Forestry as an investment

kippy

Hi all,
Planted few tree there recently for a short term plan for firewood in 8 or 10 years time (no grants involved or anything like that). Got some assistance on this forum as well with that.

However the research in this has lead me to ask, would there be a real benefit in buying 20-30 acres of marginal land and planting it with Sitka. Going down the grants route (not a farmer) and using the money gained as an addition to the a pension in 30 years time?

There is obviously the 20 years of grants, the thinning money after 16 odd years and then the final payment for the clearfell after 30 years.

Is anyone involved in something like this at present? What are the pitfalls/risks?
Am I missing anything major?
Cheers,
Kippy

cannotdisplay

most important thing you are missing is that the payments are different for non farmers. the rate is about 40% of what farmers get and for 15 years instead of 20. you need to qualify as a farmer (which is relatively simple) for it to stack up as a viable investment.

other thing is your thinking of this idea 20-30 years after all the major investment companies. there are approx 800-1500 hectares (this figure is an educated guess based on my previous experience working for a forestry company) planted by investors every year so its very hard to get the land at the right price. suitable sites are quite often bought in one of 2 ways, either the auctioneer contacts an investor or forestry company about land and keeps it quiet after that. the auctioneer is generally on comission in this case.

or what happens all too often is an auctioneer advertises the site with forestry potential and squeezes the price up and up to lets say around €3500/acre, the sale can often fall through at this point because the price is too high. but the landowner has been tracking the bidding and now wont back down on price, the land sits there for 6 months+ til everyone comes to their senses and then might be sold

it is a good investment and relatively solid but getting the right site at the right price is massively important

newholland

Sorry to hijack the thread but what things would you look out for in already planted land that is to be bought for investment?

cannotdisplay

main things to look for (in no particular order) are quality, stocking rate, yield class, species, site area & layout, access, location, age, thinning practices, replanting obligations and who's your neighbours

Quality; relatively straight forward, ar the trees healthy, straight (and not forked) and well maintained in terms of fertiliser requirements and pruning

Stocking rate; in general an unthinned crop aged less than 10 years should have a stocking of at least 90% evenly spread throughout the plantation. an unthinned crop up to 20 years old ideally should have 90% stocking but shouldn't be lower than 85%. stocking on thinned crops vary depending on thinning cycles and silvicultural systems practiced

Yield class; this is a measure of the growth rate of the plantation. it can range from Yield class (YC) 4 to YC 30. YC goes up in intervals of 2 and the figure is the amount of Maximum Mean Annual Increment of the crop, so basically YC 24 means the crop at full potential will increase its volume per hectare by 24m3 of wood each year. hardwoods like Oak and Beech would generally fall at YC 4,6 or 8. Sycamore, ash and alder generally might be YC 8,10 or 12. Pines, larches and firs might fall between YC 8-18. spruce generally falls between YC 12-26. a very simple way of looking at it is the higher the yield class the sooner the thinning and harvesting will commence on the plantation. therefore the higher the Yield class the more valuable the crop (quicker returns). some hardwood crops however may be valued far higher than spruce due to timber quality, for example a YC 24 sitka spruce site at age 25 might be worth far less than an equal area of YC 6 oak at age 60.

Species; as an investment the majority of people favour conifer crops as the harvesting age is generally between 30 and 40 years of age. broadleaves might have a rotation length of anywhere from 50 to 150 years. the most favourable species is sitka spruce as there is a large amount of it planted and it is what most sawmills prefer. however thought must be given to the exposure to an investor from having only one commercial species in the plantation. some investors are now looking to have maybe 50% sitka spruce and maybe 25% hardwoods and 25% of another conifer. this is one way of spreading the risk but has obvious drawbacks compared to managing just one particular species.

Site area & layout; as an investment its generally agreed in the industry that 8 hectares (20 acres) is the least you should purchase. this should ideally be a single block. having a minimum area of around 8 hectares means that your forest is a viable crop that should be able to command attention from sawmills and other wood purchasers as well as being sizeable enough to attract a reasonable thinning and harvesting contract. the layout of the site will, as mentioned, be one or very close blocks of forestry. smaller concerns of site layout are drain locations, road location (if present) and perhaps the size of the original planted fields (if hedgrows are still present), these are not huge concerns but will make a difference to thinning, harvesting and replanting works

Access; having good access is essential. the best timber in the world is worthless if you cannot get it to a sawmill or have to spend a fortune in doing so. ideally access should be to a major, secondary or minor road (in good condition). if the access is by right of way then the right of way should be wide enough to allow heavy machinery pass and ideally be in good working order with appropriate drains, decent foundations and proper surface material. there is a road grant available but this will not always cover the costs of building a road on poor sites. if there is a requirement to build a road then it will help a lot with costs if the site is a mineral site as opposed to a peat site.

