Forestry

Document Sample
Forestry
Tree Age Number Number Useable Tree Volume Marketable Value Gross Harvest

of Trees of Trees Tree Diameter - per Tree - Wood per per Tree Harvest and

Before Harvested Height - Inches Cubic Tree - Proceeds Process-

Harvest Feet Feet Board Feet ing Costs



Notes:1-3 3, 4 5 5 6 7 8 9 10

1-7 100 15 (mortality and cull loss)

8 85 20 20 8 4.5 22 $174 $3,472 $521

12 65 20 27 11 11.6 76 $769 $15,382 $2,307

16 45 10 32 14 22.2 187 $2,372 $23,724 $3,559

20 35 5 35 17 35.9 301 $4,830 $24,151 $3,623

25 30 30 39 20 55.3 465 $9,969 $299,077 $44,861



Assumptions Forestry Profits per 100 Trees

Initial price per board-foot: $5 17

Price growth rate: 6% 300000

Harvest costs: 15%

Management fee: 6% 250000









Profit in Dollars

200000

Required rate of return:

Riskfree 5% 150000

Beta 0.58 18

Market risk premium 5.50% 100000

Country risk premium 5.50% 19

50000

Total from CAPM: 13.69%

0

Initial cost per 100 Premium Mix: $ 2,300 20 1-7 8 12 16 20

Year of harvest

IRR: 27% 21

Net Care and Net-Profit Cumulative Present

Harvest Manage- per Net Value

Proceeds ment Fee Harvest Proceeds





11 12 13, 14 15 16



$2,951 $177 $2,774 $2,774 $ 994

$13,074 $784 $12,290 $15,064 $ 2,636

$20,165 $1,210 $18,956 $34,019 $ 2,433

$20,529 $1,232 $19,297 $53,316 $ 1,483

$254,215 $15,253 $238,962 $292,279 $ 9,667

$ 17,212

ofits per 100 Trees









Profit

Present value









25

Usable Gross Net

Trees wood - harvest harvest

Year harvested board feet proceeds proceeds

0 -100 $ (2,300)

1 0

2 0

3 0

4 0

5 0

6 0

7 0

8 20 436 3472 $2,774

9 0

10 0

11 0

12 20 1529 15382 $12,290

13 0

14 0

15 0

16 10 1868 23724 $18,956

17 0

18 0

19 0

20 5 1506 24151 $19,297

21 0

22 0

23 0

24 0

25 30 13937 299077 $238,962



IRR 27%

Notes to Projections

1. Method taken from TATF, a hardwood forestry company in Costa Rica. See

http://tropicalhardwoods.com/htm/main/projections.htm. These projections are based upon a beginning price of

$5.00 per board foot of premium hardwoods. Information taken from

http://www.cheyennesales.com/hardwood/alvaprices.htm (year 2000 prices). Examples: Bocote $13, Cocobola

$21, Purpleheart $5, Mahogany $5.50.



2. The projections in the table are based upon the price of hardwoods increasing at 6% per year. However,

according to the FAO Forest Products Prices, the median export/import prices of teak actually rose at an

average rate of 9.7% per year for the 18 years from 1970 to 1988 (the last year of the report), and 13.2% per

year for the last four years of the report. Hardwood prices have been rising at a rate much greater than the 6%



3. Both the timing and number of trees harvested are based upon the latest silvicultural practices derived from

years of experience in teak plantations. The actual harvests of your trees will be determined by professional

foresters, who monitor the growth profiles of trees in each plantation.



4. These projections include a mortality and cull loss of 15%. The most likely period of mortality or cull loss is

during the first years after field planting.



5. Height and diameter growth estimates are based upon growth rates obtained in plantations in the Caribbean

and Central America.



6. Estimated volume per tree is arrived at by multiplying the basal area of the tree (Pi x (1/2 diameter) 2) times the

usable height of the tree, and then reducing the result by 35%, since a tree trunk is not a true cylinder. These

projections are based upon the volume of the trunks and do not include the additional wood volume that may be

obtained from the larger branches in the later harvests.



7. The estimated amount of marketable wood per tree is stated in board feet, a standard measure of wood used

in the U.S. One board foot of wood is one foot square by one inch thick (1' x 1' x 1"). There are 12 board feet in a

cubic foot of lumber and 424 board feet in a cubic meter of lumber. The estimate of marketable wood is based

upon the estimated volume per tree in cubic feet, multiplied times 12 to obtain the number of board feet, and

then reduced by the estimated amount of processing waste, which is sawing losses and damage to the logs

while being harvested, transported and processed. The inefficiency of smaller diameter logs results in greater

sawing loss on younger, smaller trees. Accordingly, we have subtracted a processing waste of 60% for the 6 to 9

year old trees harvested, 45% for the 12 year old trees, and 30% for those 16 years old and older.



