Teak

For an independent view of the wisdom of investing in trees being grown for harvest, you may want to go to Investing in Tropical Hardwood Trees to read excerpts of what The Economist, Bloomberg Wealth Manger, Smart Money Magazine, and Moneyweek have to say.

A few examples:
". . . timber is a near perfect asset"
". . . real prices for timber have steadily risen for more than 100 years - better performance than any other commodity . . ."
"clients inclined toward socially responsible investing will find even more to like in timber . . .."

Whether planning ahead for future college tuition or for your retirement, passing increased wealth on to a younger generation, or simply because you would like to have your own supply of beautiful tropical hardwoods, teak is the only species for which sufficient published data exists to allow us to make reasonably detailed projections of potential harvests and yields. 

The tables below therefore reflect our actual results from our earliest thinnings and historically-based data for the subsequent thinnings and final harvests. 

TEAK PROJECTIONS - 100 TREES, Table 1 for teak trees planted from seed and Table 2 for lite teak clones

Table 1: This table shows the projected growth, harvests and yields from planting 100 teak trees in our plantations. These projections are based upon a lumber price of $2.511 and $3.161 per board foot respectively for the first and second thinnings, and $3.001 per board foot increasing at an annual rate of 6%2 for the subsequent thinnings and the final harvest. The harvest and processing costs for the first two thinnings are shown at our actual cost percentage and for the subsequent thinnings our actual cost of $0.29 per board foot, increasing at the same annual rate as the value of the lumber.  Please read the Notes to Projections below for more information and explanations of the assumptions and calculations used in arriving at these projections.  (Click any note reference, such as 1 for example, to go to the corresponding paragraph in the Notes to Projections).

Teak Projections - 100 Trees from seed (please scroll down for Elite Teak Clone projections)
(Note:  Please scroll to the right to view the entire table)

TABLA
Table 2: This table below shows the projected growth, harvests and yields from planting 100 elite teak clones in our plantations.

The calculations and assumptions for our elite teak clones are the same as for our teak planted from seed except that we have reduced the mortality and cull loss for the elite clones to 10% because there will be fewer culls, and the growth assumptions for our elite teak clones are 15% greater on average than for teak trees planted from seed. To be conservative, the growth we have projected for our elite clones is still less than some of our best teak trees planted from seed are actually growing.

Similarly, for the projected thinning and harvest dates, where our foresters specified a range, we chose the longer date. For example, they said that the first thinning would be after 5 or 6 years, we chose 6 years. And they projected the final harvest of the elite teak clones to be from 18 to 20 years, so we chose 20 years.

The projections below do not include any provision for the expected high-value veneer logs.

Other than these items above, the Notes to Projections below also apply.

Elite Teak Clone Projections - 100 Trees
(Note:  Please scroll to the right to view the entire table)

Table 3: The table below is based upon the yields and costs for teak from seed shown in Table 1 and illustrates the effect of different annual increases in teak prices, ranging from 0% (no increase) to 10% per year, on the profits and internal rate of return, IRR16. (See Note 2 in Notes to Projections.)  
(Note: Please scroll to the right to view the entire table)

NOTE: THE PROJECTIONS IN THESE TABLES, AND THE EXPLANATORY NOTES, ARE PROVIDED FOR YOU TO BETTER UNDERSTAND THE PROCESS OF GROWING AND HARVESTING TEAK TREES. WHILE WE BELIEVE THESE ESTIMATES OF GROWTH, COSTS AND YIELDS TO BE FAIR AND REASONABLE, WE CANNOT GUARANTEE THE FUTURE VALUE OF YOUR TREES, NOR THE LUMBER OR PROCEEDS YOU WILL RECEIVE FROM THEIR HARVEST. IF YOUR DECISION TO HAVE US PLANT TROPICAL HARDWOOD TREES FOR YOU IS MOTIVATED BY THE EXPECTATION OF FUTURE PROFITS, WE ENCOURAGE YOU TO SEEK THE COUNSEL OF AN INDEPENDENT PROFESSIONAL WHO CAN EVALUATE THE REASONABLENESS AND ACCURACY OF THESE PROJECTIONS.

Notes to Projections

1. The projections above are based upon an actual lumber price of $2.51 and $3.16 per board foot respectively for the young teak from the first and second thinnings, which is the price that Raleo, our sister company, can support paying for the young teak from our first two thinnings, and $3.00 per board foot beginning price on the international market, increasing at an annual rate of 6%2, for the subsequent thinnings and the final harvest.

It is important to note that although the young teak lumber from the first two thinnings is quite beautiful and wonderful for indoor furnishings, the lumber is smaller in dimension and is not yet weather resistant and it is that weather resistance of the teak lumber from more mature trees that gives teak its high value on the international market.

