LONGLEAF

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LONGLEAF

• ECONOMIC PROJECTIONS
• By Rhett Johnson
• Co-director, The Longleaf Alliance

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GROWTH AND YIELD
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DEFINITIONS

• Discounting - The practice of determining the
  value of income or expenses backward through
  time. Sometimes referred to as the cost of
  money. Employs the power of compounding
  interest. Best scenarios discount income over
  short periods and costs over long periods.

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DEFINITIONS

• Net Present Value (NPV) or Present Net Worth
  (PNW) - Value of an investment after all costs
  and incomes are discounted to the year of
  investment (year 0) and costs subtracted from
  income. Any NPV greater than 0 indicates a
  profitable investment.

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DEFINITIONS

• Annual Equivalent Value (AEV) - Net Present Value
  or Present Net Worth divided by term of
  investment in years.

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DEFINITIONS

• Internal Rate of Return (IRR) - The interest rate
  at which all discounted revenues of a project
  equal the discounted costs of the investment (or
  where NPV 0). A good tool for comparing
  investments.

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North Carolina Projections

• Site Index 45 (25)
• Fire every 5 yrs beginning at age 18
• Thin every 5 years beginning at age 30
• Final Harvest at Age 45

• Site Index 55 (25)
• Fire every five years beginning at age 14
• Thin every 5 years beginning at age 20
• Final harvest at Age 50

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ASSUMPTIONS

• Reforestation Costs - 97/A Net (After CS)
• Release - 40/A
• Prescribed Burn - 10/A
• Pine Straw Fertilization - 50/A
• Herbicide for Pine Straw - 85/A

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NC Pine Straw Projections

• Site Index 45
• Herbicide at Age 15
• Rake at Age 16, 17, 18
• Rest 1 year, Burn at 20
• Repeat and fertilize at Age 29 and 37

• Site Index 55
• Herbicide at Age 10
• Rake at Age 15, 16, 17
• Rest 1 year and resume
• Fertilize at 26 and 40

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N C Yield Projections

• Site Index 45
• Thinnings
• Age 30 - 14 cords
• Age 35 - 7 cords
• Age 40 - 4 MBF, 2 cds
• Final Harvest - Age 45
• 3 MBF, 9.9 cords

• Site Index 55
• Thinnings
• Age 20 - 5 cds
• Age 30 - 7 cds
• Age 35 - .5 MBF, 8 cds
• Age 40 - .7 MBF, 7 cds
• Age 45 - 1.1 MBF, 6 cds
• Final Harvest - Age 60
• 3MBF Poles, 6.1 MBF ST, 12 cords

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WORKING ASSUMPTIONS

• Discount Rate 4
• Prices
• Pulpwood 17/cord
• Sawtimber 287/MBBF Scribner
• Poles 450/MBF Scribner
• Pine Straw 0.75/Bale

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ECONOMIC PROJECTIONS
NPV NAE IRR SI 45 - Wood Only
532 26 7.9 SI 55 - Wood Only 1117 52 9.40 S
I 45 - w/Straw 766 37 9.35 SI 55 - w/Straw
1375 64 10.1
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Longleaf CRP Signups

• 18th Signup - Acres
• Alabama - 13,480 A
• Florida - 5,968 A
• Georgia - 74,398 A
• Louisiana - 178 A
• Mississippi - 270 A
• North Carolina 1,407 A
• South Carolina - 6,450 A
• Texas - 0
• Virginia - 3 A
• Total - 102,154 A

• 20th Signup Acres
• Alabama - 9,769 A
• Florida - 3,936 A
• Georgia - 44,465 A
• Louisiana - 382 A
• Mississippi - 185 A
• North Carolina - 2,842 A
• South Carolina- 4,808 A
• Texas - 0 A
• Virginia - 8 A
• Total - 66,395 A

