VARDAMAN VIRTUAL FORESTRY COMPANY

The Most Direct Link to Knowledge Workers in the Southeast Forest Economy

Pine Plantation Management Company (PPMC) is not a government agency that spends your money for tree planting to control erosion, improve wildlife habitat, or subsidize someone else's business. PPMC is not a big timber company that spends its money for tree planting to produce a private wood supply. PPMC's sole objective is to use modern forest technology to earn an appropriate return on its invested capital. This makes it especially useful to landowners who may know little about forest investments.

PPMC forecasts its income (and thus the annual payments it can make) by predicting tree growth with a computerized growth-and-yield model and then evaluating these yields at current timber prices. It assumes that these prices will be the same when it thins these stands at age 12 and harvests them at age 22. Consequently, it will make less money if prices fall and more money if they rise. That's one of the risks it takes.

In preparing its original offer for a 24-year PPIC, PPMC discounts predicted future incomes at a rate set in the world money market at that time. It also conveys to the landowner the option to buy back the PPIC at PPMC's costs plus interest at the appropriate rate. Once the contract is signed, it cannot change either the payments or the interest rate. On the other hand, as the trees grow and the passage of time reduces the number of years its capital is tied up, it will use a smaller discount rate and thus agree to make larger payments to landowners.

PPMC's financial software enables it to calculate the buy-back price for each PPIC merely by striking a few computer keys. It can and will provide this price to a landowner almost while he holds the phone.

Since current timber stands and estimated timber yields for each PPIC are held in its computer records, PPMC can later estimate with some accuracy what it would pay for the PPIC if it bought it under then-current conditions. This takes more calculation than striking a few keys. PPMC will provide a ball-park estimate of its offer for a modest fee and, after inspecting the tract on the ground, a firm offer for a higher fee.

With these two prices in hand, a landowner should be able to decide what to do even though he may not be an expert in timber investments. He must merely make the very hard decision that bedevils all investors: "Shall I switch now, or stay with what I have?"

One PPIC owner has already switched because of a big rise in timber prices. We planted his trees in January 1995 and paid him $50 per acre per year. In late 1997 he bought back his old contract and sold us a new one for $70 per acre per year.

Are we sad because he seems to have captured the benefits of higher timber prices? Not at all. We received an appropriate return on our capital for the first 2 1/2 years, and who knows what timber prices will be 10 and 20 years in the future?