Spring 2009 Tree Owners News

TREE OWNERS NEWS

Spring 2009

Some of what follows may seem familiar from our many e-mail updates and our What’s New page, but our Tree Owners News allows us to bring it all together in one place. Please read on because there is new information as well.

When we published our first Tree Owners News, we did not have a website, and e-mail was not as prevalent. We had that first issue of Tree Owners News printed and sent it out by normal mail and have continued to send it by regular mail to every tree owner. Upon reflection, continuing to print and mail pages by regular mail when electronic means are so available is at odds with our values of not wasting the world’s natural resources. So this Tree Owners News will be mailed only to those tree owners for whom we do not have an e-mail address. Everyone else will be notified by e-mail that it is now on-line.

E-mail

If you receive this Tree Owners News by mail and you do have an e-mail address, please send your e-mail address to trees@tropicalhardwoods.com so we can include you in future updates and issues of Tree Owners News. Our objective in going forward is to communicate completely by e-mail and our website What’s New and Tree Owners News. We will also send reports by e-mail.

Overview

Our trees are all continuing to grow and mature beautifully, completely unaffected by the Dow or the daily news.
We are especially excited that we are less than a year away from the 17-year thinning of our first planting of seed-grown teak. These trees will be at an age where a significant portion of their lumber will be of a quality that can go directly into the international market without any additional value-adding other than the normal milling, grading and drying.
Our mangium, nargusta and suradan are also in line for thinnings and will also be producing beautiful lumber.
Our total lumber production next year is projected to be between 4 million and 5 million board feet of lumber, both from younger trees’ thinnings and upper logs of the older trees, all of which will likely go through some degree of value-adding to create the best returns, and the significant quantities of higher-quality adult lumber from the older thinnings.
We are also excited that our Elite Teak Clone trees (read more below) are exceeding our growth projections, with every tree genetically reproduced from parent trees rigorously selected to achieve the highest quality market-ready lumber at a much earlier age.
Raleo has now been in production since 2004 and its beautiful furnishings and Surfaces crafted from our youngest tropical hardwoods are in some of the finest hotels, condominiums and residences in the world. Raleo is a wonderful emissary for our Tropical American Tree Farms hardwoods in the high-end designer and specifier markets.
Anticipating the increased lumber production from the farms, we are working to increase our Raleo production and at the same time have been focusing intently on defining and developing additional, higher-volume value-added uses and applications to create value for the increasing young-lumber volume.
Because of the increasingly large volumes of lumber coming from the farms, our focus, and that of our entire company, now needs to turn exclusively to 1) continuing to groom the trees that we have already planted, 2) producing the greatest amount of the highest quality lumber from those trees as they mature, and 3) implementing the higher-volume value-adding production and marketing for the increasing flow of younger lumber from our early thinnings in order to speed up the utilization of the wood and distributions to you, our tree owners. To be able to devote our complete focus to these paramount objectives, Sherry and I have decided that 2009 will be our last public planting of new trees for the foreseeable future.

Opportunity

In my 45+ years in business, experience has shown that every single time there is a change in the economy, that change brings with it very large and often unprecedented opportunities – opportunities that would not exist if times were “normal.” We have seen from some of your e-mails that some of you are experiencing difficulties in this time of change. Our prayers go out to you and our wish is that you seek, and find, one or more of the unusual opportunities spawned by the changes.

In our case, the economy has made the entire workforce much more attentive to their work. It has also made available a much larger pool of skilled and valuable personnel as we expand our wood products and marketing activities.

We anticipate significant inflation in the coming years and can’t think of a better way to be invested than in tropical hardwood trees and the beautiful hardwoods they will produce.

Store of Value

When we started Tropical American Tree Farms 17 years ago, we made two decisions the importance of which is becoming increasingly evident.

First, and likely the most important, is that we chose all of the species of tropical hardwoods that we grow for the beauty of their hardwoods rather than the utility. Items or products that are produced for utility are more subject to price fluctuations, or even possible substitution, than items that are sought after for their beauty. This is true not only in hardwoods, but gems and other items of beauty as well.