The beauty of young teak is not yet widely known, and were it not for Raleo, the youngest teak from the earliest thinnings presently would bring a much lower price on the local market than the $2.51 and $3.16 per board foot price shown for the first two thinnings.

The $3.00 per board foot beginning price for adult teak, increasing at 6% per year, that we have used in our projections for the older teak from the subsequent thinnings and final harvest is intentionally conservative, and may well be quite low.

For current ITTO teak sawnwood lumber prices in the US and European markets, go to Teak Lumber Price.

2. The projections in Table 1 are based upon the price of teak increasing at 6% per year.

Historically, according to the United Nations FAO publication Forest Products Prices, the median export/import prices of teak rose at an average rate of 9.7% per year for the 18 years from 1970 to 1988 (the last year of the report), and 13.2% per year for the last four years of the report.

Teak prices have been rising at a rate greater than the 6% used in these projections.

3. Both the timing and number of trees harvested for the first two thinnings are based upon our actual practices here on our plantations, and for the subsequent thinnings and final harvest, on a combination of our experience and the latest published silvicultural practices derived from years of others' experience in teak plantations.

The actual thinnings and harvests of your trees will be determined by our professional foresters, who monitor the growth profiles of your trees in the plantations.

Please also note that if you elect to have us sell your hardwoods for you, several additional months after any thinning or harvest will be required to mill, dry and grade your lumber and prepare it for the international export market. An additional year or more may be required for the earliest thinnings, because young tropical hardwoods are less known, or even unknown, in the world markets.

4. The projections above for teak planted from seed include a mortality and cull loss of 15%. Our actual mortality and cull loss is lower, but we have left it at 15% to be conservative. The most likely period of mortality or cull loss is during the first years after field planting. Our foresters will examine your trees frequently during this period and, during the first year, we will promptly replant, at no charge to you, any tree that is not healthy or in any way not growing properly. Once the trees are past the age of their first thinning, the mortality and cull loss will likely be essentially 0% because we will have removed all of the culls in the first thinning, and if a tree is lost after the first thinning, we will simply mill it into lumber, either for your use or to be sold, as you direct.

5. The height and diameter growth estimates are based upon growth rates obtained in plantations in  Central America and the Caribbean . Our actual teak growth rates exceed these projections.
 
6. For teak, our estimated volume per tree is arrived at by multiplying the basal area of the tree (Pi x (1/2 diameter)2) times the usable height of the tree, and then reducing the result by 35%, since a tree trunk is not a true cylinder. These projections are based upon the volume of the trunks and do not include the additional wood volume that may be obtained from the larger branches in the later harvests.

7. The amount of marketable wood per tree is stated in board feet, a standard measure used in the U.S. for lumber. One board foot is one foot square by one inch thick (12" x 12" x 1"). There are 12 board feet in a cubic foot of lumber and 424 board feet in a cubic meter of lumber.

The 29 board feet per tree shown for the first thinning are our actual results from our first thinning of tens of thousands of young teak trees and is 11% ahead of the 26 board feet in our original projections.
The estimated amounts of marketable wood for the subsequent thinnings and final harvest are based upon the estimated volume per tree in cubic feet, multiplied times 12 to obtain the number of board feet, and then reduced by the estimated amount of processing waste, which is sawing losses and damage to the logs while being harvested, transported and processed. The inefficiency of smaller diameter logs results in greater sawing loss on younger, smaller trees. Accordingly, we have subtracted a processing waste of 55% for the 10 year old trees thinned, 45% for the 13 year old trees, and 30% for those 16 years old and older. We will likely achieve more efficient yields than those projected since we mill everything ourselves right on the farms, using the latest thin-kerf, high-yield bandmill technology.

8. The value per tree is arrived at by multiplying the number of marketable board feet per tree times the price per board foot at the time of harvest. See Notes 1 and 2 above. Although we are managing our plantations with the objective of producing veneer-quality logs from the older trees, the projected values per tree in these projections are based only upon the value of sawn lumber the tree may produce and do not include any estimate of premium value which veneer logs may bring once the trees are larger.

9. Gross harvest proceeds, the estimated gross value of the lumber from each harvest, is arrived at by multiplying the estimated value per tree times the number of trees harvested in that thinning or harvest.

10. Harvest and processing costs are the direct costs of harvesting your trees, milling your logs into marketable lumber, and drying your lumber.

For the first thinning in the projections, we have used our actual harvest and processing costs from harvesting and milling more than 1 million board feet of lumber from our own first thinnings. Our costs have averaged $.29 per board foot, or 11.5% of the value of the lumber. For the second thinning we used the same 11.5% cost we have incurred so far.  And for the subsequent thinnings and final harvest we have used our actual cost of $0.29 per board foot, increasing annually at the same annual rate as the increase in the price of teak.

