Investment Analysis of Upland Oak Stands with Sugar Maple Understories: Management for Oak vs. Conversion to Sugar Maple in Iowa and Missouri

Abstract

A land and timber expectation value (LTEV) was developed by modifying the Faustmann formula (Le) to allow for overlapping rotations, easy sensitivity analysis, alternative management strategies with different rotation lengths, and a unique initial, existing timber stand. This LTEV establishes a value (i.e., price one can pay) for a parcel of land, existing timber thereon, and management scenario analyzed that will result in a rate of return equal to the selected discount rate. LTEV was then used to analyze management scenarios typical of Iowa and Missouri for oak shelterwood, oak clearcutting, oak underplanting, and conversion to sugar maple. In stands with medium and high initial stand values, which tend to occur on sites that produce higher yields of quality oaks, sugar maple has the largest LTEV if the oak stand is past economic maturity, because of higher carrying and silvicultural costs associated with the oak alternatives. In general, the preferred oak alternatives on these sites were clearcutting, then underplanting, and then shelterwood. In stands with low initial stand values, which tend to occur on poorer sites, where there are lower market prices or where there was poor past management, oak has larger LTEVs than sugar maple. In general, shelterwood was the most economical for oak, followed by clearcutting and then underplanting. If the existing oak stand can be entered before the stand reaches economic maturity, oak shelterwood and underplanting LTEVs can be larger than those for sugar maple, even on the better sites, because carrying costs are offset by stand value growth. When this occurs, the higher final stand value of oak causes it to rank higher than sugar maple. In making the final decision to favor oak or maple, other factors such as landowner values and objectives must also be considered. North. J. Appl. For. 6:165-169, December 1989.

Investment Analysis of Agri-Food Ventures: What Risk Premia are Appropriate? The Silence of the Literature

“…Kieker and Leiblich (1986) do not give the basis for choosing the discount rate but combine a 6 % real discount rate with an overall inflation rate of 3.4 % to derive a nominal discount rate equivalent to 9.64%. Countryman and Miller (1989) indicate that researchers could use the interest rate on a certificate of deposit as the discount rate because that is the individual's investment alternative. Brewer et al (1990) obtain IRRs ranging from virtually zero to 22% on a potato storage investment.…”