We made that determination to grow only beautiful tropical hardwoods not only because of their price stability in times of economic fluctuations but also for their greater potential for price increase as these tropical hardwoods become more scarce.

Either because of economic fluctuations or because of increasing beautiful tropical hardwood prices, it may be that at times fewer people can afford the beauty, but the price for beauty holds better and increases more readily than that for utility. That is why items of beauty are often considered as stores of value, in other words whose value is not much affected by world economic fluctuations.

A second important decision is that for all of our beautiful hardwoods, we will produce sawn wood and not sell logs. By processing the logs into marketable lumber, we are producing a higher value product, rather than just a commodity. Logs of any species are more of a commodity and more subject to fluctuations in the world’s economy.

Please click on and review each of the charts below from the latest ITTO (International Tropical Timber Organization) market report. These three charts graphically illustrate the above two points.

Prices of tropical logs, which include both beauty and utility woods, have indeed drifted lower over the last twelve months
Prices for tropical plywood, in other words tropical utility woods, have dropped significantly over the last year, mostly in the last several months
In dramatic contrast, the prices in the chart for tropical sawnwood have held very steady over the last 12 months and have even increased a bit over the last few months

Tropical log, tropical plywood, and tropical sawnwood price trends for the last 12 months

The above is an example of what Bloomberg Wealth Manager has written - that investing in trees grown for harvest, for profit is ". . . a source of almost assured growth in tumultuous times" and why NuWire Investor has written that timber grown for harvest is a top “. . . recommended investment in troubled economic times.”

An Exciting Time

In our last Tree Owners News we wrote that a very important lesson that we have learned over these last 17 years on our Tropical American Tree Farms plantations is that the young tropical hardwoods from the first several thinnings are very different from adult hardwoods from more mature trees of the same species. Although very beautiful, the young tropical hardwoods from those thinnings are unknown in the international market and have a lower value than the lumber from adult trees.

All of the lumber from the first thinnings of seed-grown teak, up to about 13 years of age falls into that category. Some of the wood from the 13 year thinnings of seed-grown teak is excellent quality and can go directly into the market, but even at 13 years, much still needs to go through value adding to create value.

As the least desirable trees are removed in each thinning, the remaining trees for subsequent thinnings are not only more mature but also the best quality. We believe that much of the wood from the 17 year seed-grown teak thinning will be of a maturity and quality that they can go directly into the market without value adding.

One reason for our excitement is that we are now less than one year away from the first thinnings of the 17 year old seed-grown teak and we anticipate that much of the wood can be quickly sold on the regular market and the proceeds distributed without delay for any value adding process other than grading, milling into lumber, and drying.

We are also excited that our first plantings of mangium, nargusta and suradan are also nearing maturity and their lumber is beautiful.

Mangium, nargusta and suradan trees

20-Year and 14-Year Final Harvest Elite Teak Clones

We are also very excited that our Elite Teak Clone trees are growing much beyond our Elite Teak Clone projections, reaching an average of 20 feet in height in just 1 year of growth.

In an earlier update we announced that our expert forestry team have developed Elite Teak Clone trees that will grow faster, mature earlier, and produce higher quality lumber than our seed-grown teak trees.

We have sought for years a method to select and reproduce only the finest, fastest growing and best formed teak trees for planting in our plantations, both to increase the economic yield and to shorten the time to final harvest.

With the blessing that Pablo Chacon is now part of our full-time forestry management team, that dream is finally possible. Pablo is one of the leading experts in Central America in genetic improvement of plantation species.

Steve and Pablo in one of our Elite Teak Clone nurseries

Under Pablo's professional guidance and supervision we can now offer elite cloned teak trees, vegetatively reproduced or cloned from the very finest quality superior teak trees individually chosen from hundreds of thousands of teak trees, selected for their rapid and vigorous growth, excellent form, straight continuous boles or trunks, smaller branches for smaller knots, straight grain, and excellent wood quality.

Since 1991 when we started Tropical American Tree Farms, we have always only planted trees from quality seeds or seedlings, but with any trees grown from seed we can know only the quality of the trees that produced the seeds and not the trees that provided the pollen. There is simply no way of knowing the genetics or quality of the pollen contributor.

