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Last Post: 12/29/2014 1:34:44 PM - Followers: 24 - Board type: Premium - Posts Today: 0

I created this board to discuss investing in timber. In particular, I recently purchased some 10 year old teak trees from a private company called Tropical American Tree Farms (TATF), owned by Steve and Sherry Brunner, and located in Costa Rica. The company will grow, harvest, process the trees into lumber, sell the lumber, and send me the proceeds.
Based on my calculations, buying 10 year old teak trees at the offered price is a good investment (IRR >20%). However, buying seedlings, which is what TATF usually offers, looks like a much less promising investment.
This board is for anyone who has comments on or questions about investing in timber, either in general, or specific opportunities. I would be particularly interested in any comments (pro or con) about TATF.

Update -  August 3, 2009

Important Note:  All statements made by me in this Ibox, and in any posts I make on this board, should be taken as my opinions only, not statements of fact.  I am not an investment professional, or an expert on timber or trees.

Some additional information about Finca Leola has come to light. See post 1270.

Update – June 14, 2009

Important Note:  All statements made by me in this Ibox, and in any posts I make on this board, should be taken as my opinions only, not statements of fact.  I am not an investment professional, or an expert on timber or trees.

In the 14 months since I last updated the Ibox, TATF has modified their projections such that they no longer include proceeds from Raleo, their sister company that makes furniture using TATF wood.  Unfortunately, TATF’s return on investment projections for purchasers of their trees still project returns that are substantially higher than those experienced by those who have purchased trees from TATF in the past.  Many TATF tree owners have received no return on their investments at all, despite having purchased trees as long as sixteen years ago.

Other tree farms that have the same business model as TATF (Finca Leola, Samson Tropical Trees) have also either reduced their return on investment projections or removed these projections completely from their web sites.

So, from an investor’s point of view, the $64,000 dollar question is whether buying trees from any of these tree farms is a good investment.  In my opinion the answer is ‘probably not’.  As far as I know, tree farms such as TATF fall in one of two categories - those that have under-performed to their projections and have proven to be poor investments, and those that are too new to have a track record.  I have heard some good things about Finca Leola, but, from a financial standpoint, it falls in the second category – too new to have a track record.   

It seems to me that the fundamental problem with all of these operations is that those who buy trees from these tree farms are paying retail prices for the trees (~3X to ~ 5X the tree farms’ cost), but will probably have to sell the wood from their trees at wholesale prices.  It’s difficult to make a decent return in such a situation.  TATF and some other tree farms do have related companies that use some of the wood from their trees, but, as far as I know, none of these tree farms guarantee that their related companies will buy tree owners’ wood, or what price they will pay.   As such, it seems unwise to count on wood purchases by these related companies.

The current wholesale market price for teak, in the form of logs, from Central and South America, appears to be ~$0.50 to ~$1.00 per board foot, depending on the age, size, and quality of the logs.  Most of the demand for Central American teak appears to be from India, in the form of round logs or rough square logs (i.e., logs that have been squared off).  I estimate, based on the tree prices charged by the tree farms, and the above prices for teak, that the inflation-adjusted internal rate of return from purchasing teak seedlings from a typical tree farm will be around 5%, assuming the tree farm is well managed.  The returns from purchasing seedlings of other tree species may be higher or lower, but carry substantially more risk , as the techniques and requirements for growing these other species in plantations are generally not well known.

I found a site recently that has links to a number of tree farms that I wasn't aware of.  Unfortunately, all of these tree farms appear to have the same issues that I discussed above. www.forestryinvestor.com/

It may make more sense to buy shares in a company that owns tree plantations.  One such company I know of is Precious Woods, which is listed on the Swiss stock exchange, and therefore difficult to invest in for most investors. Another such company is Sino-Forest Corp, a Chinese company that owns hundreds of thousands of hectares of tree plantations in China. It is listed on the Toronto stock exchange (TRE), and the pink sheets (SNOFF.PK).

.A1


Update Apr. 29, 2008

Based on my own experience with TATF, and on what I have read on this board, there are a number of drawbacks to dealing with TATF. The main problems I have seen are:

1) TATF has been around for 16 years. In that time, the actual returns seen by those who have bought trees from TATF have been much lower than the returns projected by TATF.
2) TATF continues to project investment returns much higher than those experienced by past purchasers of trees. In particular, TATF continues to project that lumber from the seventh year, tenth year, and thirteenth year thinnings of teak can be sold for a substantial amount of money, even though they have been unable to sell the vast majority of the lumber from these thinnings.
3) TATF has been growing and selling tree species other than teak for many years, but they have provided next to no information about the growth rates, thinning schedules, or marketability of lumber from these other species.
4) The prices charged by TATF appear exorbitant. According to this link panamateakforestry.com/english/investments_teak/investment-oportunities.php , the complete life cyle cost per hectare of planted teak is $8,400. TATF charges about 5 times this amount.
5) TATF's growth projections for teak seem unrealistically high. See post 300 on this board for more information. TATF has not provided any meaningful information on their website about the actual growth rates of the trees they're growing, so it's not possible to determine the accuracy of their projections.
6) TATF doesn't seem well managed. When I asked about the size of my trees after a thinning, it took them a year to provide the information. Also, there have been reports that some of the thinnings are years behind schedule.

