Realistic Returns

Projecting returns is of course very simple. Just calculate enormous prices for your timber, forget about costs and you get enormous returns. I see that all to often when I look at my competitors in the market.

Like I explained in an earlier blog, there is more to forestry than simply growing some trees and then harvesting them. Besides the 3 ways you can utilize timber: Biomass, poles and sawn timber, the costs involved play a major role in determining the overall returns.

I looked at the returns another forestry company was projecting for the sale of their biomass and could quicky see that they forgot all about the costs that are involved with the harvesting and processing. They projected that X amount of trees would produce Y amount of cubic metres. The volume in cubic metres was then simply muliplied by the price per cubic metre and voila, enormous returns after only a few years!

Appearently the costs for harvesting, processing, transport and sales are conveniently ignored. If you produce on a large scale then those costs are comparatively lower than if you produce on a smaller scale. Still, those costs are there and have to be taken into account. Let's stay with this example of producing biomass for a while. When producing forestry for biomass, you have little or no costs for maintenance, just let the trees grow in every which way they want, you're looking for volume, not straight trees. That's a big benefit of growing for biomass. But, the trees still have to be harvested after 3-5 years. That can be done by professional harvesting machines, where you put the trees into one end of the machine and it comes out as wood chips on the other end. Needless to say that those machines are quite expensive to purchase. You can hire special companies for this, who have all this equipment in house and do nothing else but harvest trees for biomass.

This is how most of the farmers who produce biomass operate. They hire a harvesting company to do this for them. Then the wood chips have to be transported to the electricity plants to be used as fuel. Now come the costs of this process: Calculate up to 30-40 Euro per ton/ m³ for this.

Lets see how much this costs for our Robinia Poles.

First we cut the trees, then we seperate the straight end from the crown, which would be roughly half of the tree. The straight timber is then transported to a sawmill. Transporting trees is of course much more cost effective then transporting biomass. You can only transport 25 tons of timber per truck in Germany. 25 Tons of timber has a much higher value than 25 tons of wood chips, naturally. This is why wood chips can only be transported to a maximum of 100 km, after that the exercise becomes counter productive.

When our timber arrives at the sawmill, there are actually 3 different processes that have to take place:

We debark the trees
We saw the timber into poles
We point the poles (so that they can be easily put in the ground)

The costs involved are quite high, that's why a lot of forest owners don't do this. They simply cut the trees in their forest and then sell them "lying on the road" as they say. If you want to have more money for your trees, you will have to pay for more processes. First you have to pay, but later you can sell your timber for a much higher price. Like I explained in an earlier blog. This is why we calculate up to 20% of costs for the above process, instead of a mere 5-10% which I see at some of my competitors.

Robinia Poles, by the way, are the most sought after commodity as far Robinia wood goes. I've been contacted by various companies already who asked if I had poles for sale. Regrettably I had to say I did not. From the total volume these companies want in Robinia wood, 70% consists of poles!

If you want to know if the prices we project for our Robinia poles is accurate, please visit your local garden centre and aks for 2 metre Robinia poles. You will be amazed at what they cost. They cost much in the initial purchase, but because of their longevity of 20 years without maintenance, in the end they are cheaper than other softer woods.

Wouter Bakker