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Economics & Management

Landowner baling Longleaf Pine pinestraw

Landowners can earn revenue from
non-timber forest products like pine straw. Alabama Extension can provide you with
the tools for pine straw production.

Understanding Your Forestry Investment
Have you considered investing in your forestland, but wondered if it will pay off in the end? Or perhaps you have considered planting a new forest stand or thinning an older one, but are hesitant because you wonder if it is worth the time and expense. Unfortunately, because we are trying to determine if decisions we make today will pay off in the future, no one can say for certain. However, there are some fairly easy ways that the profit potential of forestry investments can be estimated.

For landowners, estimating the profit potential from a timberland investment can be overwhelming because of the wide variety of end-use products. These products can range from pulpwood to sawtimber, or if you have the market - poles. Beyond traditional forest products, landowners can also earn revenue from activities such as fishing, hunting, and pine straw raking. The long-term planning horizon of these timber enterprises, makes planning even more complicated.  Making any economic analysis requires good information and sound assumptions.  Your first step is to think about your financial situation, how you use your land today, and how you will want to use it in the future.  Then, using the list below as a guide, collect some basic information that you will need to analyze your forestry investments.

For more information on forestry investments see Alabama Extension publication
FOR-2007 A guide to analyzing forestry profit potential, and the Forest Investment Calculator link located on the right-hand side of this page.  

1. Investment period – In any investment you must know the time period.  It takes time for a seedling to grow into a mature, merchantable tree.  If you are managing for southern pines such as loblolly (Pinus taeda), longleaf (Pinus palustris), slash (Pinus elliottii), or shortleaf (Pinus echinata) that time period could be 20, 30, or 40 years or more. For hardwood that period could be longer than 50 years. This period is called rotation length, and is your investment period in forestry.

2. Timber growth, yield and mortality – Before you can estimate income from selling your timber, you must first determine what kind of timber you plan to sell, and how much will be available. Growth and yield models can project the volume of wood produced throughout the rotation with management variables, such as thinning and herbicide treatments, taken into account. These models are also useful when projecting future wildlife habitat conditions. The rate at which your timber will grow depends on the quality of the site. This ability for land to grow trees is referred to as site index.  Site index is the average height of the dominant and co-dominant trees at a given age. For more information on site index see ANR1424 Site index for longleaf pine. A certified forester or land manager can help you determine site index for your particular stand as well as growth and yield projections.

3. Discount rate – The discount rate used is very important when considering any investment and forestry is no exception. You can think about discount rate as the cost of doing business. For example, you may have money that you could invest in the stock market, or you could invest it in forestry – but not both. So if you decide to invest in forestry you must forgo those other opportunities.  Your decision to invest in forestry should be determined by the rate of return that you could receive from you next best alternative investment. That alternative rate of return is your discount rate.

4. Cost – There are costs in any business venture, and forestry is no exception. Some of these costs may include buying land, preparing sites to plant, herbicides, grinding of understory plants and debris, planting, pruning, surveying and painting boundary lines, preparing and administering sales, and paying annual taxes. This list is not exhaustive, and every forest landowner may not have all of these costs, but it can be used as a guide to some of the costs that may be incurred.  Costs should be thought of as investments in your property and necessary to help your land to be productive. Use the expertise of professional foresters and land managers to help you estimate management costs for your specific situation. Some examples of 2014 costs of selected forest practices can be found at the “Costs for Common Forestry Practices” link located on the right-hand side of this page.

5. Revenue – Revenues from forest land may be annual, that is they occur every year, such as hunting permits. Other types of revenue may be periodic, occurring only occasionally.  For example, when timber is sold is considered periodic revenue. To estimate timber sale income you need to know what price to expect from the trees that are sold. The price you will be paid is called stumpage price because it is the value of your trees standing in the forest or “on the stump”. Each product –sawtimber, poles, chip-n-saw, or pulpwood has its own stumpage price. Stumpage price varies by location and time of the year. An estimate of current stumpage prices can be obtained from local markets, or Timber Mart-South http://www.tmart-south.com/. Timber Mart-South is a quarterly forest products marketing report that is available from your county Extension office.