Tree Crops for Marginal Farmland Royal Paulownia

Publication Number 446-606, posted April, 1998

Authors: James E. Johnson, Associate Professor, Virginia Tech; James W. Pease, Assistant Professor, Virginia Tech; Larry A. Johnson, Associate Professor, University of Tennessee; George M. Hopper, Associate Professor, University of Tennessee

Table of Contents

Introduction	Evaluating Alternative Tree Crops
How to Use This Guide	Cost Share Programs
Descriptions and Uses	Other Benefits
Production Managment	Appendix
Financial Analysis Production Costs Returns Evaluating Your Investment	References
Case Study

Introduction

Many producers would like to increase farm income and decrease income variability. This has caused a growing number of farmers to investigate new and diversified sources of income. A resource which has not been tapped to its full potential is marginal farmland, specifically its use for growing tree crops. There are over 30 million acres of woodland and idle pasture and cropland on Southeast farms. And much of this land could be producing valuable tree crops.

The Tree Crops for Marginal Farmland Project seeks to provide farmers with basic information about growing and marketing tree crops. Tree crops have many advantages for farmers with marginal or unused land. The cost of inputs is relatively low, economic returns may be quite competitive with alternatives, and there are important environmental benefits.

There are five introductory guides in this series, and each has an accompanying videotape. They provide information on a specific tree crop which can be grown on small or medium-sized tracts of marginal or unused farmland. All these crops are common to areas of the southeastern United States, but their economic potential should be investigated by farmers. The tree crops chosen for this series are:

• White Pine for Timber
• Black Walnut for Timber and Nuts
• Loblolly Pine for Timber
• Royal Paulownia for Timber
• White and Virginia Pine for Christmas Trees

Your decision to grow a tree crop should be made only after careful consideration of the growing time, expense requirements, market conditions, expected returns, and your personal objectives. These guides will help you make your decision. In addition, you should seek information from representatives or organizations such as your state Forestry Service, your local Cooperative Extension office,and private consultants.

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How to Use This Guide

This guide briefly describes the methods and costs of growing Royal Paulownia trees in the southern United States. It includes a financial analysis which uses estimated costs and expected returns to evaluate a representative investment.

To use this guide to its best advantage, read it straight through. Take special note of the cultural practices described and their estimated costs. Think about potential markets for the harvest. Read how to evaluate your potential investment, and think about the other benefits of tree crops. Next, read the case study, "The Smith Family," to get a better idea of how these investments can be evaluated. To conduct a financial analysis of your own situation, carefully estimate all the production costs, then take your estimates to the local Extension agent or farm management agent for assistance.

Throughout this publication, photographs can be accessed through the underlined links in specific sections. These are provided on separate pages due to the large size of some of the photos.

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Royal Paulownia: Descriptions and Uses

In Japan, Paulownia wood is used for a multitude of products because it is attractive, strong, lightweight, quick-drying, and has good resonance qualities. Demand is so great that Japan imports large quantities of logs and lumber from China, Taiwan, the United States, Brazil, Argentina, Paraguay,and Thailand.

Paulownia was introduced into the United States as a landscape tree nearly 150 years ago and has since become naturalized in 33 states. When American sawmill companies became aware of strong markets for Paulownia in the 1970's, a cutting frenzy began. Very high prices were paid for these slow-growing wild trees, largely because of their size and absence of growth rings. These conditions created a high wood quality. Since most large wild trees have been cut, attention has shifted to growing Paulownia trees in plantations.

This publication describes the most common cultural practices used to produce marketable Paulownia trees and the cost of those practices. For illustrative purposes, it includes a sample financial analysis which uses average costs and expected returns to estimate financial returns.

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Production Management

Site Selection

Site selection is an important factor for establishing a successful Paulownia plantation. Although Paulownia is a fairly adaptable species, it grows best on gentle, lower slopes. The soil should be well-drained but have a high water-holding capacity, should be at least 25 inches deep, and should have a pH around 6.0.

Paulownia can be grown throughout the southern United States. The most favorable growing regions include western Virginia, Maryland, and the Carolinas; all of West Virginia, Kentucky, and Tennessee; northern Georgia, Alabama, and Mississippi; southeastern Missouri; and northeastern Arkansas.

Site Preparation

Site preparation makes planting easier and creates favorable growing conditions for young seedlings. Site preparation operations will depend on the roughness and vegetation of the planting site. Old fields typically only require herbicide treatment to control weeds and brush. Cut-over land will often have rocks, stumps, and logging debris. Removal of this material with a tractor or bulldozer may be necessary to make future cultural practices easier. Some Paulownia growers hand-cultivate each planting spot to stimulate better root growth and also to remove all competing vegetation.

