Green Horizons

When a forest is harvested using either the individual tree or group selection method, trees to be cut or retained are commonly selected by a number of factors: species, quality, diameter, distance from other trees, health and vigor, risk of loss before the next harvest, and maturity. Maturity may refer to either biological or financial maturity, depending upon your objectives.

Biological Maturity
Biological maturity refers to the age when a tree begins to decline in vigor and health, and becomes increasingly susceptible to insects and diseases that will ultimately result in death. This age of biological maturity is usually referred to as the tree’s natural life expectancy and it can vary dramatically among species and with site quality. It also is important to note overcrowded trees may express symptoms similar to biological maturity. Foresters refer to the process where a developing forest thins itself as “stem-exclusion.” If you desire large, stately trees or wish to have your woodland resemble an old-growth forest, then you want your trees to grow as large and live as long as possible. You will probably only cut “mature” trees that constitute a safety hazard.

Financial Maturity
In contrast, if you wish to maximize the financial return you receive from your woodland then you should be more concerned with financial maturity. Usually a tree is considered financially mature when its rate of value increase falls below a desired level.

The rate of value increase of a tree can be determined by comparing its future dollar value with its present dollar value. Think of the tree’s present value as the principal in a bank account and the increased value as the interest earned on that principal. This value increase can be expressed as an annual compound interest and compared with alternative investments or a desired rate of return.

If the tree’s expected rate of value increase exceeds the desired rate, the tree is not financially mature and should be allowed to grow for the specified period of time. If the tree’s expected rate of value increase is less than the desired rate, the tree is financially mature and, based on that criterion, should be cut.

A Tale of Two Trees
Let’s consider two white oak trees growing in a typical Missouri woodland.

Our first tree is 18 inches in diameter at breast height (4.5 feet above ground line) and contains two merchantable logs (32 feet). According to a Doyle volume table (the volume table commonly used), the volume of an 18-inch tree containing two merchantable logs is 160 board feet. With a lumber grade stumpage price of $295 per thousand board feet (as reported quarterly in the Missouri Timber Price Trends published by the Missouri Department of Conservation), today this tree is worth $47.20.

For the past few years, we have measured its diameter in the dormant season and have determined it is growing in diameter at the rate of four-tenths inches each year. At this rate, the tree is expected to grow four inches in diameter over the next 10 years; the earliest time we will consider harvesting trees in this patch of woods. This tree also has good form, so we also expect it to increase one-half log in merchantable height.

This results in a 22-inch tree containing 2-1/2 merchantable logs and 340 board feet. Excluding inflation, if the quality remained essentially the same, the stumpage value of this white oak in 10 years will be $100.30. The tree has increased in value $53.10. Using the basic compound interest formula, PV(1+i)n=FV (PV=present value; i=rate of value increase; n=number of years; FV=future value), the expected rate of value increase is 7.8 percent. Say we desire for the trees in this woodland to increase in value at an annual rate of at least 5 percent (real rate excluding inflation), then this white oak is anticipated to exceed our expectation and should not be cut, but allowed to grow for at least the next 10 years.

Our second tree is also a 18-inch white oak and contains two merchantable logs. But, this tree is growing in diameter at the rate of two-tenths inches per year. Unlike the first tree, this tree has poorer form due to a fork just above the second log and will therefore not increase in merchantable height.

The present value of this tree is $47.20. In 10 years, this tree is expected to be only 20 inches in diameter, and with two merchantable logs containing 220 board feet. Excluding inflation, the value after 10 years of growth is expected to be $64.90; and the annual compound interest increase in value of the tree over the 10-year period is 3.2 percent. Based upon our 5 percent benchmark, this tree is financially mature and should be cut.

Quality Does Matter
Notice we have not discussed quality...until now. Oftentimes, the simple act of pruning can greatly improve the quality of the butt log so it is worth substantially more. What happens to our financial maturity analysis if this occurs? Let’s revisit our first tree.

This tree was growing well and had good form. So, let us assume that on top of the increased volume, after 10 years the butt log has become a veneer-quality log. At the end of the 10-year period, the oak is again expected to contain 340 board feet. But, with 170 board feet in the butt log worth $1,111 per 1,000 board feet (veneer stumpage price) and the remaining 170 board feet in the top logs worth $295 per 1,000 board feet, the total expected future value of the oak in ten years is $238.85, and it is increasing at the rate of 17.6 percent per year. Between trees of similar volume, higher quality equals greater value!

Closing Thoughts
Obviously, calculating the financial maturity of a tree is a complex process that involves estimating many variables, including stumpage value, diameter, merchantable height, growth rate, possible changes in tree quality, and future stumpage value. Because of these complexities, financial maturity calculations are not often undertaken by forest landowners. But, it is important for anyone managing uneven-aged stands to have an understanding of the concept and some grasp of the rate of return being earned by trees of different species and different sizes.

It is also important to remember that financial maturity is only one evaluation criterion in the tool box. As mentioned in the beginning of this article, other factors including species, quality, diameter, distance from other trees, health and vigor, wildlife habitat, aesthetics, and risk of loss or damage must also be considered.