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The University of Missouri Center for Agroforestry (UMCA), has developed a very useful Black Walnut Financial Model.

The black walnut financial model is a simplified decision model. It is designed to assist potential growers in making decisions about tree spacing, nut harvest, and whether to use improved (grafted) or unimproved trees. The model does not claim to accurately show tree growth characteristics at future points in time. However, it does use a simple algorithm to make estimates about future nut production and tree diameters. The model should be used to consider how certain management decisions, i.e. tree spacing, will affect the financial performance of the plantation in terms of potential increases and decreases in net present value, internal rate of return and annual equivalent value.

The model asks for inputs such as:

  1. Initial spacing
  2. Harvesting objectives
  3. Expected growth rate of the trees per year
  4. Estimated nut sale price
  5. Estimated timber sale price
  6. Expected return on investment
  7. Expected diameter and log length at harvest

The model provides an establishment summary that shows the number of trees initially planted along with cost per tree and cost per acre to establish those trees. This summary will describe the year, volume, and value of a final timber harvest if the model estimates that a final timber harvest will provide the best financial return. If the nut income is estimated to provide the best financial return, then no timber harvest will be conducted and the model will estimate a perpetual income stream from the nut crop. This summary also indicates the year in which the trees are expected to start producing a nut crop that is large enough to justify the expense of harvesting.

Also shown is schedule of the timing and cost or revenue from pre-commercial or commercial thinnings conducted on the plantation. And a Financial Analysis which summarizes the Net Present Value (NPV), Internal Rate of Return (IRR), Annual Equivalent Value (AEV), and the Modified Internal Rate of Return (MIRR) for the plantation. The financial analysis summary also indicates the number of years required to recover the cost of establishment. This is the estimated number of years required before the IRR is greater than zero. This model can also provide an enterprise budget a cash flow diagram.

Because of the simplicity of the model, there are several important limitations that must be taken into consideration. This model is limited to a 100 year time frame. The model also applies a strict 50% thinning whenever a thinning is required. The purpose of the model is to provide an indication of the direction of change for certain management decisions (for example, a closer initial spacing versus a wider initial spacing), and a basis for determining which strategy would work best for a certain site (such as, a site that only grows trees at 0.25 inches per year may be best suited for nut production versus a site that grows trees at 0.5 inches per year). In most cases the default cost structures used in the model are sufficient to achieve the analysis desired, since they are held constant throughout the analysis.

For more information or technical help with the model, contact Larry Godsey, Center Economist, University of Missouri Center for Agroforestry (godseyl [at] missouri.edu).

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