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PTAEDA2V SHOWS THE CORRECT WAY TO THIN CRP PLANTATIONS

Thinning any plantation correctly is important because it determines the value of the harvest, the major component of the return on investment. Correct thinning of CRP (Conservation Reserve Program) plantations is even more important because failure to meet the government representative's requirements can also result in loss of the annual subsidy payment. Consequently, we shall describe the procedure in detail and urge you to follow the steps without variation.

Inventory

The first one is an inventory of the plantation. Age must be determined from planting records or increment borings. For tracts smaller than 160 acres, it involves measurement of trees on 40 or more 1/40^th-acre plots spaced in a square grid across the property. DBH in one-inch classes must be measured for each tree, and it must be classified as either sawtimber- or pulpwood-quality. On half of the plots, total height of five trees must be measured.

If plantations have seemed uniform to you, you are in for a surprise. The table below contains details of the trees on 30 plots spaced 209 feet apart in a 14-year-old plantation on a relatively-uniform site in central Mississippi. Notice the variation between one plot and its neighbors:

Growth Prediction

Now you must convert these tree numbers to per-acre figures by dividing them by 0.75. The pulpwood-quality and sawtimber-quality trees are equal in number, 50% each. Next you must input site index (SI-25), spacing, the number of trees by DBH class, etc. into PTAEDA2V, the JMV&CO growth-and-yield model. After PTAEDA2V's data base converts these raw figures into more useful data, here's the stand at age 14:

Tract: DEMO
#simulated growing seasons: 25
Random number seed: 68767     SI-25: 70
Simulation size: 20 rows by 20 trees
Living trees/A.: 508     Percent pulpwood-quality: 50
Feet between rows: 8.8     Feet between trees: 8.2     Growing seasons complete:14
Not fertilized     Hardwood Basal Area: 0     Volumes in cords and board feet, Doyle scale

Since our main objective is to make money from the stand and since the trees that we have classified as pulpwood-quality will never develop into more-valuable sawtimber no matter how big they get, our first step in planning the thinning is to ask PTAEDA2V to print out a schedule of the trees to be cut in order to remove all those of pulpwood-quality. Here's the schedule:

All CRP agreements we have read specify that the trees must be thinned after age ? and before age ? and the government's rep also specifies a minimum number of trees per acre to be left. For the tract in this example, the minimum per-acre remaining was 235. Since we started with 507 and removed 244 pulpwood-quality trees, we still have 262. By a little arithmetic, we can calculate that, of these, 1.7 are 3-inch trees and 20.5 are 4-inch trees. If we remove them, we still retain 240, a slim margin of safety.

After we make these calculations, we can issue these clear instructions to persons marking trees to be cut: "Mark all pulpwood-quality trees (they can be easily identified by fork, crook, sweep, disease cankers, etc.) and all other sawtimber trees smaller than 4.5" DBH." After they are removed, here's what will remain:

While we have the data in PTAEDA2V, here is the predicted stand 11 years from now at age 25:

Financial Analysis

If this thinning method is to be widely adopted, however, it must show merit in a financial analysis. To start with, the value of the present stand at prices shown for the area on 3/31/00 on www.vardaman.com is:

Since the thinning is mandatory, the landowner will receive this cash flow at the start. A similar calculation reveals that it is $254.50, and his net investment immediately after it is $584.80 minus $254.50 = $330.30.

If we assume that timber prices remain unchanged, a similar calculation reveals the value of the harvest 11 years from now to be $2,002.25. This amounts to a compound annual return of 17.80%. If this is high enough to indicate that we are smoking the wrong stuff, please note that we concentrated on value increase from timber growth and disregarded several costs: land, taxes, sales charges, annual management, etc.

Contrast with Third-Row, Operator-Assisted Thinning

Up to a certain point, PTAEDA2V works well to predict removals in Third-Row, Operator-Assisted thinnings. Working with the same stand at age 14, we started thinning by removing every third row. From then on, however, the operator of the felling machine uses his judgment about which trees to cut, and we had to guess which ones he would select. Using PTAEDA2V's graphical-thinning option, we created this forest on our computer screen and selected the additional trees one by one. The computer screen employs lots of color coding, but here's the best we can do in black-and-white:

You can see where each third row was removed. Size of the crown is proportional to DBH. On the screen, pulpwood trees are dark green; sawtimber trees bright green. You remove a tree by clicking the right mouse. The small table on the left records the number of trees remaining. Therefore, while sitting at the computer, you are very much like the operator sitting in his machine and cutting the trees that he selects.

We did our best to choose those an operator would choose and then we analyzed the thinning as we did before. Here's a summary of results of both thinnings:

An analysis of the results will reveal that the major cause of the decreased value of the Third-Row harvest is the sale at age 14 of the sawtimber-quality trees in the third row. They were then too small for sawtimber and could be sold only for pulpwood.

Thin during slumps in pulpwood prices, or wait for price improvements?

Most timberland owners follow the course of stumpage prices in a general way and become increasingly interested in them as the time for thinnings nears. When the scheduled time is at hand, but prices have dropped 20%, they wonder whether to sell the thinning regardless or wait until prices improve. No one ever knows what future prices will be; although they have usually risen over long periods of time, they may be even lower.

PTAEDA2V can't predict prices, but it will help the landowner play any number of "what-if" games. To illustrate the procedure, take the main stand analyzed above. If Tom Jones had bought the tract several years ago and things worked out as planned, he would expect to earn 17.73% on his invested capital from now to the sale of the harvest. But what happens if pulpwood prices had dropped 20% at thinning time?

Should he sell the thinning anyhow, or postpone it until prices improve to their "anticipated" level? Anticipated value of the merchantable timber at that time is still $584.80, but value of the thinning has dropped 20% to $203.60, and invested capital has risen to $381.20. If stumpage prices have returned to their anticipated level by harvest time, PV = $381.20, FV = $1,987.74, n = 11, so IRR = 16.20%.

Or should he assume that prices will return to their anticipated level in a year and postpone thinning until then? What does he stand to gain? He can estimate this by using PTAEDA2V to grow the stand another year, calculate the volume and value of the thinning in the same manner, grow the thinned stand for eleven years, and calculate its value then. Inserting all these sales at the proper time in a cash-flow schedule will show his return to be 17.09%.

We'd like to make this calculation simpler, but there is no way.