Now, with Pablo's expert guidance, we have selected nearly 100 of the very finest parent trees, with a selection ratio of one selected tree for each 10,000 candidate trees, and then reproduce those extremely select parent trees for planting in our plantations. This represents a quantum leap ahead. Growth, harvest and yield projections for both our 20-Year Final Harvest and 14-Year Final Harvest Elite Teak Clones are below.

Because they will all be only superior, select trees, these Elite Teak Clone trees will grow faster and produce greater quantities of higher quality beautiful teak lumber, and if you elect to have us sell your lumber for you, a significantly greater and earlier economic yield.

Elite Teak Clone trees at 1 year

Imagine the wonderful lumber yield from owning only the very best, fastest growing, highest quality teak trees, all elite specimen trees hand selected from hundreds of thousands of candidate trees!

An even more exciting prospect is that these Elite Teak Clone trees have a greater probability of producing a larger quantity of veneer-quality logs which can yield many times the value shown in our projections below for sawn lumber.

We have included below growth, harvest and yield projections for both our 20-Year Final Harvest Elite Teak Clones and our 14-Year Final Harvest Elite Teak Clones. To be conservative, these projections do not include the significantly higher values of the expected precious veneer logs. Please also follow the links to read the Notes to Projections on our Teak Projections page for more details (the backspace button will bring you back to this page).

(Note: Please scroll to the right to view the entire tables)

20-Year Final Harvest Elite Teak Clone Trees - 100 trees, 5% annual increase in teak lumber prices
Tree Age	Number of Trees Before Harvest	Number of Trees Harvested	Useable Tree Height - Feet	Tree Diameter - Inches	Marketable Wood per Tree - Board Feet	Marketable Wood per Tree - Cubic Meters	Gross Harvest Proceeds	Harvest and Process- ing Costs	Net Harvest Proceeds	Care and Manage- ment Fee	Net-Profit per Harvest	Cumulative Net Proceeds
Notes:.³		^3, 4	⁵	⁵	⁷	⁷	⁸	⁹	¹⁰	¹¹	¹²	¹³
	100	10	(mortality and cull loss)
6	90	25	22	7	21	0.05	$449	$201	$249	$0	$249	$249
10	65	25	33	11	93	0.22	$2,854	$1,103	$1,750	$0	$1,750	$1,999
14	40	20	42	14	210	0.50	$27,042	$2,413	$24,629	$1,598	$23,031	$25,031
20	20	20	49	20	584	1.38	$108,408	$8,982	$99,425	$5,966	$93,460	$118,490
IRR¹⁴	20.7%

14-Year Final Harvest Elite Teak Clone Trees - 100 trees, 5% annual increase in teak lumber prices
Tree Age	Number of Trees Before Harvest	Number of Trees Harvested	Useable Tree Height - Feet	Tree Diameter - Inches	Marketable Wood per Tree - Board Feet	Marketable Wood per Tree - Cubic Meters	Gross Harvest Proceeds	Harvest and Process- ing Costs	Net Harvest Proceeds	Care and Manage- ment Fee	Net-Profit per Harvest	Cumulative Net Proceeds
Notes:.³		^3, 4	⁵	⁵	⁷	⁷	⁸	⁹	¹⁰	¹¹	¹²	¹³
	100	10	(mortality and cull loss)
6	90	25	22	7	21	0.05	$449	$201	$249	$0	$249	$249
10	65	25	33	11	93	0.22	$2,854	$1,103	$1,750	$0	$1,750	$1,999
14	40	40	42	14	228	0.54	$58,591	$5,228	$53,363	$3,322	$50,042	$52,041
IRR¹⁴	22.2%

