By Jim Griffith
Do you have a savings account? Are you using your timber and timberland as your savings account? I run across many timber owners that are. Using your timberland as a savings account might be a good idea. But when you think about it, is it really?
I met two separate individuals this past year that were using their timber as a savings account. They might think differently today, if they still had timber to sell. Both landowners had 100-acre properties. One had trees 75 years old and the other landowner’s trees were over 100 years old. Both were once fine and extremely valuable assets.
Unfortunately, on separate occasions tornados came through these landowners’ properties and destroyed their “savings accounts.” If you are not aware, a tornado does not just blow over trees like high winds of a hurricane, which can still be costly. A tornado twists the tree off the stump or breaks it in half, splintering the tree in pieces and making it useless for any solid wood product like lumber, plywood, or poles. In fact, it makes such a tangled mess of the forest it is difficult to even get a logger to harvest the mangled trees as pulpwood. What was once a $40 to $55 per ton tree, following the wrath of a tornado, is now worth only about $4 to $6 per ton; quite a loss wouldn’t you agree? One of these owners told me he got 20 cents on the dollar for his trees.
This type of loss does not have to occur. Both of these tragic losses could have been avoided. I am not saying you can prevent a tornado or other natural catastrophe from attacking your property. I can best describe the real tragedy here by comparing this situation to a savings bond that matures at 20 years. If you keep a savings bond beyond the 20-year maturity date you are not making any more money on that bond by holding it one day or 20 more years past the maturity date. It is sitting there earning you no interest or value in principle past the date of maturity. Now, if you sell or cash in that savings bond at the 20-year maturity date and reinvest that money in a new bond or savings investment of some sort earning interest, then you are making money on that asset; a good management decision.
Beyond a certain age, your old growth timber asset becomes much like that mature bond and is no longer earning you interest on your principle. The economic growth curve has flattened and could begin to decline at some point. At least with a bond, there is little chance of a tornado destroying it and losing your entire asset like happened with this unprotected over-mature timber asset.
I understand there are other than economic reasons for management. It is my job to help you understand the risk of those other management decisions. Don’t think the odds of a tornado destroying your timber is too minute a risk for you to be concerned about. There are always other means of destruction when it comes to natural resources, like beetles and other insects, fire, hurricanes, government encroachments on your cutting rights for numerous reasons, etc.
If you’ve been using your timberland as a savings account, then maybe you should talk with a professional forester, before you have storm or insect damage to regret.
Jim Griffith is general manager of the Georgia Farm Bureau Timber and Real Estate Companies.
Georgia Farm Bureau News – December 2006
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