Estimating the Value of Seedlings and Saplings 

When managing a forest, there may be a need to estimate the value of seedlings and saplings. Such occasions include evaluating the damages of natural disasters to seedlings and saplings or selling a stand of seedlings and saplings to another timber grower or for converting to other land uses.

The two common ways to estimate the value of seedlings and saplings are the value approach and the cost approach. The value approach applies the current market prices of wood to the volume of merchantable wood in these small trees.  This approach may underestimate the value of young plantations since most of seedlings and saplings are smaller than merchantable timber and their value lies in their potential to grow into merchantable timber in the future. The cost approach calculates the future value of all the costs incurred since stand establishment and is the preferred approach for estimating the value of pre-merchantable trees. 

The costs of seedlings and saplings include establishment (site preparation, seedlings and planting), consultant fees, property taxes, annual management costs, annual depreciation of capital investments (such as roads or fences), and the owner’s labor costs (if they are not included in management costs). All costs should be estimated based on actual expenses incurred or an average pertinent to the type of stand in question.

One more item to consider is the annual cost of land, whether it is leased or owned. For leased land, it is easy to understand the concept of annual land cost. The annual cost of leased property may include lease payments, insurance and other items required by the leaser. There is an opportunity cost to consider when planting trees on land you own.  Since the land has already been devoted to grow timber, the annual cost of using owned timberland should be equal to the average annual net revenue (annuity) that can be earned from such a management practice. The annuity of a timberland can be calculated from the estimated value of the land at stand establishment multiplied by an interest rate (discount rate).

A reasonable interest rate to use in the estimation of seedlings and saplings value would be the average rate of profit that a similar stand of seedlings and saplings has generated. A conservative rate would be the average interest rate of long-term treasury bills. Another option is the annual capitalization rate used by county chief appraisers to estimate the productivity values of timberlands. To estimate the value of an existing stand of seedlings and saplings using historical costs, use a nominal interest rate (including inflation) instead of a real interest rate (not including inflation).

A Timberland Investment Calculator for estimating the value of a pine plantation may be found at http://tfsfrd.tamu.edu/tdss/models/tlinv.asp.  The following is an example of how to use the calculator to estimate the value of seedlings and saplings:

To estimate the value of 10-year-old loblolly pine plantation assuming a 10% interest rate and the costs in Table 1, enter the following items in the calculator:

·        Enter “10” for “ Discount Rate”.

·        Enter “10” for “Rotation Age”.  In this case, it is the age at which the stand is evaluated.

·        Enter “39” for “Annual Cash Flow Per Acre” (from Table 1).

·        Enter “1” for “Year”, “Total one time costs” for “Activities”, and “186” for “Cash Flow” in the first row of “Other Cash Flow Per Acre” section (from Table 1).

·        Click “Submit”.

Table 1:

Establishment and Management Costs for a 10-year-old Loblolly Pine Plantation.

Note: Assume the land value was $300/acre at plantation establishment. The annual land cost is $300 * 10% = $30.

Table 2 shows the output of the above example, indicating that the total net future value of the seedlings and saplings of the stand is $1,060.14/acre. In the example, the stand is 10 years old, the estimated Net Future Value of the stand is the current value of the seedlings and saplings. The estimated Net Present Value is the value of the seedlings and saplings at stand establishment. Since the annual land cost was included in the evaluation, the estimated Bare Land Value in the model is not applicable in this case.

Table 2:

Timberland Investment Analysis Output:

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Last Updated: February 04, 2002 .