Tree Planting

Most Paulownia plantations are planted with seedlings or root stocks. In either case, the planting material should be ordered early to assure your supply. Most planting stock is available from private nurseries.

The planting density should be high enough so that a forest-like competitive stand will develop quickly. Competition will limit rapid growth and improve log quality. Tree spacing of 10 feet square is recommended, but spacings from 7 feet to 12 feet square are common.

Stock should be planted after the last killing frost in the spring. If the soil is dry and rain is not anticipated, you may need to water the soil around newly planted trees.

Weed Control

Since Paulownia cannot grow under shaded conditions, good weed control in the early years of the plantation is critical. You may control weeds either with a directed herbicide spray or by mowing. Several passes per year may be necessary during the first few years.

Irrigation

Like other plants, Paulownia seedlings can die from inadequate moisture. To protect your investment, irrigate the young plantation during dry periods. This can be time-consuming and expensive, but it may carry the young trees through difficult dry periods.

Coppicing

A realistic management objective is that each tree produce a single log that is high-quality, straight, and 16 feet log. Cutting off young trees and allowing them to re-sprout from the root collar is called coppicing. This operation results in straighter, better formed stems. Coppiced stems will grow from 8 to 18 feet in the first year. Stems are coppiced one to three years after planting, during the spring season.

Pruning

Pruning is the practice of removing buds and lateral branches to promote upward growth and better quality stems. Buds are removed before they grow into branches. Do this one or more times each year during the first four years or until the tree has a clear 16-foot stem. Then allow the branches to develop naturally.

Each spring, top-prune trees so that a vigorous new shoot can develop. Using a stepladder, clip off the previous year's leader, which will have died at the end of the growing season.

Pest Control

Paulownia trees experience relatively few pest problems under the growing conditions of the United States. However, trees sometimes are affected by insect, disease, and animal pests. Defoliating insects may cause minor damage, but Paulownia trees are not seriously damaged by insect attacks. Various leaf spots, mildews, twig cankers, and root- and stem-decay fungi also attack Paulownia, but such problems are seldom severe. Some animal pests, such as mice, voles, rabbits, groundhogs, and deer have also caused problems by root feeding, girdling, or antler rubbing. Control of all pests should follow standard procedures for other crops.

Thinning

Once the Paulownia trees have clear 16-foot stems, no further pruning or coppicing should be done. It is important that the trees grow slowly enough to produce high-quality, profitable logs. Diameter growth is influenced by tree density. If density is high, thinning may be necessary. Choose an appropriate density level and maintain it with periodic thinnings.

Harvesting

When trees have reached a marketable size, the plantation can be clearcut. As the trees near maturity, check market prices regularly. Harvest the trees yourself, or sell them on the stump to a logger, who will cut them and truck the trees to a mill or regional woodyard. Naturally, the more harvesting work you do, the more profit you will make. You can expect approximately one- third more for delivered logs than for logs sold on the stump.

Calendar of Silvicultural Practices

Common silvicultural practices for Royal Paulownia and the approximate time to perform them are listed here. Not all the practices are necessary to establish and maintain a healthy stand of trees for every situation.

Calendar of Paulownia Production Activities

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Financial Analysis

Production Costs

Site Preparation

The amount of site preparation depends upon site condition and required weed control or debris removal. Costs may range from as little as $20 per acre to $200 per acre if a bulldozer is used.

Tree Planting

The cost of tree planting includes planting stock and labor. Seedlings or root stocks cost about $1 each, but the range is enormous, from $0.29 to $16.95 each. Planting cost depends upon the planting density, which ranges from 300 to 900 trees per acre. Typical cost for planting 1,000 trees is $50 to $150.

Weed Control

Weeds may be controlled by herbicide application, mowing, or both. Mowing costs range from $20 to $30 per acre for each mowing, and herbicide application costs range from $18 to $45 per acre. Weed control is necessary for about the first six years. After that time, the trees are no longer affected by shade cast by weeds.

Irrigation

Irrigation cost is extremely difficult to estimate. Typically, seedlings are irrigated only during a first-season drought. Weekly watering may be necessary during a severe drought. The distance from the water supply to the plantation will determine the feasibility of irrigation. Considering water transport and labor, irrigation costs may be estimated at $28 per acre.

Coppicing

These costs depend upon the number of trees coppiced per acre. On average, coppicing costs are approximately $25 per acre.

Pruning

This cost depends upon plantation planting density and the extent of lateral budding and branching. Pruning cost ranges from $0.40 to $0.60 per tree per year.

