Author Topic: Tropical hardwood plantation? Good idea, bad idea or meh?  (Read 9454 times)

bwall

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Tropical hardwood plantation? Good idea, bad idea or meh?
« on: May 03, 2017, 08:36:07 AM »
I've got a new idea recently..... I'm thinking about buying cleared land in the tropics and planting tropical hardwoods.

Pros:
1) land and labor is relatively cheap so there are relatively low startup costs.
2) Huge returns on investment (over 10% annually)
3) Low maintenance costs
4) Carbon sequestration and re-foresting lands cleared out decades ago.
5) Strong demand and price trend upward.

Cons:
1) Can't harvest for at least 20 years.
2) Political instability can potentially threaten harvest.
3) Typical farming risks; weather events, etc.


So, what am I overlooking? Has anyone else ever thought of doing this? Why aren't more people doing it? Or are they and I just can't find them?

bunchbikes

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #1 on: May 03, 2017, 10:07:07 AM »
10% return on investment, and you can't get it for 20 years?}

That's about as Meh of a business idea as I've ever heard.  I guess the trade-off is that it's relatively hands off?  Maybe?


There are so many businesses where you could get 100-1000s% returns in a handful of years, and could scale very very quickly. 

Hard to scale the growing of trees.


A better business would be to become very knowledgeable about the local sources for tree farms and hardwood, and become a dealer in the U.S. connecting lumber shops with the raw materials they need.   You can leverage the land/forests that other people own, and grow much quicker.
« Last Edit: May 03, 2017, 10:09:05 AM by CargoBiker »

bwall

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #2 on: May 04, 2017, 09:34:46 AM »
A 10% return locked up for 20 years is like a ..... treasury note?

What I'm talking about is over 10% per year. For example, $200,000 becomes an inflation adjusted $2m in 20 years.

Where I'm at here there are no tree farms, so there's no one to connect.

Guesl982374

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #3 on: May 04, 2017, 02:52:30 PM »
I've had similar thoughts about buying land in VT/NH/ME to grow trees. The research I found for New England was closer to 5% return per year over a 20+ year period. It was a way to generate 'safe' returns that were above the risk free rate given that the growth rate of trees is very stable. It seemed to be a good way to store value long term while beating inflation (if inflation goes up, the cost of paper products go up, therefore the value of my trees goes up) and making a modest return.

My advise, if you are really serious, talk to those in the business local to where you are looking to invest.

bwall

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #4 on: May 04, 2017, 07:18:25 PM »
I've had similar thoughts about buying land in VT/NH/ME to grow trees. The research I found for New England was closer to 5% return per year over a 20+ year period. It was a way to generate 'safe' returns that were above the risk free rate given that the growth rate of trees is very stable.

I know, right? Trees grow pretty much the same every year, on average. Sure, there will be a drought for a year or two, but also some years of extra rain to balance it out. I figure it's better than a whole life insurance policy (ok, with the one BIG limitation that it doesn't pay out immediately upon early death).

What numbers were you looking at in New England? How many board feet (or cubic meters) per acre (or hectare)? What was the sale price of the lumber? Which species of tree? And, what is the cost of an acre of land?

Unfortunately, where I am there are not many locals planting trees, for a variety of reasons.

SeattleCPA

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #5 on: May 04, 2017, 07:55:39 PM »
Part of my extended family is in the timber business. They have generations of experience and vast resources.

I would really surprised if this is something someone new to category and something someone without really significant resources could earn decent returns at.

Sorry.

bunchbikes

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #6 on: May 04, 2017, 10:19:23 PM »
What I'm talking about is over 10% per year. For example, $200,000 becomes an inflation adjusted $2m in 20 years.

Ok, that's boring and unexciting.  So, returns slightly better, or the same, as the stock market, with a much higher risk of failure.  I just don't see the upside here.

Quote
Where I'm at here there are no tree farms, so there's no one to connect.

So, with no connections to any tree farmers, how did you plan to start a successful tree farm?

That answer is just pure laziness. The business idea I shared was a solid one. You either want to pursue it or you don't... it doesn't matter to me. 

But saying you can't pursue it because "there's no one to connect to around here" is just a cop out.  You live on earth. There are tree farms on Earth. Nearly any point on Earth can be reached by a cheap plane ticket.

« Last Edit: May 04, 2017, 10:26:25 PM by CargoBiker »

bwall

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #7 on: May 05, 2017, 06:04:51 AM »
What I'm talking about is over 10% per year. For example, $200,000 becomes an inflation adjusted $2m in 20 years.

