control hardwood competition – set it back a few years
Research in the 1980’s showed the negative impacts of even a few hardwoods in pine stands
Chemical site preparation did a better job of controlling hardwoods at a lower price
Fayette Study
Mechanical vs. Chemical – a closer look
Site: • Avg site quality (S.I. = 62) Stumpage prices: • PW=$8, CNS=$15, SAW=$27 Seedling genetics: • 2nd gen OP Treatments: • Avg. level of hardwood for
mechanical • Low level of hardwood for chemical • 2 thins
• Mechanical @ 15 & 22 • Chemical @ 13 & 20
ROI • For timber investment alone
– no land
• Real, no inflation of prices or costs
Mechanical 8.8%
Chemical 9.8%
Comparison of Yields
Total Tons Site Index 62
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
5 7 9 11 13 15 17 19 21 23 25 27 29 31
Age
Grn
Wt (
ton
Chop,BurnChemSP
Herbaceous Weed Control (HWC)
An optional treatment that we did not have chemicals to perform prior to mid 1980’s
Herbaceous weed control
Is not a great investment on most mechanical siteprep stands without tillage since hardwoods are released
A great combination with chemical site preparation since site preparation removes hardwood competition and HWC removes herbaceous competition Often mixed with fall chemical site preparation now to
avoid an extra application charge
• Chemical Site Prep • Bedding • HWC • May 1st Growing
Season
• Mechanical Site Prep • Bedded • No HWC • November after 1st
GS
No HWC; Didn’t Make it; July 1st Growing Season
COMP Study Results – Age 15 from Miller et al. (2003)
Conversion: 100ft3 is about 3 tons so a gain of 1000 ft3=30 additional tons
Modeling Effects of HWC
Research finding: A 51% volume gain 9 years after 1 year of banded HWC treatment! Fact: Many (most) growth and yield models do not address HWC response (!!)AND/OR users simply increase the site index to attempt to take HWC into account
Bad voodoo from simply ‘adjusting S.I.’!
The response to HWC is not a uniform change in height over time, therefore increasing site index
results in very poor estimates, especially at merchantable age years.
COMP Study HWC Effect on Height
Returns with HWC (estimated the right way)
Add a $35/ac HWC treatment to each 2 thin management regime from previous example
Now, Chem + HWC ROI = 9.8% Thin @11*,18 Now, Mech + HWC ROI = 8.7% Thin @ 14,21 Note: Though the ROI values did not change much at all, the Chem+HWC provides greater absolute returns since
more money was invested and ROI was same.
*Thinning at 11 on an average site was not possible without HWC
Ways to Increase Investment Returns (without the need for a clairvoyant)
Improved tree genetics
Regeneration treatments Chemical site preparation, herbaceous weed control,
tillage, fertilization
Intermediate Treatments woody release, fertilization, timely and properly
conducted thinnings in some markets
Intermediate Treatments as Investments
Thinning Timing affected by competition, density, and site quality
Woody Release
If there are more than 2-3 hardwoods per pine, response will typically be large and concentrated on larger dbh trees
Fertilization
Virtually all sites in SE need fertilization at some age to grow to their potential – price has become key
Thinning is an investment
Especially for first thinnings that is the correct way to think of it even though cash flow is positive because it increases the growth of the remaining trees, leading to more solid wood potential
Caveat: Not true in every market, but in most markets
in South where solid wood is worth multiples of pulpwood
Ensure proper thinning timing
If thinning is not early it increases rotation age
If thinning is too late, crown ratio is lost and,
biologically, stand will grow mostly pulpwood When can we get a first thin done?
Dbh 6.5-7.0 inches and good stocking Dominant height 40-45 ft Basal area per acre 100+
Dbh of Stands very Sensitive to Density
0
2
4
6
8
10
12
14
16
0 5 10 15 20 25
Aver
age
Dbh
(inc
hes)
Age (years)
100 TPA
200 TPA
400 TPA
600 TPA
800 TPA
1000 TPA
The longer stand stays at higher density the longer it takes to grow average tree to solid wood size
Density high, too late to thin
An extreme example, but a tree grown at 200 tpa planted – good dbh growth but not a solid wood tree
How intensive should we thin?
With differences in price of 2:1 expected by a 2nd thin (not necessarily now!) thin as lightly as possible when taking out lower priced product
May thin heavier when taking out a combination of the two
Would say not to thin to basal area 60 on first thin, but to 75 or 80 or even slightly higher on good sites with intensive management
These decisions lead to higher returns
Thinning
In previous example with stumpage prices of PW=$8, CNS=$15 and SAW=$27/ton thinnings always produced higher returns and two thins were always at least slightly better than one thin
If PW=$15 then no thin is as good as 2 thins with the same number planted. With more trees planted it is slightly better than 1 or 2 thins
If the ratio of prices is relatively unchanged: say all 3 products move up or down, the return changes, but the best management does not change much at all
No thin vs 2 thin returns
ROI for no thin in example we have used earlier was 8.1%
ROI for 2 thin management regime was 9.8% 1.7% does not sound like much, but people
refinance their mortgages over less! If had 100 acres and spend $300/ac and held for 30
years making 8.1% vs 9.7% would have $310,000 vs $496,000 Increase is $186,000 Management Matters!