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Total Longleaf CRP Signups

• Alabama - 23,249 Acres
• Florida - 9,904 Acres
• Georgia - 118,863 Acres
• Louisiana - 560 Acres
• Mississippi - 455 Acres
• North Carolina - 4,249 Acres
• South Carolina - 11,258 Acres
• Texas - 0 Acres
• Virginia - 11 Acres
• Total Acreage - 178,549 Acres

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Mean Annual Rental Payment - All CRP Contracts
(/A)

• Alabama - 44.09
• Florida - 36.95
• Georgia - 38.98
• Louisiana -43.15
• Mississippi- 38.93
• Estimated Longleaf Range - 40 - 80/A

• North Carolina - 49.50
• South Carolina - 33.96
• Texas - 35.28
• Virginia - 41.85
• Mean Regional - 40.30
• Mean National - 45.17

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GEORGIA PROJECTIONS

• Old Field Longleaf with CRP Payments Factored
  into Economic Analysis

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Working Assumptions - All Sites

• 4 Discount Rate
• 500 trees per acre at age 1
• Planting cost (net) at 117.50
• Containerized Seedlings
• Management Costs at 2/A/Yr
• Fire Costs at 5/A every 3 years

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Management Assumptions

• Low Intensity SI 63 , No HWC, thin year 25 to
  RBA 65
• Medium Intensity SI 68, HWC years 1 2 at
  35/A/yr, thin years 21 28 to RBA 65
• High Intensity SI 71, HWC Fert. 6 years
  before each harvest _at_ 70/A thin at age 21 and
  28 to RBA 65
• CRP, 15 years _at_ 30/acre/year

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PINE STRAW ASSUMPTIONS

• Harvest at yrs 16-21, 24-28, 31-35
• Clean up cost of 45/A between harvests
• Pinestraw income 75/A during harvest years

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Effect of CRP Payments

• Assume medium level of management and that
  payments are for 15 years

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Effect of CRP Payment
CRP PAYMENT NPW AEV IRR 15 3049 163 19.60
20 3109 167 22.61 25 3170 170 27.00
30 3231 173 33.84 35 3291 176 43.31
40 3352 180 55.42 45 3412 183 70.46
50 3473 186 89.60
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OLD FIELD AEVS
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Cash Flow Chart Example
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CRP _at_ 40/yr for 15 yrs, no pine straw

• _at_ 15 yrs (No Harvest) NPV303.50
• IRR28.7
• _at_ 20 yrs (1st Thin) NPV337.50
• _at_ 30 yrs (2nd Thin) NPV367.10
• _at_ 35 yrs (3rd Thin) NPV435.40
• _at_ 40 yrs (4th Harvest) NPV499.90
• _at_ 45 yrs (5th Harvest) NPV580.80
• _at_ 50 yrs still have fully stocked mature stand
  with timber value estimated at 2,700/acre

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Old Field Loblolly Two 25 Year Rotations

• CRP _at_ 35/A for 10 years
• Pulpwood _at_ 25/Cord
• CNS _at_ 75/cord
• ST _at_ 400/MBF
• Burning Cost of 10 every 5 years
• Planting/Release Cost of 111
• One thin per Rotation

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Old Field Loblolly -With CRPTwo 25 Year Rotations

• At end of first rotation
• NPV 1380, AEV 55.22
• IRR 35.7
• At end of second rotation
• NPV 1785, AEV 35.70
• IRR 35.7

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Old Field Loblolly Considerations

• Advantages of planting loblolly
• shorter investment period to get in-pocket
  return
• easier and cheaper to plant
• excellent survival
• Initiates height growth immediately
• grows well on most soils

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Old Field Loblolly Considerations

• Disadvantages of planting loblolly
• poorer quality products and less valuable when
  sold on weight basis
• susceptibility to disease, insects, and fire
• tendency to close canopies early degrades
  wildlife habitat
• less likely to produce pinestraw
• less favorable CRP contracts available.

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Old Field Loblolly Considerations

• Why Thin?
• Early return on investment
• improved stand health and vigor makes less
  susceptible to disease and insect attack
• wildlife habitat improvement
• access into stand
• potential increased to shorten period required
  to reach higher valued products and shorten
  rotation.

