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Economics of woodland

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Postby Smarticus » Sun May 10, 2009 8:43 pm

I am considering buying a piece of woodland and am trying to work out whether the land will cost me money to own or might make a small income from it. The land is around 25 hectares, mainly planted with Sitka Spruce that is about 12 years old with some older sitka spruce and some old scots pines. The land is sloping down towads a river with the last 20% very steep. The rest seems poorly drained and in places very badly in need of thinning out.


Can anyone point me towards a guide of the cost of operating woodland like this. Such as possible revenue from timber sales, grants, less cost of felling, replanting, drainage and similar upkeep / overheads ?


And any idea of a sensible buying price. The "guide" price is almost £4k per hectare.


Many thanks


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Postby tracy » Mon May 11, 2009 5:56 am

Hi Smarticus, personally, I don't know much about the costs of spuce woodlands. That is a large piece of land and I would think you would make money from it - especially if you are able to do much of the work yourself.

If this wood is in Wales, you could also talk to Coed Cymru, or the forestry commission in any country.


( http://www.coedcymru.org.uk/about.htm)


As far as I can see, land is a great investment and local timber is the way we will be going in future, but I know much more knowledgeable people than me will send you some answers! You would need to think about extraction, drainage ditches - and yes, if it needs thinning first you might see less of an income with it to start with. There are, however, a lot of grants that can help you - again, talk to the FC about that, they will give good advice.


Regarding the guide price - be careful, advertised guide prices often do not reflect what woods actually go for. Per acre that sounds about right in terms of the market rate - prices go up from that with location, access, water features etc. Let us know how you get on, and we would be interested to know what you learn!

Tracy


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Postby Stephen1 » Mon May 11, 2009 8:23 am

Hi Smarticus


The price of poor quality sitka spruce plantations of the type you describe (poorly drained, overcrowded, sloping ground,) is kept artficially high, relative to any income they may produce on the capital investment, because they are used as a capital gains tax and inheritance tax avoidance vehicle - and as such demand for them is kept high despite poor potential actual income returns. You won't get any sort of return relative to the investment in the short to medium term if managed as a standard spruce forest - even compared to the current very low interest rates. That said it's probably a good capital appreciation investment in the cuurent scheme of things - though I personally hate land being used for this end....


£4k per hectare sounds about right depending on where in the country it is, and even more importantly for a spruce wood what the access is like. The distance to the nearest outlet i.e. pulp mill is also a factor.


For a spruce plantation 25 hectares is towards the bottom end of the size range to be profitable - economies of scale etc. - unless the access is very good.


From my point of view the great thing about sites like this is the role you can play in shaping their future to be so much more valuable in terms of biodiversity after the spruce is harvested.


As Tracy suggests guide price and selling price are often very different - location and good access might add 40% to the guide price you mention!


Good luck


Stephen


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Postby Smarticus » Mon May 11, 2009 10:29 pm

Thanks both - very helpful. I have submitted an offer today - fingers crossed. The access is fairly good and there is a pulp mill within 3 miles - so on that basis I think the asking price is realistic. I'll let you know whether the offer is accepted.


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Postby tracy » Fri May 15, 2009 3:29 pm

Is pulp the only product that spruce can be sold for? What kind of price can one expect to get for it?

Hope all works out well for you Smarticus!


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Postby Darren » Fri May 15, 2009 5:57 pm

I turn mine into firewood for home.


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Postby John H » Sat May 16, 2009 4:16 pm

When we had contractors in two winters ago to clear fell 30 acres of spruce and larch we got £15 per ton, not much of a return per acre considering the crop had been growing for over 50 years but not too bad as we had only owned the land for just over a year. However it is a PAWS site (plantation on an ancient woodland) and the FC were giving very generous grants that year, so the felling made available a lot of grant money for putting in new tracks, an access road and refencing. The replanting grant was also quite generous.

John


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Postby Smarticus » Sun May 17, 2009 6:38 pm

Well my offer was turned down :-( I made what I thought was a pretty full offer at £1,350 an acre (or £3,250 ish a hectare). My research indicated that the price of sitka spruce plantation ranges from around £900 to £1,500 an acre depending on age, access, ground conditions, distance from market etc etc. But the vendor clearly thinks this parcel of land will command a higher price from someone who does less sums and lets their heart rule their head.


My research did however suggest that as more biomass power generation capacity comes on stream in the UK (and there is a huge amount in for planning at present) the price of timber may well rise. Having said that, the UK is way too small a place to service the needs of the biomass power plants in planning. That will need huge imports of timber from countries such as Canada and Russia (although some top up from indigenous supplies may well be needed and paid for).


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Postby John H » Sun May 17, 2009 7:18 pm

Sorry to hear your offer was turned down but £1350 an acre does sound a bit low. I suppose it depends whether you look at it from the potential financial return or whether you are looking for a sylvicultural project. Even poor quality farm land can make £3000 to £4000 an acre. Guide prices are normally much lower than the actual sale price. The FC may give grants for thinning, we had a grant of about £500 per acre to thin some larch.

John


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Postby Stephen1 » Mon May 18, 2009 9:03 am

Hi Smarticus


Sorry to hear your offer was turned down - I also think it was a bit low, but we'll agree to disagree on how you did your sums.


Good luck with looking for the next one!


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