11. Net harvest proceeds are arrived at by subtracting the estimated harvest and processing costs from gross harvest proceeds.

12. The care and management fee is our reward for managing the care and maintenance of your trees and the harvest, processing and sale of your hardwoods. Our care and management fee is fixed at 6% of the net harvest proceeds. We will defer receiving our care and management fee until you have first received the return of the cost of your trees.

13. Net profit per harvest is your estimated net cash flow from each harvest if you have us sell your trees, arrived at by subtracting our care and management fee from the net harvest proceeds.

14. Especially for the earliest thinnings, it would be good to anticipate as much as a year or more delay from the time of the thinning harvest until your lumber is milled, dried, and marketed if that is your wish. This anticipated delay is incorporated into the calculations of the IRR for the first and second thinnings.

15. Cumulative net proceeds is a running total of your estimated cash flow from the harvests of your trees if you have us sell your lumber.

16. The internal rate of return, or IRR, is the calculation of the annual compound yield from the projected cash flow if you have us sell your lumber for you, based on the 100-tree price of $4,992 per 100 teak trees.  Lower tree prices for higher quantities would result in a higher projected IRR.

Teak (Tectona grandis) has been grown for more than 100 years, so it is a mainstay for many plantations.  it is considered a very valuable wood because of its ability to withstand weather. It even prevents any metal used in it from rusting.  Teak is very stable, which means that it does not warp when subjected to variations in humidity and temperature.

Teak is not native to Costa Rica but grows very well there. There are many monoculture plantations of teak in Costa Rica . It is a pioneer species; in other words, it prefers no competition, so for the first few years, it has to be cleared of weeds and kept from being shaded. After about three years, the trees are large enough to shade out competing vegetation. Teak requires very good drainage and rich soil. It prefers a dry season of about three months.

Teak is usually planted when the seedlings or clones are four to six weeks old.  At this time, about 96 trees will fit in a 1-meter flat, as you can see in the picture on the left. On our plantation, because of the richness of the soil, we are planting in a grid of 3.5 x 3.5 meters. The picture shows one of our managers instructing the workers on how to plant the trees. Teak grows amazingly fast, particularly for a hardwood. Those of us from northern climates are used to hardwood trees taking forever to get any size. On Finca Leola, the teak seedlings are growing at half an inch per day! You have to see growth like this to believe it.

Here on the left is a picture of the same fields after 4 months. The same 1-meter flat is leaning up against a teak tree that was planted from it just a few months before. The large leaves surrounding it are tiquizque, grown between the trees as an agroforestry practice for weed control. (The teak has the reddish leaves.)

Teak rapidly puts on height as well as diameter.  After the trees starting gaining height, you must prune the lower leaves.  The most valuable trees are those that grow straight and tall with no limbs in the trunk area.  By pruning away all except the top 1/3 of the leaves, you create superior wood.  Because teak grows so fast, the plantation needs a lot of attention for the first three years.

It was amazing to us when we returned to the plantation after four months.  We were getting enthusiastic reports all along, but the impact of seeing the plantation was indescribable.  We really knew that we had done a good thing and that our dreams were going to be realized.

Teak produces between 12 to 26 cubic meters in volume of wood per year.  Based on the observed growth on Finca Leola, we appear to be close to, if not at, the high-end growth rate of 26 cubic meters (the trees in the photo at left are only one year old). The price for teak has been going up steadily for many years, at a rate consistently over 6% per year. Currently, teak buyers from other parts of the world are having difficulty finding as many teak logs as they would like to buy from Costa Rican plantations.

http://www.treebankinginc.com/TreeBanking/TropicalTreeInformationTeak/tabid/88/Default.aspx

Currently there are estimated to be 6.0 million hectares of teak in the world; 5.5 million of these are in Asia (with 43 % in India, 31 % in Indonesia, 7 % in Thailand, 6 % in Myanmar, 3% in Bangladesh and 2 % in Sri Lanka); 5.0 % of the world’s teak plantation area is in Africa (0.3 million hectares), and 3.0 % in South America (0.2 million hectare). Teak has been planted in South America since the beginning in of the 20th century, in Costa Rica since 1929. The raw material is produced in Costa Rica by local farmers and plantation owners applying extensive and intensive cultivation methods.

Demand is global, with the main purchasers coming from Asia, America and Europe .

Teak is well known for its use in shipbuilding and the furniture industry. These are being joined by new fields of application such as the building component sector or products for facade and window construction.

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