Ok, that's boring and unexciting.  So, returns slightly better, or the same, as the stock market, with a much higher risk of failure.  I just don't see the upside here.

Quote
Where I'm at here there are no tree farms, so there's no one to connect.
So, with no connections to any tree farmers, how did you plan to start a successful tree farm?

That answer is just pure laziness. The business idea I shared was a solid one. You either want to pursue it or you don't... it doesn't matter to me. 

But saying you can't pursue it because "there's no one to connect to around here" is just a cop out.  You live on earth. There are tree farms on Earth. Nearly any point on Earth can be reached by a cheap plane ticket.

Of course it's a solid business idea. It's just not practical to do locally which was the original suggestion.

I would encourage you to double check the math. I'm talking about 3x average stock market returns over the same time frame.

I was planning to get a tree farmer from the local university. They get degrees in Forestry. Usually there are long lines of university grads looking for a job in their field.

bwall

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #8 on: May 05, 2017, 06:18:34 AM »
Part of my extended family is in the timber business. They have generations of experience and vast resources.

I would really surprised if this is something someone new to category and something someone without really significant resources could earn decent returns at.

Sorry.

Thank you for the reply. The purpose of the post was to vet my idea, not get cheerleaders. :)

Is your family supplying the pulp industry? Or Weyerhaeuser? (I think they have their own forests, though? Dunno.) Or something along those lines? I do believe in that part of the industry it would be like raising chickens for Tyson or pigs for Smithfield and thus very hard to earn any money at all.

I am interested in planting tropical hardwoods. In this category are teak and mahogany, which are well known in northern climates. But, I'm looking at something with even higher profit margins, like Brazilian Rosewood. The idea is to be more like a brewpub that can capture the profits of the brewery, distributor AND retailer.


Fun fact: there are trees that most of us have never heard of with properties that sound more like stones: termites do not eat the wood, you can't drive a nail through it and it sinks in water. Here is a link to one such tree:

https://en.wikipedia.org/wiki/Manilkara_bidentata

SwordGuy

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #9 on: May 05, 2017, 09:28:38 AM »
I lost $10,000 doing that.  TATF, money down the drain.

SeattleCPA

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #10 on: May 05, 2017, 04:54:06 PM »
Part of my extended family is in the timber business. They have generations of experience and vast resources.

I would really surprised if this is something someone new to category and something someone without really significant resources could earn decent returns at.

Sorry.

Thank you for the reply. The purpose of the post was to vet my idea, not get cheerleaders. :)

Is your family supplying the pulp industry? Or Weyerhaeuser? (I think they have their own forests, though? Dunno.) Or something along those lines? I do believe in that part of the industry it would be like raising chickens for Tyson or pigs for Smithfield and thus very hard to earn any money at all.

I am interested in planting tropical hardwoods. In this category are teak and mahogany, which are well known in northern climates. But, I'm looking at something with even higher profit margins, like Brazilian Rosewood. The idea is to be more like a brewpub that can capture the profits of the brewery, distributor AND retailer.


Fun fact: there are trees that most of us have never heard of with properties that sound more like stones: termites do not eat the wood, you can't drive a nail through it and it sinks in water. Here is a link to one such tree:

https://en.wikipedia.org/wiki/Manilkara_bidentata

I really don't know anything about the business or the timberlands. I just know it's pretty involved. Also, long long lead times.

It's like farming except instead of growing your crops over the summer, you grow your crop over decades.

maizefolk

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #11 on: May 05, 2017, 05:02:03 PM »
I'd be most worried about the logistics of protecting your trees from harvest for the 20-100 years before you wanted to sell them off yourself. In a lot of the countries where cleared rainforest land is available "tree poaching" is quite common.* What will prevent folks from coming onto your land and cutting your trees without paying you anything?

*http://www.npr.org/2015/11/04/452555878/deep-in-the-amazon-an-unseen-battle-over-the-most-valuable-trees

bunchbikes

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #12 on: May 05, 2017, 07:38:47 PM »
Of course it's a solid business idea. It's just not practical to do locally which was the original suggestion.

Sorry, I completely misread and misinterpreted the previous post. I gotcha now.

However, the internet and phone have eliminated the need to be local to anyone that you conduct business with.

For a brief time, I ran a snowplow company in the Columbus, OH area, and ran it from Dallas. Never set foot in Ohio.

Quote
I would encourage you to double check the math. I'm talking about 3x average stock market returns over the same time frame.

Still not exciting, or even close to "Huge" as you said in the OP.  Especially for the work you're going to have to put in.