NOTE: THE PROJECTIONS ABOVE, AND THE EXPLANATORY NOTES, ARE PROVIDED FOR YOU TO BETTER UNDERSTAND THE PROCESS OF GROWING AND HARVESTING ELITE TEAK CLONE TREES IN OUR PLANTATIONS. WHILE WE BELIEVE THESE ESTIMATES OF GROWTH, COSTS AND YIELDS TO BE FAIR AND REASONABLE, WE CANNOT GUARANTEE THE FUTURE VALUE OF YOUR TREES, NOR THE LUMBER OR PROCEEDS YOU WILL RECEIVE FROM THEIR HARVEST. IF YOUR DECISION TO HAVE US PLANT TROPICAL HARDWOOD TREES FOR YOU IS MOTIVATED BY THE EXPECTATION OF FUTURE PROFITS, WE ENCOURAGE YOU TO SEEK THE COUNSEL OF AN INDEPENDENT PROFESSIONAL WHO CAN EVALUATE THE REASONABLENESS AND ACCURACY OF THESE PROJECTIONS.

Thinnings

As we wrote in our last Tree Owners News, the principal reason that we asked Beto to retire is that he had gotten behind in thinnings and reporting.

Hans and his team have worked diligently to catch up on both, but have had challenges with the weather.

To provide a bit of background, we plant all of our species at an initial spacing or distance between the trees based upon the growth characteristics for that species so that the young trees compete for sunlight and grow tall and straight. Then, as the crowns of the trees close and the competition between trees increases, in periodic thinnings we remove the smallest and least desirable trees to reduce the stand density and allow the remaining superior trees to grow and increase in diameter.

One of our thinning teams

For our seed-grown teak, we have used as our guidelines thinnings after the trees have completed 7, 10, 13, 17, and 21 full years of growth. Those ages are guidelines and all thinnings are always subject to our foresters’ review and recommendations. 2007 was extra rainy in the area of our farms and because the soil was saturated, Hans’ recommendation to protect the roots of the trees was to not put equipment into the fields and therefore to delay the thinnings, with the intention of catching up in 2008. Once 2008 turned out to be particularly rainy also, the decision was to still keep the equipment out of the fields. To continue with the thinnings, Hans bought several teams of oxen to extract the logs from the fields.

Working with the oxen is much safer for the roots of the trees, but is also much more time consuming.

Oxen at work in the field

For some thinnings, to help move the process forward, we will combine selected thinnings.

Our foresters will do a final evaluation of each stand of trees just before the thinning to determine the final number of trees to be removed and will send that information to the office.

As soon as the information arrives from the farms, our office will prepare and send pre-thinning reports to everyone whose trees are about to be thinned.

We hope to be all caught up by the end of this year.

Raleo

As I am sure most of you know, we started Raleo both to create value for the young lumber coming from the earliest thinnings and to demonstrate to high-end designers the great beauty of our young Tropical American Tree Farms tropical hardwoods.

Raleo has been very successful in the second objective, with Raleo’s exquisite furnishings and architectural details in many of the finest homes, offices and hotels in the world. Raleo Surfaces for example accent the elevator lobbies for all 27 floors of a very upscale hotel. We are right now crafting Raleo Surfaces panels for a famous movie and television star for her vacation home in Utah, and more Surfaces for her mother’s home there also.

Our Raleo Surfaces have also for example been specified for the new Tiger Woods Hotel in Dubai, which has been suspended until the economy rebounds.

As you might expect, Raleo’s growth, which is primarily in the luxury market, has slowed for now and its lumber utilization and distributions from the lumber have slowed to a trickle.

In analyzing Raleo, we have concluded that it is indeed a wonderful emissary for our beautiful tropical hardwoods in the high end designer/architect market, but that we need to change our focus in order to be able to create value for the volume of young tropical hardwoods coming from the farms.

Raleo itself will focus less on custom products, both because each custom order requires an extensive investment of both administrative and production time, and the quantity of wood utilized in many of the custom orders represents a small percentage of the overall product or project price.

We will continue Raleo but both because of the slowed growth for the time being and the lower utilization of the young wood, we no longer include Raleo in our projections (more below).

Raleo Surfaces panels on yacht stair barrel

Value-Adding for the Young Tropical Hardwoods

Another reason that this is a very exciting time is that we are changing the focus of our entire company solely to producing the greatest volume of the highest quality lumber possible from the trees we have planted and to converting that lumber to cash for you, our tree owners, by selling the more mature tropical hardwoods from the later thinnings of older trees directly into the market and producing and marketing the value-added products from the younger wood from the earlier thinnings.

