Why Active Management Is Actually Good for Forests
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This article was edited to meet broker-dealer compliance guidelines in May of 2023.
A forest is the source of many products, services, and recreational activities. We derive many benefits from a forest. For an increasing number of landowners, a forest can be seen as an investment, and it is essential to plan accordingly to maximize long term benefits.
But at first glance, investing in timber and keeping it healthy may seem completely at odds. Isn’t cutting down trees bad for forests and the planet?
In a word, no. Forest stewardship and timber investment are not mutually exclusive. It is possible to manage your land actively and, at the same time, leave it in better environmental condition. This article shares our perspective on why and how active management can have very positive and long term benefits for forest health.
- Forest mortality due to acts of nature can be mitigated through active management activities like thinning and prescribed burning.
- Because healthy timber can be “stored on the stump,” active management practices that keep forests healthy and risk-resistant with the goal to help maximize investment return potential.
What Does Forest Management Do?
When it comes to timber investments, trees are a crop like any other. Thus, forest management principles do not differ greatly from those for agricultural field crops. Like other crops, trees require light, water, nutrients, space, and protection from insects and diseases. The fundamental growth processes are comparable.
The major difference is the length of time required to reach maturity. The growth potential of a tree is strongly influenced by genetics, but environmental variables play a large role in determining expression of genes and, thus, actual growth. Numerous environmental factors affect growth; of these, water, nutrients, and light intensity are most easily manipulated.
Good forest management, in effect, mimics the processes of nature. For example, planting only native species is non-disruptive and helps trees take advantage of their natural environment. Prescribed burning mimics natural fires and is very effective at reducing hazardous fuels and restoring ecological conditions with the forest.
Mitigating Forest Health Risks
Generally, the biggest risks to long term forest investments can be categorized as acts of nature. Acts of nature include natural disasters, such as fire, floods, hurricanes, and pests. On average, losses from fire, disease, and other natural occurrences tend to be low, causing, on average, no more losses than natural mortality.
There are measures forest landowners can take to minimize the chances of this occurrence. For example, a well-managed stand of timber that is properly thinned can greatly reduce the chances of pestilence. Reducing the fuel load by periodic prescribed burning can minimize the chances of destruction from wildfire. Risks still exist because we cannot control acts of nature (ice storms, hurricanes, floods, etc.), but we can reduce the risk as much as possible.
Image source: U.S. Forest Service
Overgrown forests like the one to the left are a key contributor to the wildfire crisis we have seen in the past years in the western U.S. Such forests experienced significant tree mortality during recent droughts. The thinned forest on the right, however, mimics historical forest conditions and experiences far less tree mortality during the same drought conditions.
Image source: U.S. Forest Service
Can well-managed logging of forest trees help reduce fires? Absolutely.
In the image above, the increased number of trees and accumulated forest fuels makes the forest on the left more susceptible to drought and wildfire. In a forest that has not undergone thinning or controlled burning, the increased number of trees directly correlates to accumulated forest fuels, making the forest more susceptible to drought and wildfire. The photo to the right shows the same forest after thinning and prescribed fire. This forest is now more resilient to drought, wildfire, and other disturbances.
Although the principal goal of thinning is improving the growth and value of stands, other benefits are often simultaneously obtained. These benefits include hazard reductions for insect infestations, disease epidemics, and damage due to abiotic agents. Prescribed burns are also excellent for wildlife; the burn cleans the forest floor and promotes fresh regrowth.
These practices are frequently implemented by the U.S. Forest Service to try to mitigate the effects of wildfires in the American West. In fact, they are so crucial that we’ve seen recent legislative measures introduced to promote active forest management on federal lands.
Market Timing and Timber Returns
Are sustainable forests profitable? When managed properly, they can be.
The rate of timber growth and increase in value can be enhanced through such timber management practices as selective thinning and the timing of timber harvests to capture market upturns. Removing poorly formed, unhealthy trees and the less desirable species from a stand allows the healthy (more valuable) trees room to grow faster.
Note that, as opposed to pure timber owners, most integrated forest products companies do not have the luxury to be able to time the market. They own timberlands to supply the mills, and, because of fixed costs, mills tend to keep running through good times and bad. Within limits (e.g., labor constraints, weather), timber investors can choose to let trees grow if markets turn soft or accelerate cutting if markets are good. Good management promotes growth and therefore can help maximize returns on timberland investments.
A unique characteristic of timber is that it can be stored “on the stump” as it is grown. Timberland, in effect, functions both as a factory and a warehouse. When trees reach harvestable size, those timber owners who are not compelled to feed mills have the flexibility of harvesting when they want to (i.e., when prices are high) rather than when they must.
The basic principle of active forest management, whether for investment or any other purpose, is simply: be a good land steward. Stewardship and profit are not mutually exclusive. In fact, active management can often leave a forest in better environmental condition than its absence. The best forest investors practice good forest stewardship.
We at AcreTrader are committed to sustainable active management and are proud to work side by side with investors in preserving our forests. Visit our investments page to read about management plans for past and current timber property offerings.
The above content is not intended to be a comparison between products, but is intended for general, educational and informational purposes only. Any performance noted is historical and there is no guarantee any trends will continue. All investing involves risks, including the complete loss of principal. Diversification does not guarantee a profit or protect against loss in a declining market. It is important for each investor to review their investment objectives, risk tolerance, tax liability and liquidity needs before investing. Investment vehicles have differences in fee structure, risk factors and objectives. Investments are considered speculative, involve a high degree of risk and therefore are not suitable for all investors.
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