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Rotation age in the pnw

Started by quilbilly, January 06, 2019, 10:08:00 PM

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quilbilly

Talked to a Forester from local company that owns about 50k acres and he said they were going to a 38-40 year rotation. This is in site class 2-3 ground on the Olympic peninsula. Why are all of the big companies moving to shorter rotations and emphasizing small wood. BTW this company doesn't own a mill that they're trying  to supply, they are strictly forestland.
a man is strongest on his knees

Ianab

Economics.  From a financial point it's better to get a slightly smaller return earlier, which then gives you the $ to reinvest. Waiting twice as long for maybe twice the return isn't smart investing. 

Similar situation here on NZ, where pine is grown on a 25-30 year rotation. Sure you could grow higher value tree, but the long wait for  a return makes it a poor decision financially.
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Iwawoodwork

Back in the 1980s Weyco was giving us employees seminars about their changing cutting/growing cycles and about the change from board feet to cunits as a measurement for wood fiber,  They were telling us that they could actually get more fiber per acre on 40 year rotation  ???????????

Texas Ranger

Southern pine rotation is 15 or less for the short turn around on the investment.
The Ranger, home of Texas Forestry

quilbilly

I feel that it is less about total dollars and more about a quicker return on investment, if they waited 10+ years and kept the same growth rate they would be logging a much higher dollar tree. I think maybe the part about relatively poor soils was missed, this is not top notch growing ground. This isn't NZ or the South. Historically most wood here has been on a 60-70 year rotation.
a man is strongest on his knees

Southside

A part of their plan may not be to remain in the timberland business long-term. Maybe they plan to grow houses, sell camp leases, or carbon credits? Saw that game played out more than a few times in northern Maine. 
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WDH

The different rotations and management options such as rotation age, fertilization, weed control, and thinning are evaluated and compared to each other by analyzing the cash flows (costs and timber income) over the cycle.  These cash flows are then brought back to a total value basis using present value analysis.  The regime with the highest present value is the answer.  At this time with current projections, that 40 year old douglas fir rotation would have the highest present value. 

It is not about a quicker return, it is about the BEST return. 
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BradMarks

The 40 yr rotation for Douglas fir is not new, been going on for at least 30-40 yrs.  Trees I planted in the seventies have become boards now. The 40 yr cycle is indicative of growth rates, DF starts slowing down somewhat at that age, therefore the return would slow down. Sure, bigger trees may have "better" wood, but even that is debatable as structural tests have shown. And with laminate beams, big wood isn't needed. And finally 2-3 site class isn't 1-2, but it will still grow mighty fast in the Olympics.

Doomsday

There are two answers for why you are seeing shortened rotation ages (38-40 is actually high, many plantations are going at 33-35).

1) Growth and yield. Much research has been done in the past, and depending on your thinning regime and stocking density you can achieve higher fiber yield from two rotations over 90 years than one crop. There also may be fewer entries as this is mostly hemlock ground and it may not require pre-commercial treatments when harvested at this age.

2) Available outlets. There are only a few mills left on the Olympic Peninsula. The INTERFOR mill in Port Angeles is the big player on the north end. They are limited at their facility to 19" butt-end diameter. Anything larger has to travel hundreds of miles to Shelton (Sierra Pacific) or one of several mills in Aberdeen. These mills have a max diameter of 22". The Alta mill (Crane Creek) is small and will mill oversized, but only buys sorts from the other mills.


quilbilly

That's the issue though, I'm not sure how it's the best return from a long term financial perspective based on current buyers. There is a rumor out that they are getting sued or fined for millions, I think that might have something to do with it. Also fast is relative. This is 60-70 ft wood. Not that big at all.
a man is strongest on his knees

BradMarks

So is it Hemlock or Douglas fir ground?   And mill size capacity is an important aspect.  If no one can/will buy the logs, why grow it bigger?, except for personal value(s). 

quilbilly

Quote from: BradMarks on January 07, 2019, 03:22:39 PM
So is it Hemlock or Douglas fir ground?   And mill size capacity is an important aspect.  If no one can/will buy the logs, why grow it bigger?, except for personal value(s).

I completely understand what you're getting at, what I'm getting at is that this doesn't make sense from a dollar perspective from the outside. Most of the high prices paid from Mills are for a higher spec log than what is being moved. This log barely makes the req for a low grade export sawlog and the next log is CNS. More Mills would compete for a log that's a few inches bigger and of a little better quality. The price difference between the 8 and the 10 inch ex sawlog is or was about 100/mbf. Also the same for the cns compared to domestic sawlog. If this were a different area I wouldn't argue, but for this particular area I don't think it makes sense.
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Ianab

Problem is "better" forestry vs better economics. 