We have done a thorough analysis of alternative uses for the young tropical hardwoods from the early thinnings in both the local market here in Costa Rica and the international market and have identified eight new product areas that are less high-end than our present Raleo products and therefore much more affordable and lend themselves to volume production and sales. We will be initiating production of two of those product areas within the next 30 days.

After these first two higher-volume value-added product areas are established, we will initiate production and marketing of more of the eight we have selected. Some of the higher-volume value-added products will be marketed under the Raleo name, as a value alternative to Raleo’s higher end products, and others will be marketed outside Raleo.

We anticipate significant marketing and production volumes, young lumber utilization and distributions from all of these higher-volume products.

In each case, the value adding will create a greater value for the young lumber than the values we show in the projections.

Thank You!

We also want to publicly thank two tree owners who are also very astute and very dedicated retired business executives and have helped immeasurably in scouring and evaluating the world’s wood and wood products markets. Their research and help has been invaluable in our determining the value-added product mix that we will now begin to pursue to utilize the stock of young lumber from the farms as well as the upcoming increasing harvests.

Last Public Planting

To allow our whole team to focus exclusively on producing quantity and quality lumber from the trees we have planted and on marketing the lumber and value added products, we have determined that this year, 2009, will be our last public planting for the foreseeable future. It is a painful decision but one that allows us to best fulfill our responsibilities to all of you.

Tropical American Hardwoods

We have added a new arm of our company, called Tropical American Hardwoods, whose function will be exclusively to market the adult lumber coming from the farms and define, produce and market higher-volume value-added products from the younger tropical hardwoods coming from the farms.

Order of 13 year teak cut to specifications being prepared to ship

Tropical American Hardwoods has initiated two websites, http://tropicalamericanhardwoods.com and http://ecohardwoods.com, to market the lumber. You will soon be hearing much more about Tropical American Hardwoods.

Preparing for Higher Volume

Our estimates are that the 2+ million tropical hardwood trees that we have planted on our farms will over the next 20 years produce between 150 million and 200 million board feet of precious tropical hardwoods.

In preparation for the upcoming much larger harvests, we will make available a limited quantity of our own beautiful older trees that we are growing for our own Tropical American Tree Farms account to fund the additional extraction, processing and production equipment, facilities and personnel that will soon be required to harvest, process, and produce products from the upcoming much larger quantities of hardwood lumber.

The wonderful older trees that we are making available are listed on our What’s New page. They are all beautiful older trees, ranging from 7 to 14 years old, and as you can see from the photos there, some of the faster growing species are already more than 70 feet tall and 12 inches in diameter. They are a wonderful opportunity for you to leap ahead many years in the process of growing tropical hardwoods.

We will make these beautiful older trees available only until they are spoken for or until we have funded the expansion.

As a thank you to those of you who already own trees, you may include the quantity of trees you already own to arrive at your quantity pricing

The quantities of these beautiful older trees are quite limited, so whether as an investment, an asset for your IRA, or cherished gift, it would be good to order your older trees today!

Distributions

We have now distributed more than $1 million to tree owners for the sale of your lumber from the early thinnings. Many of you however who elected to wait for Raleo to create higher values for your young lumber are still waiting. As you can see from the article above on Raleo, its growth, wood utilization and the distributions from them have slowed to a trickle and for that reason, we no longer show Raleo in our projections.

Your lumber value can be calculated from the today’s values on the projections page, detailed in note 1. The values for lumber marketed locally may be somewhat less for the next several months or so until construction here in Costa Rica rebounds. The projections do not include the higher value projected for the higher-volume value-added uses described above.

We will soon report to each of you who have young wood from trees that have been thinned or will soon be thinned showing what the likely distributions will be if you choose to sell your young wood on the local market or prefer for the young wood to go through the value-adding process to create higher values.

Teak Projections

We continually monitor our projections to see if any adjustments will help them be more accurate.