Location; fairly straight forward, 2 similar sites one in south tipperary and the other on achill island. its plane to see that the south tipp site will be more favourable as the haulage distance with timber will be a lot shorter to a sawmill.

Age; depending on your investment type you must consider age. if your looking for a 10 year investment theres no pojnt in buying a 4 year old spruce plantation. if your going down the hardwood route then paying a little extra for a 50 year old plantation over a 30 year old one might be the way to go.

Thinning practices; if thinning or harvesting operations have been carried out on site it should be checked to ensure these were done in accordance with all regulations particularly felling licence and environmental requirements. if a site has been over thinned then the production capacity may be dramatically reduced for a few years until competition returns amongst remaining trees. if some harvesting has been carried out in one part of a site then ideally it should have been replanted and maintained appropriately.

Replanting obligations; under irish law you must replant following harvesting, there are no grants to aid the cost of replanting. there are no grants for any period of time to provide income for the first 20 years of a second rotation forests life. to give a very rough example of figures today a sitka spruce forest might be harvested at a profit of €15,000-25,000 per hectare. replanting and 2-3 years maintenance may cost €2,500-4,000 per hectare.

Who's your neighbours; as with purchasing any property it may be worthwhile checking who your neighbours are. with forestry there are often neighbours who didnt want to see the land planted and this may be an issue in terms of co-operation on a right of way. it may also be an issue in terms of timber extraction where an angry neighbour might spend a week reprting noise or inconvenience or whatever to the local council. there can sometimes be favourable neighbours, if your purchased site is on the small side, say 6 hectares then it would be a help to have a forest beside you of similar species and age as it would make your forest more attractive to be marketed to a sawmill along with the neighbours. it could also reduce harvesting costs if the thinning and harvesting of both forests were done at the same time. other considerations with neighbours are trespass and fencing conditions which can be problematic on younger forestry in particular.

thats the general gist of things to consider, open for correction/criticism of course. hope it all wasnt too boring

robp

cannotdisplay wrote: »

most important thing you are missing is that the payments are different for non farmers. the rate is about 40% of what farmers get and for 15 years instead of 20. you need to qualify as a farmer (which is relatively simple) for it to stack up as a viable investment.

other thing is your thinking of this idea 20-30 years after all the major investment companies. there are approx 800-1500 hectares (this figure is an educated guess based on my previous experience working for a forestry company) planted by investors every year so its very hard to get the land at the right price. suitable sites are quite often bought in one of 2 ways, either the auctioneer contacts an investor or forestry company about land and keeps it quiet after that. the auctioneer is generally on comission in this case.

or what happens all too often is an auctioneer advertises the site with forestry potential and squeezes the price up and up to lets say around €3500/acre, the sale can often fall through at this point because the price is too high. but the landowner has been tracking the bidding and now wont back down on price, the land sits there for 6 months+ til everyone comes to their senses and then might be sold

it is a good investment and relatively solid but getting the right site at the right price is massively important

For the non-farmer is there an economy of scale to make the investment viable? What is typical price for forestry land at the moment?

cannotdisplay

robp wrote: »

For the non-farmer is there an economy of scale to make the investment viable? What is typical price for forestry land at the moment?

not really no, if you go down the non-farmer route id suggest buying forestry in the region of 17 - 22 years old. theres some good value out there from time to time in this age category as many farmers get cold feet about having to go and manage there forests as opposed to just getting a cheque once a year. some forests at this age are off-loaded just to get rid of them and so the value can be good.

forestry land i would think is making around €3,000-3,600 in the open market. there are a few variables effecting this but its a rough figure.

before you ask, forestry (sitka spruce) aged 17-22 years old can be as little as €2,500 up to €4,000.

these figures are per acre

ITFarmer

"would there be a real benefit in buying 20-30 acres of marginal land and planting it with Sitka"

If you bought 25 acres and assuming each acre costs 3000 Euro (25 x 3000) that's 75000 Euro. I suppose between the grants to cover (or partially cover) the costs of planting the land, the premiums per year (inflation will eat away at premiums), the sale of the wood and the asset of the land, it has positives.

It would be useful to compare the forestry type investment to something else (savings account, shares, property [house] etc)

Qualitymark

cannotdisplay wrote: »

most important thing you are missing is that the payments are different for non farmers. the rate is about 40% of what farmers get and for 15 years instead of 20. you need to qualify as a farmer (which is relatively simple) for it to stack up as a viable investment.

Simple how?

kippy

Qualitymark wrote: »

Simple how?

Yeah,
Ive looked into this a bit further, it's not actually that simple to "qualify" as a farmer, unless you've been farming to some extent for the past 5 years.

cannotdisplay

i cant really get into it here as it would be frowned upon. ringing one of the main forestry companies would be the first step id take