So if you invest in forest land, and you might have two options. 

First is you wait 80 years and receive $2 million. 

Second option is you harvest after 40, replant,  and still earn $1 million, then another $1mil at 80 years,

Which one is the better return. Option 2 wins because that first profit can then be re-invested for the 2nd 40 years. Maybe you buy another forest, so your 2nd harvest in now $2mil. 

So the shorter rotation has produced $3 mil on the balance sheet, vs one harvest longer term at $2mil.

Unless there is a big premium paid for larger logs, waiting twice as long for even 2X the tonnage isn't going to win. And the 80 year logs aren't going to be anything special like "old growth" as they still grew in a plantation and will have the same wide growth rings. If you are cutting them into 2Xs the buyer doesn't care if they came from an 18" tree or 36" one. As long as they pass through the stress grading machine and go on the stack. 
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WDH

The big commercial mills are focused on productivity.  They do not want big logs.  Smaller logs can be processed quicker and more efficiently.  We see the same thing in the South.  There are very few markets anymore for SYP logs over 24" in diameter.  The technology of high speed sawing favors smaller logs. 
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Ron Scott

Sawing smaller diameter wood technology is steadily coming on line in the west due to the high volumes of small round wood being lost due to the beetle infestations. USFS research has been working on this for a number of years to improve the benefit cost ratio of small wood sawing.
~Ron

Clark

Quote from: Ianab on January 08, 2019, 05:52:20 AMSo the shorter rotation has produced $3 mil on the balance sheet, vs one harvest longer term at $2mil.
Let's not forget that the balance sheet would also include the cost of land aquisition. I'm sure you know the difference between revenue and profits but these conversations tend to forget the expense side of things.
Quote from: WDH on January 07, 2019, 08:11:08 AMIt is not about a quicker return, it is about the BEST return. 
I would love to hear of an example where the faster return didn't equal the best return. Given the time value of money and the timeline of forestry I doubt that has ever happened in the industry.
My own experience in the PNW is that rotation lengths varied with the owner or manager of the property. The Big W seemed pretty keen on getting rotation legnths down to ~35 years. Longview Fibre was supposedly on a 60 year rotation but then shortened it to 50 to "impress" their new owners. Port Blakey, a small operation, would let some of their timber grow to 80 years. 
As a corollary to the mantra about mills and tree size it should be remembered that if you aren't selling to a mill then larger tree size might be a benefit. Especially when you can name your own price for the product. Granted, that is a drop in the bucket of the timber market but for smaller operations it can be huge. 
The larger problem I see with shortening rotation ages is that once it is shortened, an industrial forestry operation will never increase rotation length. This does lead some to the conclusion that trees don't live longer than X years or get bigger than what you see. 
Clark
SAF Certified Forester

GullyBog

Echoing earlier points.  The mills around here aren't especially interested in large diameter SYP or EWP.  The state agency is scratching its head to encourage markets for the big trees because in the long term that takes land out of production for smaller trees, the thinnings from those stands and the residues from their utilization.  It's hard for me to wrap my head around this because I've always thought bigger trees are less work and more money.  Another point is risk, mostly from pine beetles but also storms or changing regulation/taxes.  Those sudden events can't be planned for and sometimes "nothing to lose" is the way to go.
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barbender

UPM has went to 30 year rotations on it's aspen pulpwood stands in MN. They figure they get the most fiber per acre at that age, and the smaller wood goes through their paper mill better. We don't like harvesting it too much, as production rates for the CTL equipment goes down a lot in 6"dbh wood.
Too many irons in the fire

quilbilly

Not to get too salty but most of the replies on here seem to be from folks in other regions with little experience in the pnw. This is not New Zealand, the south, the northeast, or really even what most seem to think of as the west. We don't have beetle kill issues on the olypen. Most of our logs aren't bring sawed into 2x4, and yes there IS a premium for bigger logs.
The most sought after log with the most Mills accepting it is probably a 36' 12" dia log. If it is high quality, then an even larger premium is payed. The difference in size alone would be at minimum %10 increase and if quality was good up to a 30% increase in price.  The difference between your hypothetical second log CNS vs low grade ex sawlog is consistently %25-30.
  I understand the quicker return to reinvest idea, the problem is the return is smaller, with more planting, permit, forestry, and roadbuilding costs, on top of land acquisition etc.
a man is strongest on his knees

quilbilly

After thinking about this more, and doing some count on my fingers math, I think the overall $ might end up the same for 5 cuttings of 40 year wood vs 4 cuttings of 50. Just without the extra cost of that extra cutting
I think my opinion is that rather than a preferred year rotation, you would want a preferred size of tree based on growing conditions and market.
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WDH