Woody Release
Foresters are very sensitive to planting density Can easily start an argument over whether to plant
475 or 600 (or any other number) per acre We conveniently ignore hardwood competition
though multiple studies have demonstrated that basal area for basal area hardwoods are more competitive with pines than pine density Understory hardwoods and shrub are very competitive
Effects of Hardwood Levels on Pine Merchantable Volume (COMP study)
Conversion: 100ft3 is about 3 tons so a gain of 1000 ft3=30 additional tons
COMP: These treatments are from planting. What about older stands? Two large regional studies and multiple single
location studies indicate that loblolly pine grows an average of 1.4 tons/ac/yr more when released from hardwoods than the check stands Stands were in 2 age groups (5-9 younger and 12-16
older) Over ten years that is 14 or so more tons of wood to
sell Now for the best part…..
Woody release in existing stands
Response to treatment was almost all in larger trees in the stand and resulted in movement into higher value classes sooner (in some cases at all)
For older treated stands within 10 years 100% of the response became chip-n-saw size material
For younger stands within 10 years 77% of the response became chip-n-saw size material (still only 15-19 years old) So got more tons and those tons were worth about
double what they would have been worth – more historically
Example – Return for Woody Release
In previous example with Mechanical site preparation and two thins – ROI 8.8%
Add a release at age 3 to move from average level of hardwood to low level of hardwood at cost of $50/ac
Allows for earlier thins – ROI 10.3% and lowers rotation age by 3 years
Of course to isolate the treatment return we should calculate a marginal rate of return – double digit As costs fall for release chemicals returns look better
Fertilization
Most sites in the South cannot provide nutrition to grow pines at anywhere near their potential
Usually need supplemental feeding at or near crown closure
As we manage more intensively and create and keep heavier, thicker crowns the need is earlier and more important
We have seen organizations fertilize multiple times on previous site index 65 and have 22 year old trees more than 90 ft tall with light hardwood levels
Especially in Coastal Plain Fert grows more wood!
020406080
100120140160180200
CONTROL HERB FERT HERB/FERT
Coastal PlainPiedmont
GN
WEI
GH
T/A
CR
E (T
ON
S)
>15 tons/ac/yr!
Fertilization
Problem with fertilization in terms of investment returns recently has been costs
From 2005 to now prices have been very expensive related to historical prices
Standard treatment 200 lbs N + 25 lbs P cost about $80/ac historically. Over past 6 years has ranged from $125 to over $200/ac
Like woody release, fertilization growth response is highest on largest trees and increases movement to more valuable product classes
Fertilization
Response shows up right away, but decreases after 5-6 years Again, not a response to model using site index gain
Unlike woody release which takes 2-4 years for response to show up, but lasts at least 14 years
Managers have often fertilized following a thinning to put even more of the response on solid wood potential trees Also have to carry the investment fewer years
Fertilization
Assume that we have a stand that is 12 years old and we fertilize it
At age 19, the following values are realized depending on fertilized or not fertilized: Fertilized Value $1291 Not Fertilized Value $1105
Marginal rate of return over the 7 years is based on the incremental value, the cost, and the incremental time
Fertilization
Incremental Value is $186 over 7 years Marginal rates of return for different fert costs:
Cost MROR $80 12.8% $120 6.4% $160 2.2% $200 -1.0%
Does this mean we should not fertilize?
With Capital, same ROI may generate much more income An intensive management regime:
Spend $300+ on regeneration – best O.P seedlings Spend $65 on a second HWC in 2nd Growing Season Fertilize at ages 3, 7, 12, and 18 with DAP, Urea or a
Combination and spend $75, $80, $100, and $120 Thin at age 10, 15, 22 and clearcut at age 30 Have spent $740 by age 18 plus annual taxes and
management fees ROI = 8.3% Is this worthwhile compared to mechanical site prep
and spend no money? Get about same ROI
Intensive vs Non-Intensive (OER)
Both management regimes generate ROI of about 8.25 % or slightly higher
Intensive spends $740 over 18 years and generates $3965 through thins at 10, 15, 22 and final harvest at age 30
Non-intensive spends $185 on site prep and planting and generates $668 through thinnings at age 15 and 22 and $3520 at age 37
So intensive got earlier cash flows and generated slightly less cash, but at an earlier age
The Winner: Intensive vs Non-Intensive? Some depends on investor – if don’t have the
money to invest it doesn’t mater If do have the money to invest – intensive is the
clear winner If you can grow enough tons/acre you can generate
high returns even while spending large sums Have more risk from catastrophe (fire, wind, ice, etc.) Actually have less risk from planting failure
What can we count on to boost investment returns?
Biological growth and faster product transfer from silvicultural treatments that have long history of increasing production
Management Matters! Thin when you should, treat 1st thins especially as investments, oversee logging to insure the right trees are removed AND the right trees stay
No control over stumpage prices or land appreciation, but realize these have a history of volatility