DRAFT COPY
Financial Evaluation of Thinning and Pruning Silvicultural Treatments on a Thirty Year Rotation of Old Field Pine Plantation in North Louisiana
Michael A. Dunn, School of Forestry, Wildlife, and Fisheries, 318 Forestry, Wildlife, and Fisheries Building, Louisiana State University, 70803, and Terry R. Clason, Hill Farm Research Station, Louisiana State University, 11959 Highway 9, Homer, Louisiana 71040.
ABSTRACT: Various pruning and thinning silvicultural regimes were
applied to plots of planted loblolly pine (Pinus
taeda L.) at the Hill Farm Research Station in northwest
INTRODUCTION
On a given site, loblolly pine (Pinus taeda L.) plantations of similar age and composition will produce the same total stem cubic-foot volume over a range of stocking densities. The biological objective of optimizing fiber production can be achieved by applying silvicultural practices such as chemical site preparation, artificial regeneration with genetically improved growing stock, herbaceous weed suppression and releasing crop pine trees from unwanted woody vegetation. However, short rotation fiber production may not provide landowners with a satisfactory rate of return on invested capital. Bond (1952) recognized the need to apply both biologic and economic principles to timber management. He stated, "Net returns are maximized when the growing stock is regulated and held to the smallest amount of timber capital that will produce maximum yield within the capacity of the site and species. With too much volume of growing stock the net return per acre may be high, but the rate of return on the large investment unsatisfactory. With too little growing stock the rate of return on the small investment is likely to be high but the net return per acre unsatisfactory." Thus, timber investment capital should be maintained at levels that can optimize financial gains for either short or long rotations, given an opportunity cost for capital, or interest rate.
The manner in which wood is distributed along individual tree boles influences the ultimate value of a plantation. Growing a small number of large diameter trees suitable for lumber and plywood can attain higher value. High-quality crop trees can be developed in rapidly growing plantations by applying thinning and pruning practices to manipulate pine stocking density, size-class composition, and individual tree form.
Research
has indicated that thinning may not increase net merchantable yields in
plantations with a rotation length of 25 years or less. Thinning young loblolly pine (Pinus taeda L.) stands in
Loblolly,
slash, and other pine plantations established at relatively wide spacings or
grown under severe thinning schedules produced high yields during short
rotations. In Australia, Jolly (1950)
obtained the greatest volume yield and net return on investment during a short
rotation by thinning Monterey pine (Pinus
radiata D. Don) to 300 trees per acre (TPA) at age 10. Kotze (1960) recommended that loblolly and
slash pine in
Pruning, which enhances formation of knot-free wood, could contribute significantly to the development of premium sawtimber trees. When used in conjunction with thinning, pruning schedules can be developed to maximize knot-free wood formation. Labyak and Schumacher (1954) suggested pruning a selected number of crop trees in fully-stocked stands accompanied by a severe thinning to preclude further natural pruning. For pruning wider-spaced, old-field, slash pine plantations on good sites, Bennett (1955) recommended a two-step pruning schedule that maintained residual crown ratio at 50 percent with an initial pruning at age 5 or 6 followed by an additional pruning 6 years later. This two-step schedule applied to a thinned loblolly pine plantation did not reduce individual tree growth (Clason and Stiff, 1980), and Valenti and Cao (1986), found twice pruned trees had 4 percent less taper, 4 percent more wood volume and 9 percent more lumber volume than once pruned trees. Pruning schedules should be based on height, diameter and taper characteristics of the 100 largest trees per acre (Banks and Prevost, 1976) with the first pruning applied crop tree diameters average 4.0 inches (Vel 1975). Locatelli (1977) stated pruning would be profitable, provided only crop trees are pruned and pruning is done on at least 7-acre blocks.
This
paper evaluates the combined effect of thinning and one-and two-lift pruning
schedules on the financial potential of a 29-year-old loblolly pine plantation
growing in northwest
MATERIAL AND METHODS
Data
were collected from a 29-year-old loblolly pine plantation located on the Hill
Farm Research Station near Homer,
Five planting densities, 4 x 4, 6 x 6, 6 x 8, 8 x 8, and 10 x 10-foot spacings, were established with each density being planted in two one-acre blocks. Survival rates were generally high but interplanting was done where necessary.
