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Potential profit of your investment

Let's assume you invest US$ 40,000 in 1,000 mahogany trees and you want to know what a potential gross return on your investment could be. The projections below are provided as a possible development of this investment portfolio. Although we believe the estimates of mahogany tree growth and timber prices we used in these projections are fair and reasonable we can't guarantee the future value of your trees. We advise you to seek counseling of an independent professional who can evaluate the risks and projections in light of your overall investment strategy and portfolio before you decide to have us plant trees for you on our farms. Links to articles about the attractiveness of investments in growing trees for harvest are here.

Trees sold for wood products are purchased in some form of volume. Tons, cords, cunits and board foot are common measurements used to buy and sell trees. We will use the board foot (the standard measure used in the US) to calculate the size of your tree. One board foot is one foot by one foot 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 m³ of lumber.

Mahogany tree growth depends on the soil and climate. The growth rate of the tree volume is consistent for the first 30 years, like most tropical hardwoods. This is very good, since if you measure your trees for the first couple of years you should be able to project the eventual yields in board feet of your trees within reasonable margin. If you are interested you can read here how we calculate the volume of a tree.

The following table depicts a potential development of your portfolio of 1,000 mahogany trees and the estimated future portfolio gross value if all timber would be sold in the local market versus the US market. We based these calculations on the average mahogany timber prices in 2007 and used conservative assumptions regarding the tree growth in volume over the years. We also used a low marketable percentage of 45% and a moderate annual increase of 6% in the mahogany timber price.

We assume in this scenario 50% thinning in the first 15 years. We will provide you any proceeds we can make in the local market for the young trees, however in our calculation we assume no proceeds of these young trees. This leaves 500 of your initial 1,000 trees marketable after 20 years. In this example we use an equal harvest split at 20 and 25 years, but the longer one waits with harvesting the better the return will be assuming the lumber price stays the same. Finally, we haven't subtracted estimates of the costs of the harvest and sale of your woods from the proceeds in the local and the US markets.

We offer the flexibility to decide whether to harvest your trees in any given year. A 2-5 year window for harvesting trees gives you some leeway in the timing of market cycles, leaving your trees in weak price regions “on the stump”.

Let's compare the potential gross proceeds in the local / US market of 1.14 million / 3.58 million US$ with investing the same amount in the stock market. Let's assume that you would invest US$ 40,000 for 25 years with all the money left in and that the stock market in the next 25 years would grow with an average yearly rate of return of 10% (average performance of the stock market in the last 25 years). Your investment of $ 40,000 would grow to about US$ 433,000. The same amount invested in 1,000 trees for 25 years would result in a 1.14 million US$ (two and a half times higher) return in the local market and in the US market the same amount of timber would be valued 3.58 million US$ (eight times higher)!