In addition to TATF, there are several companies that will grow tropical trees for investors. Some that I have found are:

Finca Leola http://www.fincaleola.com
Samson Tropical Tree Farms http://www.owntropicaltrees.com
Kauai Tropical Timbers http://www.kauaitimbers.com/

All of these companies appear to be similar to TATF, in that they charge high prices for trees, and provide overly optimistic projections, especially as regards to the expected returns from early thinnings.

Three companies that provide more modest projections of rates of return:

Futuro Forestal http://www.futuroforestal.com/ This company sells both trees, and associated management, and the land the trees are on.
Precious Woods http://www.preciouswoods.com/ This company is publicly listed on the Swiss Stock Exchange.
Panama Teak Forestry http://panamateakforestry.com/ This is a private company.

Precious Woods and Panama Teak Forestry offer a way to invest in a company that’s in the tree farm business, rather than buying trees from a tree farm. Their websites also contain substantial information about tree farming.

All of the companies listed here, with the exception of Kauai Tropical Timbers, are located outside the U.S. Anyone who does business with these companies will have little or no recourse should problems occur. Also, investments in these companies (with the exception of Precious Woods and Quadris) are likely to be very illiquid.

A few links:

http://www.globalwood.org/ This link (courtesy of fawtsc), is a site that has a great deal of information about the global timber industry, as well as ads to buy and sell lumber.

http://www.fao.org/ The United Nations Food and Agriculture Organization. Do a search for teak.

http://www.freewebs.com/mueblespremium/offers.htm This link is to an Ecuador-based company that will provide automatic price quotes for several species of tropical lumber.

  www.panamaforestry.com/GTI_Teak_information/Teak_Plantation_investment_controversies.htmThis link provides some information about controversies related to teak plantations.

http://www.treemail.nl/teakscan.dal/files/traders.htm More information about companies who have taken advantage of unwary investors in teak plantations in the past.

http://www.fao.org/docrep/x4565e/x4565e05.htm#TopOfPage This article discusses problems with teak plantations in India

http://www.rug.nl/staff/l.spierdijk/ATT00106.pdf?as=pdf This article discusses the poor track record of tropical timber investment funds

http://www.cifor.cgiar.org/publications/pdf_files/Articles/ASnook0601.pdf This link is to a paper that discusses the growth rate of mahogany in Belize. The increase in DBH (diameter at breast height) is about 1 cm per year. Over the typical 25 year contract term offered by the tree farms, mahogany would only grow to about 25 cm = 10 inches in diameter - below commercial size.

http://www.itto.or.jp/live/PageDisplayHandler?pageId=237 The last link is for the International Tropical Timber Organization's Market Information Service (it's free, but registration is required). The 1-15 Dec. 2007 report has some interesting information about the price difference between Asian teak and plantation-grown teak from Central America (the selling price of the Central American teak is a small fraction of that from Myanmar).

Be careful – it’s a jungle out there!!