If you're entrepreneurial enough to attempt this, then take the $20,000 (or whatever you were going to put in) and start a business with returns of 100s to 1000s of %, over a much shorter time frame than 20 years.
« Last Edit: May 05, 2017, 07:58:46 PM by CargoBiker »

Le Poisson

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #13 on: May 05, 2017, 07:49:58 PM »
I have considered buying cheap land covered in maples up here. The thinking being that a spring sap harvest could be worth enough to cover ownership cost.

To me, buying a forested piece of ' junk land' (no Road access, unbuildable) with an immediate crop is a better bet than playing the long game and betting against the weather, government regulations, insects, and whatever other unexpected events come up.

worms

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #14 on: May 15, 2017, 10:47:12 PM »
As mentioned above, unless you have identified a unique location in a very civilised and rule-bound part of the world, you cannot protect the crop if you are not there (and part of the local community).  Your seedlings will be replaced by maize in the short-term, your young trees will be converted to charcoal in the medium term, or your mature trees will be logged the week before your harvest crew get there.

There are other good opportunities in buying forest land, but I don't think your business model is one of them.

ooeei

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #15 on: May 26, 2017, 12:19:26 PM »
I know someone whose Grandfather planted pine trees on his ranch to be harvested.  He planted them all close together to start, and has someone come harvest every 5 years or so to thin them out.  The different sizes are used for different things, so that's the most efficient way to go about it.  I think he planted them a bit over 20 years ago and now they can be used for telephone poles.  This is basically a "side gig" since he already owns the ranch land, and just planted pine trees in places where the cattle wouldn't be grazing anyway.  He said it doesn't bring in a whole lot of money, but it's a nice bonus every few years and is very low maintenance.  In his area, getting loggers to come chop them down is actually pretty difficult, as he has a relatively small "crop" that is almost not worth their time.  He basically schedules them to come some time during a year or two if they run out of stuff to do, but that part does frustrate him.

To sum up, I don't think it's worth buying land specifically for that, but if you have the land for something else, it doesn't hurt to put some trees on it. 

bwall

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #16 on: May 26, 2017, 12:38:30 PM »
ooeei: thanks for the feedback. that is interesting to hear.

Where is the ranch you mention located? What state? Or, what part of what state?

Thx!

ooeei

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #17 on: May 26, 2017, 12:56:29 PM »
ooeei: thanks for the feedback. that is interesting to hear.

Where is the ranch you mention located? What state? Or, what part of what state?

Thx!

Northeast TX

Bumperpuff

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #18 on: May 28, 2017, 12:23:24 AM »
This caught my eye since I've worked and studied forestry, soil science and agriculture and I've lived in tropical countries. Along with the issues others brought up about protecting your trees, I would like to point out a few things that occur to me.

What do you know about the growth requirements of your desired species? Do they thrive in the same habitats, do they host disease or pests that can be transferred to your other trees?

If the land is fallow, why? What amendments will you need to make to the soil for your trees to grow? Can you achieve similar results with the proper mix of species?

Where would you get the required equipment, experience, fertilizer, seedlings/seeds, permits, and other things needed for your endeavor?

How will you earn money off the site in the mean time? Are there suitable fruit/nut trees or shrubs you can incorporate? Are there other agroforestry opportunities?

Will the market for your product exist in 20+ years?

If you have always wanted to be a farmer/forester who lives of the fruit of the land and sweat of your brow, then this could be the lifestyle for you. In that case, talk to some foresters, extension agents, and soil scientists familiar with the area you want to start your plantation. They should provide sound advice. Otherwise, realize you are making a job for yourself because it's unlikely that what you want to do can be a passive investment.

bwall

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #19 on: May 28, 2017, 11:26:53 AM »
ooeei; thank you for responding.

Bumperpuff: Thank you very much for the input. Those are great questions. And, one that I cannot answer by myself as I'm not a forester. However, I do plan on hiring one to answer just those questions.

Where in the tropics did you work? What was your job description? Did you like it? How long were you there? What do you do now?

Bumperpuff

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #20 on: May 29, 2017, 09:48:10 PM »
I was in east Africa for 2 years for Peace Corps. The plantation forestry in the area I lived was mostly eucalyptus and Gravillea robusta. I'm working in Alaska as a generalist natural resource manager.

I'm not remotely qualified to give technical advice, but I think your idea has promise and I have considered doing something similar as my post FIRE lifestyle.

