@David Huffaker
Your "curious about the financials" note above. Also after you read the following, do you really want to invest in Timber? The quick answer is 99.9% of the world should not do this investment, they will lose money. Yes, I'm part of the 0.1% that can make money on this deal, because of my background and what I consider fun and interesting. Note, most of the profit we make off this and other Teak projects, will go to two of my Belizean workers. Showing them how to get rich. Both of them are worth about USD $1,000 combined. Have only "time" to contribute or lose. In about 10 years they should be worth more than USD $500,000 individually and more importantly have a business model and the knowledge to expand in Belize and other countries. I will get a lot of fun out of it, plus make money now and off their future efforts which I will not be involved with, other than as a Passive recipient.
Cost- if you did traditional logging and sawmilling operations, you would need about $3,000,000 of equipment on the cheap to start out. I plan to only use $150,000. Thus our business model we can scale at a lower level of volume.
Throughout Central and South America and Africa, Teak planting was the rage about 15 to 20 years ago. So there are a lot of small plots all over, but no one has developed a localized market. That is where we come in. The normal production cycle is around 25 years, by buying or cooping with the land owners we will cut off about 5 to 10 years, and my basic model is to not put any money into the trees up front. As noted above the trees are the cheapest part of the value stream. So why are we planting Teak trees if that is not where the money is? For the fun of it and to also give us credence and for my team to understand what it takes to make quality lumber. You can tell people, but they learn better by doing.
Before we move on, lets ask why not Mahogany which is native to Belize? The wood door above is Mahogany.:
a. Stemborer- Mahogany is impacted by a moth, called a stem borer until it reaches a certain height, above 15 feet. The moth literally bores into the tree stem and lays eggs. This causes the tree to be deformed at that point and send out many limbs and the central trunk basically stops growing. You might get one log out of it. You can spray the trees, but how often with a rainy season and how many years. You just have to "miss" one time and the trees are ruined.
b. Belize and most 2nd and third world countries do not have a "long" view or a reforestration plan. Thus as Mahogany is cut, it is not replanted. Thus the forest is dwindling.
c. Market- India and China are both upcoming countries in both GDP and population size. Teak is a well known product and Status symbol there. Mahogany is more of an European or local market. The Local market is not what carries value.
Quality based on grade of wood.
We already covered general pricing above, based on Processing stage. Now let's look at Quality based on grade of wood.
There are primarily two different terminologies and methods to grade Quality. We will use the British or UK model which is primarily used in the India and China markets where we will be marketing to.
Quality grades: This is a general discussion, there are more detail determinants, I am not showing.
A- basically no flaws, generally 100% "Heart" wood. You can also have 1 sided "A" lumber, where a minimal knot is on the bottom of the wood not visible at the top, like a Table bottom.
B- minimal knot or two showing, more coloration variation in the wood.
C- can have "Live" wood and more knots, and dead knots or holes.
Rough- could have "live wood" or "Wane". Wane is missing wood or bark. As you make your preliminary cuts along the sides of the logs, the log generally will not be symmetrical. Could be 15 inches at the top and 20 inches at the bottom. Thus some portion might miss some wood.
"Rough" and "C" lumber might only be worth 1/10th or 1/5th the value of "A" lumber.
How do you "Make" Quality lumber?
You can grow quality lumber.
You can cut Quality lumber.
You can both Grow and Cut Quality lumber.
Last you have to Sell Quality lumber.
All of the above sound so basic, but until you have Failed or someone holds it in front of your face, you don't know. Thus you just wasted 25 years and received only 1/2 the money you could of.
Grow:
a. Seed selection or cloned teak. Some people save money by collecting local seed. Savings Pennies versus $100,000 more. Again, cloned teak are generally from the same mother tree source or a couple of trees. They are selected for fast growth, few limbs and to grow straight. The straighter a tree is, the higher it will Grade in Quality. Clones cost about $.25 more per seedling but worth far more in outcome.
b. Thinning- around years 7, 14, 20 you need to be thinning. Thin out deformed, curved, and slow growing. Also allows the remaining "Quality" trees to grow thicker, thus more Quality lumber. On a 10 foot x 10 planting grid on an acre. You would have 435 trees. Year 7 you would thin about 1/2 down to say 220. Year 14 you would thin about 1/2 down to around 110. Year 20 you might thin out a few more. Don't take the good ones. Year 25 you will have around 65 left to harvest.
