Investing in Forestry

The subjects introduced here are highly complex and should be examined more thoroughly before important financial decisions are made. Consult the references used for this section for more detailed information.

Introduction

If you own forest land, you may be wondering if you can make money growing trees.  There are many factors to consider in determining the answer to this important question.  Even if income from timber is not your primary objective, management to improve wildlife, recreation, or other values can result in a profitable timber investment.

Consider this projection:

Demand for forest products is expected to double by the year 2030 because of a growing population and an increasing per capita use of wood and paper products. With decreasing harvests in National Forests, the nation is depending on the productive woodlands of the South to meet this demand.  The 13 Southern States now produce about 45% of the nation's harvest. These states are expected to supply about 55% of the increased harvest by 2030. This is more wood than the entire nation harvests now, and translates into a significant opportunity for landowners who are managing their timberland now.

Currently, timber growth exceeds harvest, but some problems exist:

  • There is a steady decline in forest land because many landowners harvest timber without proper planning for reforestation.
  • Growing cities, agricultural expansion, and other uses steadily convert forest land to other uses.

These problems make it necessary to grow more wood on fewer acres, which requires more intensive management. 

Investing in forestry is complex business, but when all factors are considered, forest management can be a profitable investment for many landowners.  Your decisions must be based on your land, your abilty to invest, and your goals.  A financial analysis is an important part of this decision-making process.

A financial analysis is used to: 

  • compare land uses (timber, other forest values, cattle, crops)
  • compare alternative timber species
  • compare silvicultural treatments
  • determine the cost effectiveness of commercial thinning
  • determine the optimal rotation age

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Information Needed for a Financial Analysis

Investment Period

In any investment, you must know the time period.  In southern pine timber management, commonly used time periods are 30 years or more.  Some pine stands can be cut for pulpwood at 15 to 20 years.  Holding the stand for a longer rotation can result in products of higher value (i.e., sawlogs) and usually a higher rate of return.  When growing sawtimber, thinning at about 15 years of age will produce periodic income and shorten the time needed to produce higher value products.  See our Thinning page for more information.

Note: You should compare the costs and benefits associated with different rotation ages and choose the rotation age that is most cost effective.

Costs

The major costs involved in establishing a pine plantation are those associated with site preparation and buying and planting seedlings.  These costs usually range from about $200 to $400 per acre.  If you want to establish a pine stand from seed, the costs will depend on the amount of work needed.  For more information on the types of treatments involved in southern pine timber management, see our Timber Management section.

Annual management costs are usually those associated with firebreak maintenance and are usually minimal for the first 15 to 20 years.  Property taxes must also be accounted for in the analysis.  Property taxes are usually taxes on the land and must be paid whether or not you are producing any kind of crop.

Selling Price

You need to know what price to expect for the trees you will sell, known as stumpage price.  Stumpage price is the price paid for trees as they stand in the forest.  Each product (sawtimber, poles, pulpwood) has its own stumpage price.  Unfortunately, you must project the selling price of the products you plan to grow 15, 20, or 30 or more years from now (depending on the product) at the time the trees are harvested.  The current stumpage price, inflation rate, and past price trends are all considered in making this estimation.

In addition to determining the future selling price of the products you intend to produce, you must also determine your forest's growth and yield.  See our Growth & Yield page for information about measuring .

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The Financial Analysis

See The Financial Analysis page for information about time value of money, net present value, rates of return, benefit/cost analysis, equal annual equivalent, and land expectation value.

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Additional Resources

  • Estimating the Profitability of Your Forestland Enterprise

    William Hubbard, Robert Abt, and Mary Duryea have prepared an excellent extension publication which provides some background on the use of some of the more involved discounting formulas.  This publication focuses on comparing alternative forest product objectives and provides more in-depth information about estimating the profitability of your forest enterprise.  Also, many of the concepts introduced in this section are covered in greater detail.

  • Comparing Values of Timber Production to Agricultural Crop Production

    Dr. Mike Jacobson, Assisstant Professor at the University of Florida School of Forest Resources and Conservation has prepared a useful extension publication which provides information on comparing the benefits of timber production with those of agricultural crop production.  Some of the concepts introduced in this section are applied in this publication.

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