Michael in ABQ

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #21 on: August 07, 2017, 05:28:41 PM »
I strongly recommend reading these two blog posts from an international appraiser who has looked at the value of tropical hardwood plantations.

http://www.internationalappraiser.com/2011/08/costa-rican-teak-farms-for-gringo.html

http://www.internationalappraiser.com/2013/05/tropical-american-tree-farms-update-and.html

Bottom line is you're looking at a multi-decade investment before you would earn anything and there are significant risks that by the time your trees are ready to harvest someone else has already chopped them down, squatted on the land, or done something else that you have no recourse for as you're dealing with a country that does not protect property rights like the US.

There are companies out there advertising investments in these types of properties but they're basically scams, or at least very poor investments.

ChpBstrd

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #22 on: August 08, 2017, 02:43:16 PM »
Here are some alternative options:

1) Buy a few hundred acres of US pine plantation. Build your house on the property. In 10-20 years, the trees will have matured contributing value to the parcel. Then sell your home and the "lot" it sits on, harvesting the appreciation tax-free.

2) Consider a pecan plantation. Such parcels come up for sale in the South. Pecans offer annual yields most years, which helps a lot with ROI and is a good side gig. Pecan prices have skyrocketed in recent years because of growing Chinese demand and inelastic supply due to the long time it takes pecans to mature. A medium-size tree might yield $50-60 per year.

3) I considered starting a seasonal lawn service of sorts, picking up pecans with basket rollers for residential homeowners and paying them half the crop yield. This would have a much higher ROI than a plantation. Most people just leave them to rot despite their value.

ChpBstrd

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #23 on: August 08, 2017, 02:59:28 PM »
Here's an example of what you can get if you wanted a pine plantation. This example is kinda pricey due to having a road, a creek, and electricity. For just dirt and trees, $1500/acre is more typical.

http://homeslandcountrypropertyforsale.com/mountain-properties/properties/30-acre-pine-plantation-in-mena-arkansas/

This one, for example, is priced more reasonably, but due to the small size you're unlikely to get the best price from the timber companies.

https://www.landhub.com/Property/Ac-Pine-Plantation-Ready-To-Thin-18752

maizefolk

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #24 on: August 08, 2017, 03:19:14 PM »
Option #2 would be a lot of fun. I wonder if similar systems would work with other nut trees.

bwall

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #25 on: August 11, 2017, 04:40:19 PM »
Thanks for the feedback:

Michael in ABQ: I'm not interested in investing with someone. I'm looking at buying the land and planting trees myself. So, I'd have it all under my control, etc. As far as property rights are concerned: I'm also looking at Puerto Rico, which has the same property rights as in the USA. Land prices are higher than in Costa Rica, Panama, etc, but in exchange you get rule of law, no landless peasants and nor marxist guerrillas next door. Plus, if it becomes a state (big if), land prices will double (or triple).

ChpBstd: Pine is too cheap. Teak can be harvested in 20-25 years and commands a significant premium to pine. Same amount of work, much greater payout. It coppices well too, so a second rotation can be counted on with much lower input costs the second time around.

ender

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #26 on: August 20, 2017, 02:55:02 PM »
A 10% CAGR that is only realizable in 20 years, assuming no problems happen, is a pretty poor ROI for any business.


sencha

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #27 on: August 30, 2017, 09:20:05 AM »
I agree with the above posters that this seems like a risky bet without experience in tree farming, but nobody has mentioned some of the potential tax benefits of holding land as a tree farm. I understand that tree farms are usually allowed to declare losses for longer than most other types of businesses, due to the long maturation period for trees. This can act as a tax shield for other business earnings that you may have, as well as open the door to other opportunities like vacation rentals etc on the property with a preferential tax treatment.

I think that this idea is a bust if operated as a passively managed farm operation, but has serious potential as a larger real estate play with a little bit more active management.

PDXTabs

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #28 on: September 03, 2017, 11:45:14 AM »
If I were to do this I would go to Panama where a $40k USD investment will get you a path to citizenship.

GuitarStv

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #29 on: September 03, 2017, 12:48:18 PM »
Exotic hardwoods are extensively used in musical instruments . . . but the reason that the stuff is so expensive is that there's a lot of illegal logging which is wiping out the supply.  Most of the desirable species of trees (ebony, certain species of mahogany, Brazillian rosewood) take a really long time to grow, and can't be grown in countries with decent police protection.  That means that you need to account for personally patrolling your tree farm land and figuring out some method to deal with armed poachers once your trees become close to ready.  In addition to this of course you've also got to ensure that the trees don't die of natural pests, fungus, competition from other flora and fauna.

