Agriculture’s Perspective of Short-Rotation Forestry

Fred Roguske, Minnesota Farmer Cooperative and Lake Country Resources Co., Willmar, MN

From the farmer’s perspective, does it make sense to get involved in short rotation forestry? Will we just get going to get knocked out of the saddle in a few years by South American competition, especially if we are operating in a part of the United States which is not terribly efficient in growing trees? I was asked to talk about the perspective of farmers on short rotation woody crops. Frankly I don't believe the farmers have a great deal of perspective right now. It is so new in terms of farming that there isn't much to look at in order to gain a perspective. However, in the past few years the value of fiber to be harvested whether it be in field or forest has increased to a level which should cause farmers to take a closer look.

There is as much variety among farming personalities and motives as is found in any other segment of our society. What we need to do is categorize the basic motivations behind farming in order to determine how this type of crop may fit in. In this exercise we can quickly recognize two distinct purposes in farming. One consists of farmers working at that profession day in and and day out as a means of putting groceries on their table. In other words, its their way of making a living. If I came home and said to my wife "Gee, I’ve heard there is a good return in raising trees. I'm going to put all the whole farm into trees. By the way, would you mind going to town and getting a job so we can buy groceries for the next ten years?” I think not! At this point in time we have had just one experimental project of some 2500 acres in Minnesota which provides an annual cash flow for the participants. By in large the users of fiber are not ready to provide a cash flow over a ten year period in order to support a farmer in raising trees. This will need to change if our first category of farmers is to get involved.

There is a second category of farmers which could be more aptly called investors.. This group includes a large number who farm but earn their living doing something else as well as an elite group of large successful farmers. Whatever the situation, if the returns for raising SRWC appears promising enough, some in this category can be enticed into devoting land and resources toward such an effort.

I want to share with you a strategy that may be beneficial in the future if you are going to be dealing with farmers. This is a concept every good farm machinery salesman understand and most certainly will come to play as you begin to bring farmers into SRWC.

As we look at the general bell shaped curve of all farmers, there is a small slice of the population way over on the left that we might term the innovators of the industry. They are not necessarily the most successful farmers, but they will try new concepts. These are the folks who will take that piece of land that doesn’t work for much of anything and try planting trees.

A little larger group to the right on the curve is known as the early adaptors. This group represents many of the elite in American farming and they keep a close eye on the innovators. When the concept is proven they are quick to adapt. Since this group comprises the largest and most recognizably successful in farming they are eventually followed by the large numbers of farmers under the curve to their right. As a grain dryer salesman, I learned that selling a Farm Fans dryer to one of the early adaptors would earn then or twelve additional sales around the area over the following three to five years. In Minnesota the innovators have been playing with Hybrid Poplars for several years and now I am seeing some early adaptors taking up the cause on a considerably larger scale. The process seems to be evolving.

Since we are going to be dealing with farmers on the basis of investment rather than cash flow, we need to focus on the aspects of SRWC as they pertain to return on investment. Some of the terms used by forestry will need to be translated to the vocabulary of farming in order to do this effectively. To this end I struggle as I attempt to glean answers to my many questions about SRWC in an agricultural setting. One point is very clear. The cost of establishing and maintaining a SRWC can be very high and tat affects return.

A second item that is extremely important is land value. When determining land value we need to consider the various options available for use of that land. It never ceases to amaze me when a farmer continues to raise corn next to a shopping center year after year when he could sell that land and invest the money at a much higher return. Often times farmers tend to forget to evaluate all the options for their land. If irrigation is to be used, then the cost of that system needs to be added to the land value.

An important third factor that affects our return on investment is the length of time involved. I envy you folks in the western part of the country when you talk of raising a crop of Hybrid Poplars in six years while we look at ten. However, when I consider the cost of your irrigation systems and their management the return on our respective equations may equalize considerably.

When we put actual figures into our equation, we determine what return can be projected on our investment. By projecting a yield of 40 cords per acre to be sold at $50 per cord, on land costing $400 per acre, all happening over a ten year cycle at an initial establishment cost of $300 per acre, we end up with a projected return in the 13 to 15 percent range.

The risks involved are many. Can we achieve 4 cords per year growth? Will stumpage prices allow $50 per cord ten years from now? how likely is a crop failure for whatever reason several years down the line? I am a little nervous about a wind storm 7 or 8 years down the road.

My feeling is that a return in the 20 to 30 percent range may be necessary while such major questions remain unanswered. As the results of SRWC become more firmly established, the required return for getting involved will come down. It is clear for now that it will be restricted to a more marginal land proposition in Minnesota. Our formula pretty well eliminates competing with sugar beets on $1500 to $2000 land. For that matter, at current commodity prices, corn and soybeans on $800 to $1200 land look like a far better alternative also. However, there exists a large amount of marginal agricultural land in Minnesota with values of $500 and less on which SRWC may prove to provide the best alternative return on investment.

File posted on March 17, 1998; Date Modified: February 21, 1999