Several months ago, we made some adjustments to our teak projections. We lowered the expected rate of increase in teak lumber prices from 6% per year to 5% per year. In the months since we made those changes, governments around the world have pumped unprecedented trillions of dollars into the world’s economy, either by simply printing new money and/or taking on additional debt. Our prediction is that these massive injections will create significant inflation in the next few years and continuing for a number of years. If that prediction is correct, we would not have needed to lower our projections from 6% to 5%. To be conservative, we will leave it as it is for now.

We also, as mentioned above, removed Raleo from the projections and included the likely pricing if the young lumber from the early thinnings is sold on the local market. The youngest lumber values are temporarily a bit less but we anticipate that the values shown will be restored in the next few months. Even though the youngest lumber values have a negligible affect on the overall return, we try to be as accurate as possible.

Again, to be conservative, we have not included in the projections the higher values from the utilization of the lumber in the value added processes, nor the much higher values for any logs that may be veneer quality.

Audit

We have asked Hans and team to conduct an exhaustive audit of all of the trees on our farms, to confirm both their quantities and quality. It is an arduous process because of the large number of trees and extensive areas of the farms and, considering the amount of work they have in addition to this audit, will likely take the rest of the year to complete.

So far, their audit shows that 2 - 4% of the trees are not up to the Tropical American Tree Farms quality standards that we have set. If they are within trees that will soon be thinned, they will simply be eliminated as culls. If anyone’s trees are affected beyond the normal cull percentages, we will report that to the owner and suggest a trade or other solution to make you whole.

I know this goes beyond our three guarantees, but we genuinely want every one of you to be happy and to be proud of your trees.

New Articles

A number of articles have been written that were not posted our website at the time of our last Tree Owners News. You may enjoy reading some or all.

Raleo - LUXE, Fall 2008

Danza marina - CASA & ESTILO, April/May 2008

Lady Michelle - Boat International USA, September 2007

Ondas de Sutil Distincion - Vanidades, August 2007

Industry Interview - The "Johnny Appleseed" of Costa Rica - Woodworker's Journal eZine, Issue 211 July 2007

Alfred Karram II - Florida Design's Miami Home and Decor, Winter 2007

Raleo - Elements of Living, June 2006

Custom Made - Boca Raton Magazine, February 2006

Best of Competition Award - In Luxe, June 2005

Raleo - Interior Design, Show Daily, 2004

Increased IRA Contributions

We are growing several hundred thousand trees for more than 1,000 enthusiastic tree owners in their IRA’s, Roth IRA’s and SEP/IRA’s as a very important tool for retirement planning.

The IRA contribution limits have been raised since our last Tree Owners News to $5,000 per year for taxpayers under 50, and $6,000 for those age 50 and above. Regardless of the type of your IRA, growing tropical hardwood trees for harvest, for profit, may be a perfect solution for your IRA. Our tree owner relations team would be happy to help with the paperwork.

Visiting Your Trees

It is truly a joy for us when you come to see your trees and enjoy the farms and the magnificent rainforests and conservation areas you are helping to protect!

Our tree owner relations team is always ready and happy to set up your visit to the farms.

For your planning, our farms are open for tree owner visits Monday through Friday, 8:00 AM until 2:00 PM, and Saturday 8:00 AM until 11:00 AM. Our farms are closed on Sundays and all Costa Rican national holidays so that our workers can have time with their families.

In order to make arrangements for a wonderful and memorable visit, we need to confirm the final details of your plans at least three weeks prior to your arrival at the farms so there is ample time to have the farm manager available to accompany you and arrange for horses if you would like.

We would love to help you plan a visit.

Gentle horses are available for you to enjoy the miles
of private trails that wind throughout the farms

Addresses

Please always make sure that we have both your most up-to-date e-mail address, and your regular mailing address as well.

Thank you!

Sherry and I thank God, and thank every one of you, very much for making all of this possible. Thank you so much for all of your wonderful support, enthusiasm and patience. We have truly come a long way together.

Thank you all very much!

Please call or e-mail us with any questions. "Tropical American Tree Farms", "growing precious tropical hardwoods for you!", and Supra Mixture are all exclusive trademarks. Raleo^® is a registered trademark of Raleo Design S.A. All materials and content copyrighted 1991 - 2010. All rights are reserved worldwide.