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Quality of Forest Investments

Intensive management can greatly increase pine growth and yield, but the use will depend on financial returns. Six management-cost categories were included in the analysis based on a forest industry survey (Siry and others 2001). On average, it is assumed that site preparation costs $140 per acre. Seedlings and planting cost $70 per acre, and the use of genetically improved seedlings raises this cost to $75 per acre. Fertilization costs $50 per acre per treatment. Tax and administration expenses are $8 per acre annually. Assumed costs of herbicide application for MIC 4 are $50 per acre. The costs of the two herbicide treatments in MIC 5 are (1) weed control treatment at year zero for $35 per acre, and (2) woody plant control treatment at year three for $50 per acre. There are only three revenue categories, two timber and one nontimber. Thinnings primarily produce pulpwood; and the final harvest produces pulpwood and sawtimber, which generate $25 per cord and $350 per thousand board feet, respectively. Hunting leases are assumed to generate $3 per acre annually.

Basic financial measures commonly used in forestry—NPVs, SEVs, and IRRs for unthinned and thinned scenarios—are presented in table 14.6. These financial measures were calculated using a 6-percent real discount rate. In addition, a 1-percent annual timber price appreciation was factored in. Financial results were developed for rotations determined by SEV criterion.

In unthinned scenarios, NPVs vary from $440 per acre for MIC 1 to $990 per acre for MIC 5. Similar relationships apply to SEVs, which vary from $532 per acre for MIC 1 to $1,249 per acre for MIC 5. Real IRRs for the MICs vary from nearly 10 to 12 percent. These criteria indicate that intensified forest management generates positive and apparently attractive financial returns.

In thinned scenarios, NPVs vary from $411 per acre for MIC 1 to $1,082 for MIC 5. Similarly, SEVs vary from $504 per acre for MIC 1 to $1,411 for MIC 5. Real IRRs among the MICs vary from nearly 10 to 13 percent.

A comparison of the performance of unthinned and thinned scenarios indicates that IRRs for thinned scenarios are the same as or higher than IRRs for unthinned scenarios. IRRs reach the highest level of 13 percent in the MIC 5 thinned scenario. However, NPVs and SEVs for scenarios with one thinning are lower than for unthinned scenarios. Only multiple thinning scenarios for MIC 3 to MIC 5 generate higher returns than corresponding unthinned scenarios. Among all thinned and unthinned scenarios and management intensity classes, MIC 5, the most intensive multiple thinning scenario, generates the highest financial returns.

Natural hardwood stands can be managed with profit as well. Typically, such management relies on an even-aged system, clearcutting, and sorting harvested logs for the highest value market (Robison and others 1998). Naturally regenerated, even-aged hardwood stands were shown to generate positive rates of return comparable with planted pine (Thompson 1992). Hardwood afforestation also generates positive returns. Cottonwood afforestation projects in the Mississippi Valley were profitable under most conditions (Stanturf and Portwood 1999). Even-aged management appears well suited to intensive hardwood pulpwood production. Two-aged and multi-aged silviculture also have promise, but they are not practiced on a large scale, and conditions for uneven-aged silviculture generally are not favorable (Robison and others 1998).

To obtain more information about current and future forest management intensities, results of current surveys of FI, TIMOS, and NIPF land in the South were compared (Moffat and others 1998, Siry 1998, Siry and Cubbage 2001, Siry and others 2001). The surveys provide information about the current and future allocation of forest land among forest types, management intensities, and conversion to planted pine. Table 14.7 summarizes these results.

Planted pine management is described for three management intensities: standard management, superior management, and high-yield management. Standard management involves chemical or mechanical site preparation followed by planting. Superior management involves more intensive site preparation, genetically improved growing stock, woody plant control if needed, and mid-rotation fertilizer application to about 50 percent of the land. Finally, high-yield management adds herbicide application in the first and second growing seasons and fertilizing of half of the land at age 8.

Custodial even-aged management is applied in natural pine, oak-pine, and upland and bottomland hardwood stands. Generally, no treatments are made and none are planned. Higher intensity management consists of some actions, such as fertilizing or thinning, carried out in even-aged stands. When planted pine, natural pine, and oak-pine stands are harvested, plantations are established on a percentage of the harvested areas.

Since the surveys used varying definitions and management categories, their results are not exactly comparable. Assumptions had to be made about merging FI management-intensity classes into three classes common to all surveys and owner categories and adjusting the results to common time periods. This limitation needs to be recognized while interpreting the results.

Planted pine accounts for about 65 percent of FI and TIMOS holdings. During the next two decades, the share of planted pine is expected to increase to about 80 percent. This expansion comes primarily at the cost of natural pine.

Upland hardwoods occupy about 40 percent of NIPF land. During the next two decades, upland hardwoods’ share is expected to decrease to 35 percent. Planted pine is expected to increase from the current 10 to 14 percent.

FI and TIMOS have up to 5 percent of their land reserved from harvest. This category comprises land where timber will not be commercially utilized or processed in the foreseeable future due to particular landowner preferences, regulatory constraints, or other reasons. During the next two decades the share of reserved FI and TIMOS land is expected to remain unchanged; the share of NIPF reserved land is expected to roughly double to 14 percent. The amount of nonstocked land is uniform among the three ownerships and equals about 1 percent.

The growing share of planted pine is accompanied by more intensive management. While today FI and TIMOS manage from 40 to 56 percent of their planted pine in a high-yield management regime, as much as 70 percent will be so managed in 20 years. NIPF planted pine is managed less intensively. Today only a quarter of planted pine is managed in a high-yield regime, but this share is expected to increase to nearly 50 percent during the next two decades.

Natural pine, oak-pine, and hardwood forest types are managed with lower intensity than planted pine. During the next two decades, natural pine, oak-pine, and bottomland hardwood management intensities are expected to increase only moderately.

Results indicate that intensive forest management offers attractive financial returns and that planted pine management will be increasingly important. Forest management will be characterized by more widespread planting of genetically improved seedlings, application of herbicide and fertilizer, thinning, and clearcutting. These treatments increase timber growth and quality, which will shorten rotations by up to 5 years. Intensified management of natural and planted hardwood stands also has the potential for attractive returns.