Trees Generate
a Positive Rate of Return
The economic value of trees and
forests increases over time as the trees grow. As trees grow larger in
diameter and height, their value as a harvested product also increases. Anyone
of us who invests money in a business or a mutual fund expects a positive rate
of return on our investment. For example, a farm business invests labor, land
and money into growing and harvesting crops that will produce a profit when
sold. The amount of profit is reflected in the “rate of return” on the
initial investment. The greater the profit is, the greater the rate of return.
Examples:
1. A red oak tree that is 10”
dbh and has a straight stem is worth $6.97. In ten years, the tree has grown
to about 12.5” dbh and the value of that tree has more than doubled to
$15.63. The rate of return over that 10-year period is 8.4%.
2.
A red oak tree that is 14”
dbh and has a straight stem is worth $37.41. In ten years the tree is about
16.5” dbh and the value has tripled to $101.31. The rate of return over that
10-year period is 10.5%.
3. A red oak tree that is 18”
dbh and has a straight stem with no branches or other defects can be
considered a veneer tree worth $125.15. In ten years that tree is about
20.5” dbh and the value is $185.66. The yearly rate of return over the
10-year period is 4.02%.
The rate of return on a growing
tree changes according to how fast it grows, the quality of the stem and
market conditions. The annual rate of return can be compared with other
investments of similar risk and duration. Forest landowners should check
current timber prices and seek professional advice about the quality of their
trees before they harvest. It may be financially advantageous to wait to cut your trees if the rate
of return of the growing forest is higher than selling the timber now and
investing the money in another option such as a Certificate of Deposit.
| 
