Replies to post #2230 on Investing in Timber

[David Knight]

planbtotrade wrote:
"TATF has stated to me in the past that they plant 1100 trees to the hectare."

Please accept my belated thanks for passing along TATF's teak planting density information. That's very helpful.

planbtotrade continued:
"The [PanAmerican Woods] article also states that costs are 4K to 6K/hectare where the costs include all the pruning, thinning, and care and management for the early years. Or somewhere around US $5/tree."

Not to make a big deal out of this, but I know that once a number gets introduced it can take on a life of its own. I just carefully reread that PanAmerican Woods article and calculated the costs of planting and maintaining teak to final harvest, which is probably what most people think the article (and you) said.

Here's what the article says:
"In the tropics, it is possible to purchase good quality land at good locations at prices of $ 1.000 to $ 4.000 per hectare. Planting will cost $ 1.000 for the first year, while maintenance costs $ 500 to 700 in the second year, decreasing to some $ 250 at year 7 and further away. A hectare of good quality teak can be established for $ 4.000 to $ 6.000, all included, until the company receives a positive cash flow from the sale of the thinnings."

The first thing to note is that the article doesn't say what the total cost of planting and maintaining a hectare of teak until its final harvest is, but only until positive cash flow from the sale of thinnings. That's expected to be many years before the final harvest, but has obviously been greatly delayed at TATF.

So, let's make some calculations for the cost of planting and maintaining teak for 25 years, when the final harvest of all seed grown teak at TATF occurs.

minimum estimate:

 
 $ 1000 to purchase one hectare 
 $ 1000 to plant one hectare 
 $  500 for care in year 2 per hectare 
 $  450 for care in year 3 per hectare  
 $  400 for care in year 4 per hectare  
 $  350 for care in year 5 per hectare  
 $  300 for care in year 6 per hectare  
 $ 4750 for care in remaining years per hectare ($250/yr x 19 yrs) 
 ------ 
 $ 8750 total cost to plant and care for one hectare for 25 years 
        at 1100 trees per hectare, that's $795 per 100 trees 
 

maximum estimate:

 
 $ 4000 to purchase one hectare 
 $ 1000 to plant one hectare 
 $  700 for care in year 2 per hectare 
 $  610 for care in year 3 per hectare  
 $  520 for care in year 4 per hectare  
 $  430 for care in year 5 per hectare  
 $  340 for care in year 6 per hectare  
 $ 4750 for care in remaining years per hectare ($250/yr x 19 yrs) 
 ------ 
 $12350 total cost to plant and care for one hectare for 25 years 
        at 1100 trees per hectare, that's $1123 per 100 trees 
 

I know you were making a different point than the cost to investors of 100 trees compared to the cost for TATF to plant and care for them, so this is not an argument against your point. But many people have taken TATF's assumed costs as though they should also be investor's costs, ignoring that TATF, as a business, has a right to make a profit. Arguing otherwise is like saying that it only costs a few hundred dollars for the steel and plastic and glass used to make a car, so cars should cost buyers a few hundred dollars, too. Every business charges more for its final product that it pays for its raw materials and labor.

I think it's interesting to run the numbers when we find relevant hard data, so that we can make reasonable and independent estimates of actual costs, yields, returns, etc. That's really all I'm trying to say here.