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LONGLEAF ADVANTAGES

• REDUCED RISK OF LOSS TO DISEASE, INSECTS, FIRE
• HIGHER PROPORTION OF POLES
• HEAVIER WOOD
• FAVORABLE COST SHARE TREATMENT

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RESULTS OF A 39 YEAR COMPARISON OF LONGLEAF,
SLASH, AND LOBLOLLY PINES

• SEVERAL CULTURAL TREATMENTS - INCLUDING
  CULTIVATION FERTILIZATION
• MEAN DBH / HEIGHT ON UNFERTILIZED SITES
• LOBLOLLY 7.5 Inches / 53.7 Feet
• SLASH 8.25 Inches / 64.7 Feet
• LONGLEAF 8.4 Inches / 63.5 Feet
• MEAN DBH / HEIGHT ON FERTILIZED SITES
• LOBLOLLY 10.3 Inches / 70.5 Feet
• SLASH 10.3 Inches / 75.6 Feet
• LONGLEAF 9.8 Inches / 71.1 Feet

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RESULTS OF A 39 YEAR COMPARISON OF LONGLEAF,
SLASH, AND LOBLOLLY PINES

• SEVERAL CULTURAL TREATMENTS - INCLUDING
  CULTIVATION NO FERTILIZATION
• MEAN DBH / HEIGHT ON UNCULTIVATED SITES
• LOBLOLLY 7.6 Inches / 55.3 Feet
• SLASH 8.2 Inches / 65.1 Feet
• LONGLEAF 9.1 Inches / 67.2 Feet
• MEAN DBH/HEIGHT ON CULTIVATED SITES
• LOBLOLLY 7.3 Inches / 52.1 Feet
• SLASH 8.3 Inches / 64.3 Feet
• LONGLEAF 7.7 Inches / 59.8 Feet

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RESULTS OF A 39 YEAR COMPARISON OF LONGLEAF,
SLASH, AND LOBLOLLY PINES

• SEVERAL CULTURAL TREATMENTS - INCLUDING
  CULTIVATION FERTILIZATION
• AVERAGE PERCENT POLES
• LOBLOLLY 7.91
• SLASH 11.40
• LONGLEAF 71.65

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The Value of Poles

• Consistently valued at about 150 of sawtimber
  stumpage values.
• Using previous percentages, current TimberMart
  South stumpage rates and volumes of 3 MBF/Acre,
  the loblolly stands would be worth 1,479/A, the
  slash stands 1,495/A and the longleaf stands
  1,770.

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Sandhills Longleaf / Loblolly Comparison

• One 66 year longleaf rotation with pine straw vs.
  two 33 year loblolly rotations without pine straw
  

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Management Assumptions

• Longleaf
• Rake straw every 4 years from age 12
• Thin at 26, 31, 36, 41, 46, 51, and 56
• Final harvest after successful shelterwood
  regeneration at age 66
• Loblolly
• Thin at 18, and 26 final harvest at 33
• Burn at 15, 24, and 30
• Replant at end of first 33 year rotation

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Sandhills Longleaf/Loblolly Comparison

• Financial Assumptions
• Establishment Cost Longleaf 161/A, Loblolly
  102/A (after cost share)
• Burning - 10/A
• Timber Sale Costs 710 of sale revenues
• Fixed Costs (Taxes, Mgmt) - 5/A/Yr
• Pine straw - .75/Bale to landowner
• Pulpwood - 4.30/ton (increased 2 per year)
• Sawtimber 30.85/ton (increased 2 per year)
• Discount Rate 6

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The Bottom Line
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No poles or weight premium
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The Power of Alternative Rates of Return
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Timber Sale Data - MississippiFrom John Guthrie
Sons, Wiggins, MS
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Without solid data to support this
contention, experience and intuition suggest that
land with mature timber, like longleaf, is worth
more on the market than the value of the bare
land plus the value of the timber!!
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PLANT LONGLEAF!!