timber vs. row crops
DESCRIPTION
Timber vs. Row Crops. William L. Hoover. Under what circumstance can conversion of forestland to crop land be justified financially?. Proxy for net-income from row crop farming. Average Value of Farm Real Estate. Comparing Crops and Timber. Use equivalent annual income to landowner - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/1.jpg)
Timber vs. Row Crops
Under what circumstance can conversion of forestland to
crop land be justified financially?
William L. Hoover
![Page 2: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/2.jpg)
Cash Rent for Crop Land
$0
$20
$40
$60
$80
$100
$120
$140
$160
Year
1982
$'s
per
Acr
e
Indiana
Ohio
Proxy for net-income from row crop farming
![Page 3: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/3.jpg)
Average Value of Farm Real Estate
$0
$500
$1,000
$1,500
$2,000
$2,500
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
Year
1982
$'s
per
Acr
e
Indiana
Ohio
![Page 4: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/4.jpg)
Comparing Crops and Timber• Use equivalent annual income to landowner• Tax treatment
– Land rent – ordinary income– Timber income – capital gains income
• Cost of timber growing stock – not considered
• Conversion costs – considered in terms of how much can afford to pay– Land clearing– Drainage– Soil modification
![Page 5: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/5.jpg)
Basis of Timber Values
• Purdue Forest Products Price Report and Trend Analysis– Weighted average price series
• Quality stand• Average stand
• Growth– Quality stand – 350 board feet per acre per
year (bf/A/year)– Average stand – 150 bf/A/year
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0
100
200
300
400
500
600
700
57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05
Year
$ p
er M
BF
Weighted Average Price for Quality Stand
Nominal
Deflated
Trend line is equivalent to 1.5% per annum
W. Hoover. Annual. Indiana Forest Products Price Survey and Trend Analysis, Purdue Univ. Coop. Ext. Svc.
![Page 7: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/7.jpg)
Cash Rent – PU AGEC Annual Survey
Timber Growth - .35 MBF per Acre per Year
Timber Value – PU FNR Weighted Average Price for Quality Stand, 1982 $’s
Timber Annual Cost - $4 per Acre, 1982 Base Year, Adjusted for Inflation
Cash Rent Compared to Net Value of Timber Growth, Nominal
$0
$50
$100
$150
$200
$250
$ p
er
Acre
Cash Rent
Net Value of Timber Growth
![Page 8: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/8.jpg)
Both series adjusted for inflation by PPI for Finished Goods
Cash Rent
Net Value of Timber Growth
Cash Rent Compared to Net Value of Timber Growth, Deflated
Net Value of Timber Growth
Cash Rent
0
20
40
60
80
100
120
140
160
180
19
82
$'s
pe
r A
cre
Cash Rent
Net Value of Timber Growth
![Page 9: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/9.jpg)
Net Value of Timber Growth minus Cash Rent
Premium of Managed Timber Over Crops, Deflated
-60.00
-40.00
-20.00
0.00
20.00
40.00
60.00
80.00
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
200519
82 $
's p
er A
cre
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0
50
100
150
200
250
300
350
400
450
500
57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05
Year
$ p
er M
BF
Weighted Average Price for Average Stand
Nominal
Deflated
Trend line is equivalent to 1.1% per annum
W. Hoover. Annual. Indiana Forest Products Price Survey and Trend Analysis, Purdue Univ. Coop. Ext. Svc.
![Page 11: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/11.jpg)
Cash Rent minus Net Value of Timber Growth
Timber Growth – 0.15 MBF per Acre per Year
Timber Value – PU FNR Weighted Average Price for Average Stand
Timber Annual Cost - $1 per acre in 1982 adjusted for inflation
$0
$20
$40
$60
$80
$100
$120
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
1982
$'s
per
Acr
e
Premium of Crops Over Unmanaged Timber, Deflated
![Page 12: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/12.jpg)
Case 1, Existing Stand of Productive Timber
• Well stock stand of central hardwood timber
• Harvest every 10 years– Harvest revenue annualized at 3% APR
• Cash rents range from $80 to $120 per acre
• Calculate timber revenue that it takes to breakeven with cash rent– Land clearing costs on considered
![Page 13: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/13.jpg)
Case 2, CRP Land With Trees
• Timber plantation 15 years old
• First harvest in 50 years– Harvest revenue annualized at 3% APR
• Cash rents range from $80 to $120 per acre
• Calculate timber revenue that it takes to breakeven with cash rent– Land clearing costs on considered
![Page 14: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/14.jpg)
Breakeven Level of Timber IncomeExisting Stands / CRP with Trees
Cash Rent
Before Tax Timber Value Increment, $’s
After-Tax Timber Value Increment, $’s
80 107 / 180 91 / 152
100 134 / 226 113 / 190
120 161 /271 136 / 228
![Page 15: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/15.jpg)
Breakeven Level of Timber GrowthExisting Stands / CRP with Trees
Cash Rent
Before-Tax Timber Growth
bf/A/year
After-Tax Timber Growth
bf/A/year
80 178 / 450 152 / 380
100 223 / 565 188 / 475
120 268 / 678 227 / 570
![Page 16: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/16.jpg)
Average Annual Net Growth
• Indiana – 127 bf/A/year (Doyle)– 533,016 MBF – 4.34 million acres
• Ohio – 123 bf/A/year (Intl.)– 965,540 MBF (Intl.)– 7 million acres
• Ohio – 80 bf/A/year (Doyle)
![Page 17: Timber vs. Row Crops](https://reader031.vdocuments.us/reader031/viewer/2022013115/568134c5550346895d9be94a/html5/thumbnails/17.jpg)
Conclusions
• Doesn’t pay to clear highly productive well managed forestland
• May pay to clear low productivity poorly managed forestland
• Clearing of CRP land with trees will usually pay