In 1955 at age 6, each block was sub-divided into 4 plots. Measurement areas ranged from 0.16 to 0.29 acres without buffer strips. Four cultural treatments were randomly assigned to each block:
1. Check (Untreated spacing treatment)
2. Precommercially thin (PCT) to 400 trees per acre (TPA);
3. Prune (PRN) 400 crop TPA to 8 feet or 1/2 total height;
4. Precommercially thin to 400 TPA and prune to 8 feet or 1/2 total height (PCT x PRN).
From 1955 to 1960, diameter and height were measured annually. In 1960, at age 11, three commercial thinning treatments were applied to the previously treated plots. Treatments included:
1. Thin to 100 TPA (T100) and prune to 17 feet;
2. Thin to 200 TPA (T200) and prune to 17 feet;
3. Thin to 300 TPA (T300) and prune to 17 feet.
The 1960 treatments were replicated three times on each 1955 treatment and growth data were collected on a periodic basis from 1960 through 1978. During a commercial thinning in 1978, approximately 50 percent of the measurement trees were removed and taken to a sawmill to evaluate lumber quality. A local volume table developed by Clason and Cao (1986) was used to compute all tree volume data.
Since the initial planting density treatments affected early plantation development (Sprinz, et al., 1979), the financial impact of the thinning and pruning regimes on plantation value was restricted to the 8 x 8 and 10 x 10 planting densities. Subsequently, the four age 6 treatments and the 100 TPA age 11 treatment were combined factorially with the 8 x 8 and 10 x 10 foot initial spacings densities creating the following 8 treatment combinations:
A. 8 X 8 planting density, no thinning or pruning treatments;
B. 10 X 10 planting density, no thinning or pruning treatments;
C. 8 X 8 planting density, pre-commercially thinned at age 6, pruned at age 11, and commercially thinned to 100 trees per acre at age 11;
D. 10 X 10 planting density, pre-commercially thinned at age 6, pruned at age 11, and commercially thinned to 100 trees per acre at age 11;
E. 8 X 8 planting density, no pre-commercial thin, pruned at ages 6 and 11, and commercially thinned to 100 trees per acre at age 11;
F. 10 X 10 planting density, no pre-commercial thin, pruned at ages 6 and 11, and commercially thinned to 100 trees per acre at age 11;
G. 8 X 8 planting density, pre-commercially thinned at age 6, pruned at ages 6 and 11, and commercially thinned to 100 trees per acre at age 11; and
H. 10 X 10 planting density, pre-commercially thinned at age 6, pruned at ages 6 and 11, and commercially thinned to 100 trees per acre at age 11.
Financial comparison among treatment combinations was made using actual harvest and revenue data combined with hypothetical cost data (Table 1). Some further assumptions were made in order to complete the economic analysis. Those assumptions included a land purchase at year 0 of $300.00 per acre for all alternatives. All alternatives were site-prepared with an aerial application of herbicide combined with prescribed fire. Site preparation and planting also occurred in year 0. The aerial application of herbicides in conjunction with prescribed fire was assumed to cost $96 per acre. Tax and administration costs of $3.50 per acre for all alternatives initially occurred in year 1 and every year thereafter until the end of the rotation in year 29. For economic purposes the rotation length was thirty years (year 0 included). Timber value for ages 11 and 29 were calculated using 1995 3rd quarter stumpage values published by the Louisiana Department of Agriculture and Forestry. A further assumption was that the land was sold in year 29, after the timber harvest, for $300 per acre. Actual cost data were used in the computation of costs for the alternatives in which pre-commercial and commercial thins, and pruning occurred.
RESULTS
Since
treatment combinations were replicated only two times, all age 29 plantation
growth data are presented in tabular form without statistical inference. Age 11 merchantable volumes for the unthinned
8 x 8 and 10 x 10 planting densities were similar, averaging 1,700 ft3/acre,
while age 6 PCT and pruning treatment volumes averaged 1,530 ft3/acre. The mean age 11 harvest volume for the age 6
PCT and pruning treatments thinned to 100 TPA was 1,050 ft3/acre. Mean values for the age 29 growth attributes
varied among treatments combinations (Table 2).
Standing merchantable volume
varied among treatments with PCT, No PCT, and unthinned treatments averaging 3,260, 2,560, and
4,540 ft3/acre, respectively.
Total merchantable volume yield (standing volume + age 11 thinned
volume) for PCT and No PCT treatments were 140 and 930 ft3/acre less
than the unthinned treatments. Although
plantation growth data were not evaluated statistically, tabular results are
consistent with previous research performed at other locations. In
Age 11 thinning altered pine distribution within DBH-size classes (Table 3). Pine DBH distribution differed among treatments in both chip-n-saw (5.6 to 9.5 inches) and sawtimber (> 9.6 inches ) wood product size classes. The unthinned 8 X 8-foot planting density treatment had significantly fewer pines in the sawtimber size class than any of the lower stocking densities. Although the unthinned 10 x 10-foot planting density had 206 trees in the sawtimber size class, the modal diameter range was 9.6 to 11.5 inches. In contrast, the modal range for the PCT treatments was 13.6 to 16.5 inches and the modal range for the No PCT treatments was 12.6 to 16.5 inches.