Pest Control

Control of insects, diseases, or animal pests may be necessary, but these costs are very difficult to estimate. Insecticide spraying may cost $50 to $200 per acre, while fencing for deer costs approximately $200 per acre. Some growers apply seedling protectors to each tree. These protectors eliminate animal pest problems and also may reduce weed control, but they cost about $1 per seedling.

Thinning

Thinning to control plantation density is not currently a common practice because most existing plantations are too young to warrant this practice. Only older stands produce marketable lumber from thinnings. Since you will normally remove the poorest quality trees, returns from thinning will be low.

Harvesting

Harvesting costs involve cutting the trees, bucking them into logs, skidding them to a central landing, loading them onto a truck, and transporting the logs to a mill. The more harvesting you can do yourself, the greater your return. However, timber is often sold "on the stump." The buyer of this stumpage then incurs all of the harvesting costs.

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Returns

The Paulownia log market is highly dependent upon Japanese demand. Japanese imports of Paulownia increased 161 percent from 1982 to 1989. High prices are paid only for top-grade logs. Log grades are based on log diameter, growth ring width, and the number of defects (Table 1). Better grades have more growth rings per inch of diameter, indicating slower growth (Table 1). Table 2 shows the price trade-off between low-value (faster growing) and high-value (slower growing)Paulownia.

Description of Grades:

Grade A: Logs are straight and round with no defects. Annual rings are tight and even, with at least eight rings per inch. Less than 0.5 percent of all Paulownia logs make this grade.


Grade B: Logs are allowed to have small crooks and twists, an off-center heart, and one defect. Annual rings are tight with at least six rings per inch. About 40 percent of all Paulownia logs make this grade.


Grade C: Logs may be bow-shaped with two defects allowed. Logs must have at least four annual rings per inch. About 40 percent of Paulownia logs make this grade.


Grade D: Logs with more than two defects, but at least four annual rings per inch.


Grade E: All other logs, including otherwise high-quality logs with less than four rings per inch.

In addition, Paulownia stumpage prices in the United States vary by location. Such factors as log quality, distance from mill, and terrain affect the price.

What about market prices in the future? As more plantation-grown Paulownia is marketed, prices will tend to fall. Although foreign market demand is expected to increase, no one can estimate future world Paulownia supply. There is considerable market uncertainty associated with growing Paulownia.

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Evaluating Your Investment

Trees crops are different from most agricultural crops because of the long growing time needed to return profits. Many factors, such as inflation and interest rates, will have very important effects on profitability. For example, inflation may result in future returns that appear large in today's dollars, but have low future purchasing power.

Deciding whether Paulownia production is a good investment will require careful consideration of production costs, expected returns, and how much your time is worth. After all, trees take much longer to grow than traditional crops, and your money will be invested for many years.

Returns must be discounted because a dollar to be received tomorrow is worth less than a dollar received today. Whether a bird in the hand today is worth more than two (or even three) in the bush tomorrow depends upon your time preference for money and your evaluation of risk. In investment analysis, you should choose the discount rate to reflect your preference for dollars today rather than dollars in the future. With an annual discount rate of 10 percent, you should be just as pleased to receive one dollar today as one dollar and 10 cents next year.

Here are three measures to analyze an investment:

Present Net Worth

Present Net Worth (PNW) is similar to the term "profit." The effects of inflation on expected returns over costs are removed, and returns are discounted to the present. An investment with PNW greater than zero is profitable.

Annual Equivalent Value

Annual Equivalent Value (AEV) is the Present Net Worth expressed as a constant annual return throughout the investment period. The AEV can be used to compare a tree-crop enterprise with field- crop returns on the same site.

Internal Rate of Return

Internal Rate of Return (IRR) is the rate at which discounted revenues just equal discounted costs. An investment has good potential if the IRR exceeds rates from alternative investments with similar risk, timing, and capital outlay.

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Case Study

The Smith Family

The Smith family owns a farm with some abandoned cropland. They prepared the site by applying herbicide with a backpack sprayer. The chemicals and application cost $25 per acre. Then they hand- planted 435 root stocks per acre on a 10-foot by 10-foot spacing.

The root stocks cost $1 each, and they valued their labor at $35 per acre.

Since weed control is necessary, the Smiths mowed once a year for the first six years with their farm tractor. The total cost (labor plus machine) was $35 per acre per year. They coppiced the trees in years 2 and 3 at a cost of $25 per acre per year and pruned in years 2 through 5 at a cost of $175 per acre per year.

After six years, the Smiths' hard work was mostly completed. They expected that thinning would be necessary, but sales of thinned lumber would only cover the cost of thinning.

What can the Smiths expect for timber yield and price? Expected yield tables are not available for Paulownia, although they are available for white pine, red oak, and most other timber species.