A1

PostSubject
#3389  Sticky Note Re: New link for teak prices in Costa Rica a1derfullife 12/14/11 07:53:51 PM
#3286  Sticky Note EVERYONE: This board is about investing in timber - IH Admin [Shelly] 01/04/11 09:04:41 AM
#2971  Sticky Note Some thoughts for new visitors to this board: a1derfullife 12/18/10 06:26:45 PM
#2693  Sticky Note How to ignore a poster a1derfullife 12/05/10 12:33:16 PM
#3419   Finca Leola made a first payment to 37 Koabo 12/29/14 01:34:43 PM
#3418   Has anyone read the attached article www.internationalappraiser.com/2013/05/trop Chrisk1 04/11/14 04:43:50 PM
#3417   Fridays are free to post between 4-5pm ... mattyo5 02/28/14 04:09:48 PM
#3416   Hey all, remember Fridays 4-5pm you can post mattyo5 02/07/14 04:10:51 PM
#3415   20 years and no money!!!! Anyone have Chrisk1 10/25/13 04:29:46 PM
#3414   A short update on TATF. a1derfullife 05/01/13 09:23:10 PM
#3413   Another tree owner is attempting to contact others belmontx 09/07/12 04:21:46 PM
#3412   Still no news of any TATF activity on belmontx 06/29/12 04:39:42 PM
#3411   Ok, well, haven't posted in a while due mattyo5 06/01/12 04:33:46 PM
#3410   I read that as well...don't know what to think ptfly 05/25/12 04:54:50 PM
#3409   A Costa Rican newspaper exposes the TATF operation. belmontx 05/25/12 04:19:45 PM
#3408   I received the same message, and replied with a1derfullife 05/11/12 04:29:04 PM
#3407   I rcvd this note from them recently and ptfly 05/04/12 04:20:40 PM
#3406   For TATF tree owners, it is very important abnrgrrvn 04/20/12 04:58:08 PM
#3405   Abn; Since you have not provided detailed $ amounts, a1derfullife 04/13/12 04:59:12 PM
#3404   Since abner doesn't care to reveal the details belmontx 04/13/12 04:55:03 PM
#3402   Thank you for your inquiry, A1 abnrgrrvn 03/30/12 04:58:58 PM
#3401   Abnrgrrvn; Would you care to share the price per a1derfullife 03/30/12 04:24:54 PM
#3400   This is to confirm significant $ U.S. distributions abnrgrrvn 03/23/12 04:56:00 PM
#3399   Matty, How do propose coordinating the visit? I planbtotrade 03/09/12 04:59:37 PM
#3397   Ok, lets make this simple. mattyo5 03/09/12 04:46:29 PM
#3396   jack of "mia" trying to sell services of abnrgrrvn 02/24/12 04:59:05 PM
#3395   Go to the http://tatffraud.com/ website to consider belmontx 02/24/12 04:47:36 PM
#3394   I'm not sure of the 'belmontx' and belmontx1 gistheman 02/24/12 04:43:29 PM
#3393   OK Who is belmontx1? Is that you, belmontx, schaef 02/17/12 04:02:22 PM
#3392   Collective action by TATF tree-buyers belmontx1 02/10/12 04:03:21 PM
#3390   Does it matter what these prices are vis-a-vis belmontx 12/23/11 04:55:42 PM
#3389   Re: New link for teak prices in Costa Rica a1derfullife 12/14/11 07:53:51 PM
#3388   New link for teak prices in Costa Rica a1derfullife 12/13/11 03:15:52 PM
#3387   No visits possible to TATF, so far as belmontx 12/02/11 04:56:40 PM
#3386   Hello to everyone I have not heard new justcfrall 12/02/11 04:17:52 PM
#3385   I'm glad people are still posting on IHUB mattyo5 11/25/11 04:28:48 PM
#3384   The sales agent for this company attacks the belmontx 11/11/11 04:58:09 PM
#3383   Tree Owners can speak for themselves, as I do! abnrgrrvn 11/04/11 04:59:27 PM
#3382   ABNER, as a TATF salesperson, repeatedly, and over belmontx 11/04/11 04:54:06 PM
#3381   DOESN'T KNOW 'JACK' abnrgrrvn 10/28/11 04:57:38 PM
#3380   This is really bad news. Still taking money gistheman 10/28/11 04:36:12 PM
#3379   Duplicitous or fraudulent? belmontx 10/21/11 04:20:31 PM
#3378   FREE POSTING HERE FRIDAYS, 4-5PM EST. belmontx 09/09/11 04:48:31 PM
#3377   Tropical American Tree Farms status report. belmontx 08/19/11 04:55:38 PM
#3376   Unfortunately, this is typical of TATF. a1derfullife 07/30/11 10:22:51 AM
#3375   TATF and owners just added a new ad justcfrall 07/29/11 04:38:21 PM
#3374   Your experience is exactly that of the other belmontx 07/22/11 04:55:53 PM
#3373   MY EXPERIENCE planbtotrade 07/22/11 04:14:13 PM
#3372   DISREGARD Suggest this MIA poster be dis-regarded. abnrgrrvn 07/15/11 04:59:05 PM
#3371   Consult the previous 3 years of postings on belmontx 07/15/11 04:51:21 PM
#3369   PCT.V PCTZF.PK Another timber investment opportunity. a1derfullife 06/27/11 05:32:23 PM
#3368   BEWARE OF POSTERS HERE WHO ANOINT THEMSELVES abnrgrrvn 06/24/11 04:56:54 PM
#3367   Disregard TATF sales representatives who pose as normal belmontx 06/24/11 04:08:42 PM
#3366   OUR EXPERIENCE abnrgrrvn 06/17/11 04:43:58 PM
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