DBH-size class distribution differentials impacted treatment product volume distribution (Table 4). Although unthinned treatments had 3 to 5 times more trees, lumber volume was less than the age 6 treatments. Unthinned 10 x 10-foot lumber volume exceeded the 8 x 8-foot volume by 4,400 BDF/acre, while PCT and No PCT treatment lumber volumes exceeded the 10 x 10 foot volume by 4,480 and 1,430 board feet (Doyle)/acre, and clearwood lumber yields were 30 times greater. Average clearwood recovery rate for unthinned, PCT once pruned, No PCT twice pruned, and PCT twice pruned treatments averaged 2.4, 14.4, 28.8 and 24.3 percent, respectively. Thus, stocking density adjustments at ages 6 and 11 enhanced plantation development by accumulating merchantable volume growth in the sawtimber product size class.
Financial Impact
Economic comparisons of the planting density, thinning, and pruning alternatives are provided in Table 5. Alternatives are labeled “A” through “H”. Future values of costs and revenues and net future value of the various alternatives are presented in columns d, e, and f. A future value assumes that payments made or received could have been immediately invested in an alternative at a minimum acceptable rate of return. It therefore accounts for the opportunity cost of capital. The equation used in columns d, e, and f was:
1)
where Vn is the future value of a single amount,
Vo is the original cash outlay or receipt,
i is the interest rate,
and n is the rotation length (Klemperer 1996).
For this analysis, the interest rate was assumed to be 8%. The rotation length was thirty years, since the analysis began in year 0 with the purchase of land and site preparation activities. All costs and revenues were assumed to occur at year’s end.
Column d of Table 5 provides a cost comparison between the alternatives in terms of capitalized values, while column e compares revenues. Alternative G yielded the highest compounded value costs, while Alternative B was the least costly. The greatest compounded revenue (Table 5, column e) was generated from Alternative H, while Alternative A yielded the least revenues. Net future values, or the sums of capitalized revenues less the sums of capitalized costs for each alternative, are presented in column f. Net present values (NPV), or the sums of discounted revenues less the sums of discounted costs for each alternative, are presented in column g. Net future value and NPV are actually two sides of the same coin, since NPV can be thought of as the net future value discounted to the initial period. The NPV ranged from a low of -$47.70 per acre for Alternative E to a high of $254.76 per acre for Alternative H.
Land expectation values (LEV’s) were calculated using the Faustmann formula (Klemperer, 1996), which takes the following form:
2)
where Ry is equal to periodic or one-time revenues,
Cy is equal to periodic or one-time costs,
t is the rotation length,
y is the year in which the cost or revenue occurs,
i is the opportunity interest rate,
a is equal to annual revenues, and
c is equal to annual costs.
Since the land expectation value equation provides an estimate of the willingness to pay for bare land, the assumed cost and revenue from land purchase and sale were excluded from the calculation. Land expectation value then becomes a simple calculation of discounted revenues less discounted costs (or NPV) evaluated on a perpetual basis. These calculations are presented in column h of Table 5. Results indicate that Alternative H generated the highest LEV ($524.93 per acre), while Alternative E generated the lowest LEV ($226.29 per acre).
The internal rate of return (IRR) was computed using a Microsoft Excel® spreadsheet function, and is presented in column j of Table 5. Alternative H generated the highest IRR (9.98%). Alternative E generated the lowest IRR (7.59%).
CONCLUSION
The goal of this paper was to present data collected from a study in which silvicultural treatments of thinning and one-and two-lift pruning schedules were evaluated for their effects on sawtimber production and quality, and plantation value in a 29-year-old loblolly plantation.
From a management perspective, stocking density adjustments at ages 6 and 11 enhanced plantation development by accumulating merchantable volume growth in the sawtimber product size class. The data further indicate that Alternative H, the option in which a planting density of 10 by 10-feet was combined with an age 6 pre-commercial thin, an age 11 commercial thin, and pruning treatments at age 6 and 11, was the economically superior alternative. In general, the thinning and pruning silvicultural treatment plots were superior to no treatment, regardless of spacing, with the exception of Alternative E, the alternative in which a planting density of 680 trees per acre was used in conjunction with a thin at age 11 and pruning treatments conducted at ages 6 and 11. Alternative E had relatively high costs and relatively low revenues. It also had the highest per unit costs. This led to low NPV, LEV, and IRR values. From this data, it appears that pre-commercially thinning and pruning a stand in conjunction with other silvicultural prescriptions such as heavy commercial thinning (in this case, at age 11) can yield superior investment returns for forestland managers and investors. These values could, of course, vary subject to changes in other factors, such as the relative prices for forest products, interest rates, site characteristics, genetic properties of trees, or other marketing factors.
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