8. The value per tree is the estimated value of the lumber from each tree. This is arrived at by multiplying the

estimated number of marketable board feet per tree, times the projected price per board foot at the time of

harvest, using the beginning price per board foot (note 1) and annual increases of 6%. See Notes 1 and 2 above.

The projected values per tree are based only upon the value of lumber the tree may produce and do not include

any estimate of the premium value which veneer logs may bring.



9. Gross harvest proceeds, the estimated gross proceeds from the sale of the lumber from each harvest, is

arrived at by multiplying the estimated value per tree times the number of trees harvested in that thinning or



10. Harvest and processing costs are the direct costs of harvesting the trees, transporting logs to the sawmill and

having them sawn into marketable lumber. For these projections we have assumed that the harvest and

processing costs will be 15% of gross harvest proceeds and will increase at the same rate as the increases in



11. Net harvest proceeds are arrived at by subtracting the estimated harvest and processing costs from your

gross harvest proceeds.

12. The care and management fee is the TATF charge for managing the care and maintenance of your trees and

the harvest, processing and sale of your hardwoods. Our care and management fee is 6% of the net harvest



13. Net profit per harvest is estimated net cash flow from each harvest, arrived at by subtracting TATF care and

management fee from the net harvest proceeds.



14. Especially for the earliest thinnings, it would be good to anticipate as much as a year or more delay from the

time of the thinning harvest until your lumber is milled, dried, and marketed, if that is your wish. This anticipated

delay is incorporated into the calculations of the IRR for the first and second thinnings.



15. Cumulative net proceeds is a running total of estimated cash flow from the harvests of the trees.



16. Value today based on CAPM rate of return



17. See note 1



18. Deleveraged, decashed beta of "paper and forest products" fims from

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/Betas.html



19. Country risk premium from comparing Costa Rica Brady bond yields with US Treasury yields, 2000



20. Actual price per 100 with 500 minimum, January 2003



21. The internal rate of return, or IRR, is the calculation of the annual compound yield of the projected cash flow.

TATF Premium Mixture of Costa Rican hardwoods



Mahogany Considered by many to be the world's premier wood for fine cabinetry and fine furniture,

mahogany is becoming increasingly scarce as loggers go deeper and deeper into the natural forest to find



Cocobolo One of the true tropical rosewoods, cocobolo is an extremely beautiful, heavy oily wood that has

become so scarce in parts of its original range that it is sometimes sold by the pound.



Primavera Also called white mahogany because of its beauty and similarity in appearance to mahogany, only

lighter in color, primavera is a premium blonde wood sought for fine furniture and cabinetry.



Trebol or Macacauba A beautiful red to red-brown hardwood sought for fine furniture and cabinetry, trebol is

nearing extinction in many parts of its original range.



Brazilian Cherry Prized for its beauty and sought for fine furniture, cabinetry and flooring, Brazilian cherry has

been harvested nearly out of existence outside of parks and reserves.



Bocote A particularly beautiful hardwood, bocote is light to golden brown. Used for fine cabinetry, fine

furniture and boat decking, bocote is becoming scarce in many parts of its original range.



Purpleheart A uniquely beautiful purple wood, prized for inlay work and fine furniture and cabinetry,

purpleheart is nearing extinction in many parts of its original range.



Goncalo Alves Sought for its outstanding honey-brown striped wood for fine furniture, cabinetry, and beautiful

turned bowls, goncalo alves is becoming increasingly scarce outside of parks and reserves.



Ipe or Lapacho This beautiful olive-brown wood is used for furniture and flooring, and also for boardwalks

because of its durability. Ipe is becoming increasingly scarce in many parts of its original range.



Peroba Rosa Heavily exploited in the past because of its durability, and now for its beautiful pinkish wood,

peroba rosa is now very rare in parts of its original range.



Roble Roble's beautiful chestnut-brown wood is used for boat building and for fine furniture and cabinetry.

Roble is becoming increasingly scarce outside of the protection of parks and reserves.



Santa Maria Pinkish to reddish-brown, Santa Maria is sought for beautiful cabinetry and veneers. Santa Maria

is listed as occasional to rare, even in parks and reserves.



Madero Negro This beautiful flecked dark brown to black wood is not yet well known in the U.S. Madero negro

used to be used for its durability, but now is sought for furniture, cabinetry and artisanry, and now occurs only

occasionally naturally.



Wild Tambran Wild tambran's excellent, dark reddish-brown wood is sought for furniture, cabinetry and

figured veneers. Wild tambran is now increasingly rare outside of parks and reserves.

Swietenia macrophylla





Dalbergia retusa





Cybistax donnellsmithii





Platymiscium spp.





Hymenaea courbaril





Cordia alliodora





Peltogyne spp.





Astronium graveolens





Tabebuia spp.





Aspidosperma Spp.





Tabebuia rosea





Calophyllum brasiliense





Gliricidia sepium







Pithecellobium arboreum


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