Sorry Sir, but determining the ideal rotation age has nothing to do with the region you are from.  It has to do with the cash flows and the economics of what you are growing.  I worked for Weyerhaeuser for 3 decades.  Calculating the target rotation age is not about tree size, but about the highest net present value of the anticipated cash flows.  Tree size is taken into account to determine yield, but is only one factor of several.  It is about bottomline economics and the markets that you are dealing with.  Does not matter what area of the world that you are in, this is how the large forest products companies determine their target rotation age. 
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quilbilly

Maybe you can explain why region has absolutely nothing to do with it? Pretty sure the region you're in determines what markets you're selling to and what trees you're growing and how fast they grow.

  I understand money is the bottom line, that's not what I am trying to understand. I'll ask the Forester next time I see him or another Forester who used work for em if I bump into them. They may have a market I don't know or explain it in a way that makes sense to me other than, everybody is going small.
a man is strongest on his knees

Ianab

The region will determine what actual numbers get put into the harvesting equation. Along with potential markets, predicted interest rates, taxation considerations etc. 

But the basic equations they use are the same. Now if you punch in different initial variables, you will end up with different rotation schedules, so Doug Fir in the PNW comes out with different numbers to Radiata Pine in NZ, or Teak in Central America. Even a different soil type, or altitude changes things. 

Now early in the harvest window the value of the logs will be increasing rapidly, from basically zero, to "worth harvesting" in just a few years. Wait one more year, and get 10% more value? That's a sound investment. You certainly don't want to harvest too early, and miss out on the good gains you should be making. But if you end up waiting 10 more years to get a 30% increase, that's only ~3% return on investment per year, and for financial investment, it basically sucks. 
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quilbilly

Quote from: Ianab on January 10, 2019, 02:50:39 AM
The region will determine what actual numbers get put into the harvesting equation. Along with potential markets, predicted interest rates, taxation considerations etc.

But the basic equations they use are the same. Now if you punch in different initial variables, you will end up with different rotation schedules, so Doug Fir in the PNW comes out with different numbers to Radiata Pine in NZ, or Teak in Central America. Even a different soil type, or altitude changes things.

Now early in the harvest window the value of the logs will be increasing rapidly, from basically zero, to "worth harvesting" in just a few years. Wait one more year, and get 10% more value? That's a sound investment. You certainly don't want to harvest too early, and miss out on the good gains you should be making. But if you end up waiting 10 more years to get a 30% increase, that's only ~3% return on investment per year, and for financial investment, it basically sucks.

Right I agree %3 is bad, but you're not just getting a 3% return, you're getting that on all your BD ft with an increase in bf of the ten years of growth with no extra labor or permit costs.
So if you were a Forester is there a specific formula you used or did it change depending on what markets were paying etc? I guess that's what I'd really like to see are hard #'s from someone who might be in the area rather than just hey it makes more money. I just want to see how. For example 38 years = x size.   X= 1 c log at 650mbf and 1 cns at 500mbf for a gross profit of z .
a man is strongest on his knees

Ianab

The foresters involved will have computer models that can take into account as many variables as they can reasonably predict. The modeling tools I've seen are down to the level of seedling grades / soil / climate zone etc, initial and final planting density, pruning regime etc. And from there can estimate not just the predicted volume of wood, but the actual percentage of the various grades, which can then be compared against the value of each specific grade in the available markets. 

So once you have your spreadsheet set up, it's easy enough to run 20 simulations and get predicted returns for each year. (add in the harvest and replant costs of course). Now you have allowed for having both higher value and larger logs. AND you know if the extra wait was worth it. 

Then show those numbers to the accounting types who understand the Present Value and Discount Rate stuff. 

Once they have done those calculations, you will find that it's certainly possible to harvest too early. You get your profit quickest, but it's small due to low volume / low value.  And you will also find that there is a point where you are waiting too long. The value of the trees stops increasing at more than the "Discount Rate". It's not that the trees aren't still putting on value, it's just less value you would gain by selling the trees and investing the money in something else. 

The trick is to have those accurate models of how a stand of trees is going to behave, and that's what the research foresters are collecting with their trial stands, measuring sticks and laptops. 
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