Projections
Deforestation Trends
To meet the demand for tropical hardwood lumber, growing populations are under pressure to cut old growth forests for cash and to provide space for agriculture. The World Resource Institute has calculated the current rate of tropical rainforest destruction at 50 million acres a year. They also estimate that less than 700 million acres remain with growing global pressure to protect much of that resource. The confluence of these forces will create a global shortage within 12 years (as of 2009). Currently, tree farms and plantations supply only 1% of the tropical hardwood market. Even given the most optimistic projections, it is highly unlikely tropical hardwood farms will fill more than a few percent of the current worldwide demand.
Historical Prices
The rate of increase in tropical hardwood prices since records started being kept in 1972 has averaged 13% per year. To remain on the conservative side we have based our estimates on the more conservative value of the 6-7% annual price increase that has been documented for lumber in general by the forest industry over the last 100 years. In the case of tropical hardwoods, this is very conservative. Our field planting for the 2009 season will focus on koa. The limited range of koa was a major consideration. Demand and limited supply has resulted in a price increase of almost 1000% in just the last 10 years.Koa is a truly magnificent tropical hardwood that is unique to Hawaii. It has developed an international following as a superior wood for musical instruments. Furniture makers in Hawaii have turned this native tree into fine works of art. Agriculture and clear cut lumber practices of the past century eliminate over 90% of the koa forests. Strong preservation measures are defending the remaining native stands. This has fostered a new interest in cultivating koa for the wood artesian market. Knowledge is growing rapidly, but koa’s behavior as a plantation tree is certainly not as well understood as other species. In developing our projections we have analyzed the performance of a diverse range of tropical hardwoods in plantation settings. Much of our data comes from the performance of Acacia mangium a very closely related tree from the same genus. The potential rewards and the satisfaction of bringing a sustainable source of this wood to market have lead to our focus on koa for this years planting. Koa has tremendous diversity in appearance and accordingly commands a wide range of prices. In typical lumber outlets in Hawaii it can have a retail range from $20 to $65 a board foot. Wholesale information is difficult to come by, but conservatively it could be 50% of these numbers. Only the potential tree owner can decide if koa is right for them.
Assumptions and Projection Notes
Trees are sold in 100 tree blocks. Even though tree growth can vary between species and location, for the purpose of this analysis we will are using the growth rates typical of other plantation grown tropical hardwoods. Intensive management practices such as supplementing major and minor nutrients, selective thinning of stands as the canopy closes and protection from competitors and pests is expected to result in growth rates similar to plantation grown Acacia mangium and other tropical hardwoods. A very conservative starting price for wholesale koa was set at $9.00 per board foot.
Trees are planted with an initial spacing of 3 meters to generate a much better early growth form. This encourages long straight trunks and actually increases the yield of quality lumber. Roughly 15% of the trees will be removed prior to achieving marketable size in order to favor the growth of the best trees and maximize the total yield of lumber. Commercial forestry refers to this process as “releasing” the remaining trees to achieve their full potential. If the trees were planted with greater initial spacing to avoid thinning, the resulting trees will tend toward a bushy growth form with little marketable lumber. If they were planted closer and no trees were removed, their growth would be stunted once the tree canopy closed. This management technique has proven to be the best way to get the most quality lumber out of a planting. The lumber from additional thinning harvests prior to the final harvest is treated as marketable for the purposes of these calculations. Market conditions at the time will determine actual prices for the lumber produced.
We are assuming a conservative 6% rate of lumber value inflation. The actual rate of increase has been closer to 13% for tropical hardwood lumber. We have applied this same rate of increase in the cost of milling, harvesting and processing. We are basing the yields, thinning and harvesting rates on the experience of other tree farms in Hawaii and in Central America, but the amount of this charge will be based on the actual cost at the time of harvest. The actual timing and amount taken at any thinning or harvest will be determined in consultation with our forestry team and be based on best practices and the most current scientific information. The projection table is intended to give you a better understanding of the process, but actual results may differ from these estimates in either direction. The 10% maintenance and care fees are not charged to the tree owner until their lumber is either ready to deliver to them or is sold for them. If it is sold for them it is deducted from the proceeds of the sale. If the lumber is to be delivered to the tree owner or another designated party, the harvesting, milling, processing, care, maintenance and shipping costs will be billed at that time.
The growth rate of trees and the market value of lumber are both influenced by a wide array of factors. It is possible to get a feeling for the future value of trees planted today from the historical trends and expert opinion of what the future holds for the tropical hardwood markets. The first table of koa projections is a blend of what we consider both conservative and likely. Dozens of contributing factors have been gleaned from a wide range of sources to arrive at this compact and readable table. There are many possible variations of this table based on changes to some of the basic assumptions. To get a feeling of how changes in some of the assumption affect the results, we have included two additional tables showing what would happen with some of the possible changes.