This seems like a very difficult way to make a buck, and a lot of work.

bwall

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #30 on: September 03, 2017, 03:19:12 PM »
Guitaristv: Thanks for the feedback. Which woods are most commonly used in musical instruments?

Ebony only grows in the rainforest and will be probably become extinct in our lifetimes.
Brazilian Rosewood (Cocobolo in Spanish) grows well in many places, but not in Puerto Rico, unfortunately :(
Which species of Mahogany are you referring to? Perhaps they grow in Puerto Rico?
Is teak used in musical instruments? If so, which ones?

Last week I looked at a 30 acre hobby farm here in Puerto Rico that was for sale. The owner had planted over 300 teak and mahogany trees (approx one hectare), but had done nothing in the way of management. Just planted and walked away. I was shocked and appalled. With very little in the way of additional work, he could have very easily achieved his full asking price. But, as it was, it was overvalued even at 50% of asking price.

One advantage of Puerto Rico is that there is rule of law. Because all Puerto Ricans are Americans and can leave and work in America at any time, there is little incentive to cut down trees on a mountain side that aren't yours. You'd need a bulldozer to get the trees out and a LOT of people would see you doing it also. And, if you rock up at a saw mill with all these trees, they will remember who you are. Alternatively, you have to put them into a shipping container and ship overseas. Most of these skills are beyond those of petty thieves and organized criminal gangs prefer drugs, IMHO.

maizefolk

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #31 on: September 03, 2017, 03:24:07 PM »
A friend of mine was telling me some sort of new environmental regulation has come in with regard to rosewood species that was basically going to make them unattainable for new musical instruments at least the low end stuff purchased by folks playing in their garages and that would push a lot of folks into non-wood alternatives like "Richlite." Not my area, so please treat the above as gossip rather than fact.

GuitarStv

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #32 on: September 03, 2017, 05:51:06 PM »
Guitaristv: Thanks for the feedback. Which woods are most commonly used in musical instruments?

Ebony only grows in the rainforest and will be probably become extinct in our lifetimes.
Brazilian Rosewood (Cocobolo in Spanish) grows well in many places, but not in Puerto Rico, unfortunately :(
Which species of Mahogany are you referring to? Perhaps they grow in Puerto Rico?
Is teak used in musical instruments? If so, which ones?

Last week I looked at a 30 acre hobby farm here in Puerto Rico that was for sale. The owner had planted over 300 teak and mahogany trees (approx one hectare), but had done nothing in the way of management. Just planted and walked away. I was shocked and appalled. With very little in the way of additional work, he could have very easily achieved his full asking price. But, as it was, it was overvalued even at 50% of asking price.

One advantage of Puerto Rico is that there is rule of law. Because all Puerto Ricans are Americans and can leave and work in America at any time, there is little incentive to cut down trees on a mountain side that aren't yours. You'd need a bulldozer to get the trees out and a LOT of people would see you doing it also. And, if you rock up at a saw mill with all these trees, they will remember who you are. Alternatively, you have to put them into a shipping container and ship overseas. Most of these skills are beyond those of petty thieves and organized criminal gangs prefer drugs, IMHO.

Swietenia mahogani and Swietenia macrophylla are generally considered the best varieties of mahogany.  I have no idea where they grow.  Most guitar manufacturers these days end up using the heavier/denser varieties of African mahogany.

Dalbergia nigra is the botanical name for the most sought after variety of Brazilian rosewood.  It's really hard to ship/import it most places (Gibson guitars was raided a couple years ago and they ended up paying a lot of money in fines for ignoring shipping restriction rules).  My understanding is that it doesn't grow well, and has been pretty overharvested all over the world.  And yeah, ebony is pretty rare at this point too.


bwall

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Re: Tropical hardwood plantation? Good idea, bad idea or meh?
« Reply #33 on: September 05, 2017, 02:25:58 PM »
S. mahagoni and S. macrophylla both grow here in PR. I head that imports of S. mahagoni are restricted in the USA, but since PR is considered a part of the USA for customs purposes, they can be taken from PR to the USA. However, I don't know what the difference is between them from a wood craftsman's perspective.

Dalbergia nigra is the brazilian rosewood that I was referring to. I'd plant it here PR if I could, but it doesn't grow, from my understanding. I'd also heard about the raid on Gibson. I have no sympathy for them since the export from Brazil of this species has been outlawed since the early 1990's.

I know that there is immense opportunity for profit by growing tropical hardwoods here in P.R. I'm just not sure if I'm the person to do it :/