Some studies estimate that a 20-year-old Paulownia plantation will yield 10,000 to 14,000 board-feet per acre. This assumes about 100 trees that are 17 to 19 inches in diameter. Other studies estimate that Paulownia grown this fast would be Grade E logs (the lowest of Paulownia log grades).

Twenty years is too short a rotation for good-quality logs. To produce Grade B and C logs, the rotation should be grown to 30 or 40 years, with a stand density such that harvested logs are 10 to 15 inches in diameter. If this is the case, a much lower board- foot yield is predicted. The Smiths estimate 8,000 board feet per acre of Grade B and C logs for a 35-year rotation.

What about timber price? Growers report that Paulownia stumpage prices in 1990 were running from $2 to $4 per board foot, or a return of $16,000 per acre.

Let's see if the Smiths' investment was a profitable decisions at the time of planting. The financial analysis assumed a 4 percent annual inflation factor for both costs and returns and a 28 percent marginal tax bracket.

Table 3 shows the results of the analysis. The Smiths decided that 10 percent was a good estimate of their desired return for this kind of investment. With their estimated costs and returns, the present net worth at planting time was $595 per acre. Given the long time period between planting and harvest, the profit as expressed by PNW is very sensitive to the discount rate. If the Smiths were willing to accept a lower rate of return, their profit would be much higher. On the other hand, the Internal Rate of Return shows that they would just break even at 11 percent. The Annual Equivalent Value shows that the return per acre per year averaged $62 after federal income taxes. This is very competitive with most row crops on marginal farmland.

Table 3. The Smiths' financial analysis (after income taxes).

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Evaluating Alternative Tree Crops on Your Farm

The choice between tree crops also depends on the farm's resource base. For example, a particular species may offer a relatively high return per acre but requires a sizeable amount of up-front investment capital to establish the stand. If investment capital is a major concern, then a tree crop such as Paulownia may be the best alternative. Paulownia does not generate a high dollar return per acre. But it may well give a higher return on your investment capital than more highly valued trees.

Finally, risk should be considered. Numerous production problems such as weather, disease, and insects can reduce the productivity of a stand. Also, costs vary widely. While trees are less risky than many agricultural crops, lost income can be considerable if a total disaster occurs. You may want to work through a few examples yourself, varying price and production levels, to get a feel for the risk inherent in the tree crop.

Use Table 4 for information regarding the many factors that should be considered in the decision to grow a particular tree crop.

Table 4. Information sources for tree crop selection.

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Federal and State Cost-share Programs

Cost-share funds simply reduce your cost of forestry activities. For example, a 50 percent cost-share on seedlings and tree planting may reduce the cost from $60 per acre to $0 per acre. Direct payments from program such as the Conservation Reserve Program provide income in early years before timber revenue begins.

As a word of caution, you cannot expect to receive federal funds from two different programs for the same activity. There are some state programs which also provide assistance for farmers and woodland owners. Your local county forester is the best source of advice on state programs.

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Other Benefits of Tree Crops

Trees also prevent soil erosion. Eliminating soil loss enhances land productivity and water quality. By stopping sediment from entering the streams, your water resources will be cleaner and therefore more suitable for fish and other aquatic species. Finally, tree crops screen the air and serve as a noise barrier. Again, proper design can maximize these benefits from your tree crop.

Moreover, most people enjoy the natural beauty only a tree and forest can provide. The Chinese say, "Keep a green tree in your heart and perhaps the singing bird will come."

Plant a tree crop today -- and enjoy the many benefits for years to come.

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Appendix

Assumptions Used for the Smiths' Financial Analysis

Financial measures were estimated with YIELDplus 2.1, a microcomputer-based timber yield foresting and planning tool developed by the Tennessee Valley Authority. For further information, call (615)494-9800, or write to:

Todd Hepp
Forest Resources Development Program
Tennessee Valley Authority
Norris, TN 37828

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References

Graves, D.H. 1989. Paulownia--a potential alternative crop for Kentucky. University of Kentucky Cooperative Extension Service Forestry Extension Pub. FOR-11. Lexington, KY. 5pp.

Graves, D.H. 1989. Paulownia plantation management: a guide to density control and financial alternatives. University of Kentucky Cooperative Extension Service Forestry Extension Series No. 1. Lexington, KY. 32pp.

Hardie, I., J. Kundt, and E. Miyasaka. 1989. Economic feasibility of U.S. Paulownia plantations. Journal of Forestry 87:19-24.

Kundt, J.F. 1988. How to grow Paulownia. University of Maryland Cooperative Extension Service Bull. 319. College Park, MD. 6pp.

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