Even at Year 25 these are still "baby" teaks. On a percentage of Mass basis, Teak grows the most from about year 5 to 12. Then the growth percentage starts to slow down. Keep in mind though you are after Quality lumber and value and not Mass wood.
As the trees get older the amount of "Live Wood" starts to shrink, thus more Quality wood.
Also from a percentage standpoint, say a 10 year old tree with a diameter of 10 inches grows 5%; but a 25 year old tree with a diameter of 20 inches grows at 3 %. Which one earned you the most money, for that year?
Thus at year 25 with 65 trees; you might decide to leave the best 15 trees and let them grow to 35 years old.
Cutting for Quality:
a. Log Magic- sometimes less is better and sometimes more is worth a lot more. I will have to get you some log cutting pictures to show you the Magic. But can you imagine the loss of money if someone didn't understand this Magic?
1. So you have a 12 foot log worth say $100; but I say cut it into an 8 foot log and make it worth $200.;
2. You have a 16 foot log that you could cut two 8 foot logs worth $250; but I say cut one 10 foot log worth $400.
3. Two 5 foot logs are worth $80; One 10 foot log is worth $400.
b. "Cutting" the tree down. So all of us cut the same tree down, at the exact same spot. Which tree is worth more? It is amazing the amount of pent up force in a falling tree. If you don't cut the tree correctly, as it falls part of the tree might not be cut all of the way through. A one to three foot piece of the tree could be pulled out of the bottom and leave a hollow spot in the bottom log. This cuts the grade down. You can also crack the bottom log if it isn't cut correctly.
c. So you have the tree cut down. You have cut it into logs. Did you "Paint/Seal" (to be more descriptive) the ends of the logs? When you cut a tree down it immediately starts to dry out. It dries way faster at the cut portions than through the Bark. This sped up localized drying causes the log to both Crack at the ends and to build up "Tension" inside the log. When you go to mill the log, the lumber can twist and come out wavy due to the tension in the log.
d. Dimensional lumber-
1. So you have a log on your Sawmill bed. It has 360 degrees of side. How do you determine which sides to start cutting first so you get the most value out of it? Picture a log with a big limb knot on one side. You could cut the log cross way with the limb, but then all of the boards on that side would have a knot in it. Or you could cut the log with the large limb knot, say vertical, so the knot only shows in one or two boards.
2. Kerf- Generally all Sawmills use a band saw. The one I will use has a Circular blade, just like a Skil Saw you would use at home. The Band saw blade is significantly Thinner than the Circular blade so you keep more wood. On one board you wouldn't care. But over many boards, you might end up with 10% more lumber. The Band saw blade has many small teeth, whereas the Circular blade might have 12 big teeth. The Band saw blade will produce a smoother surface. This means less wood is lost when you go to "Plane" the lumber to size". Again more quality lumber. Then why am I going to use a Circular Blade? Another story.
e. Cut to random lengths- Let's say your logs are to 8 foot lengths. Let's say the price per Square board feet is "A" $10; and for a "C" is $2 at this processing stage. If the knots in the "C" board are in the last two feet of the board, then you cut off two feet and now it is an "A" quality board.
f. Joining- You're "Rough" grade lumber, is it even worth it to ship it to India/China? Either sell it into the local market as construction lumber; or trim/Join it. Cut or trim all of the bad wood or open pieces out of the board. Then trim into standard small lengths. Then "Join" and glue them together into any size board you want. You could make 4 inch wide joined boards. Or you could join the 4 inch widths into 8 inch widths or greater thicknesses.
Selling for Quality:
a. Selling for Quality lumber requires Sorting. If I bake you a cake and you find a piece of paper in one slice. Is the rest of the cake bad? If your the customer or buyer the whole cake is bad, and you will only pay me for a bad cake. When dealing with overseas buyers you want to Sort to their Specs within the price range you are selling. Any deviation and they will want a price concession and its to late, the product is overseas.
b. When to Sell? Teak is a tropical climate tree. It is really hard to cut and deliver timber during the Rainy season. Then get it to the sawmill for processing. Sell your lumber right before the next Rainy season, when supply of lumber is Short, "hopefully", or you will need to sell at a lower price or carry for a year.
What does this have to do with Real estate? Timber land is a great investment. As mentioned before a Banana, you have to sell immediately. Timber you can let grow and it gains value. Whether Teak or Southern Pine, the above items or concepts will need to be applied to determine the value of your property or purchase price.
