How Lucrative Thy Branches: the Christmas Tree Business

Depending which time zone you inhabit, the Christmas morning ritual of checking out what's under the tree is either well under way or soon to begin. 

But as with so many other tightly embraced symbolic reference points, we tend to take the tree's existence for granted. We drove or walked to a convenient location, bought one of appropriate size and cost, lugged it home and set it up.

How it got there, where it came from and why anyone would stand out in often freezing weather for weeks on end to sell the things for a few weeks a year rarely crosses our minds. But as the following article explains, there is a national, if not global supply chain, replete with issues of quality, transportation cost, timing, inventory management, marketing and obsolescence.

The reality is that it can be quite profitable for both suppliers and retailers, it supports family-owned businesses and preserves farm land that might otherwise become real estate developments. It is, therefore, a beneficial contributor to the economy - besides being a source of family fun, holiday cheer and subsequent vacuum cleaner repair. JL

Paul Sullivan reports in the New York Times:

Unlike turkeys at Thanksgiving — which supermarkets often sell at a loss to bring in customers — Christmas trees are priced to make money.

Chris Botek, a tree grower in Lehighton, Pa., is used to people being shocked by how much his Christmas trees cost.

“People come from the city and they’re used to paying $150 to $200 a tree,” he said. They look at you and say, ‘Are you kidding me?’ ” Mr. Botek gets $6.25 a foot — that’s $50 for a fresher version of that eight-foot tree sitting on an urban sidewalk.

His local customers, the ones who live near the 250 acres he has filled with firs and spruces, are shocked for a different reason. “Some people say they could go down the road and get any tree in the field for $25,” he said.

And the pricing gets even more complicated than that: When Mr. Botek sells his trees to retailers from the District of Columbia to Connecticut, he charges them $23 a tree.

But the path to success in the broader world of timber and the narrower world of Christmas trees couldn’t be more divergent than the roads in Robert Frost’s yellow woods.

In the 1960s, John Oughton’s family went the timber route. He said his wife’s father wanted out of the cattle business, and Mr. Oughton suggested the family use its farm in Mississippi to grow trees for pulp and building materials.

They planted yellow pine, poplar, white and red oak, and a few cypress trees. These trees grow high into the sky and are sold like commodities when they’re cut down.

But yellow pines can take 16 to 18 years to mature and hardwoods, like oak, up to 30 years. A cypress tree could take 80 to 95 years to reach maturity, he said.

“Every year you’re harvesting something,” said Mr. Oughton, who added that the land was also used for deer and wild turkey hunting.

Around the time Mr. Oughton’s family entered the timber business, John Wyckoff’s father — he had also grown tired of cattle — convinced his father to let him plant Christmas trees on the family’s farm in New Jersey. Five decades later, the Wyckoff family sells 5,000 to 6,000 fir and spruce trees in the month from Thanksgiving to Christmas.

What Mr. Wyckoff does is more labor-intensive than just letting the trees grow. Each tree, he said, has to be shaped annually, so it will look like a conical Christmas tree. He has 65,000 trees on 170 acres, and it takes seven to 10 years before a tree reaches the standard height of seven to eight feet for a Christmas tree.

His labor, though, paid off this year. One of his Douglas firs won a national competition, and that meant his farm supplied the White House with four Christmas trees, presenting them in person to the first lady, Michelle Obama. But he did not have an 18 ½-foot tree — the required size for the Christmas tree in the Blue Room — so the White House turned to Mr. Botek. (The tree has to be that height so the Christmas lights can be plugged into a ceiling outlet, where a chandelier usually hangs.)

Despite the accolades for their quality, trees from Mr. Wyckoff’s and Mr. Botek’s farms are sold like crops. Mr. Wyckoff runs mainly a cut-your-own business, and prices his trees at $8 a foot, or $56 for a standard seven-foot tree. He said he needed to sell 3,000 trees to cover his costs.

“You work 52 weeks a year for three weekends,” Mr. Wyckoff said, referring to the short season when people are visiting his farm to get a Christmas tree. “When you take a hit on one of those weekends, your expendable income for the next year is somewhat limited.”

Cline Church, president of the National Christmas Tree Association and a Christmas tree farmer in North Carolina, said that the average price a consumer paid last year for a Christmas tree was about $40. A typical tree farmer spent $8 to $10 on each seven-foot tree while it was growing on his farm, and the average price for that tree sold to retailers was $20 to $25. Shipping costs added another $2 to $5 to a tree. Call it $30 in overall costs to harvest a Christmas tree.

In that situation, the tree grower made about a 9.6 percent compounded annual return, and the retailer selling the tree for the average price made 33 percent in a month, not counting the retailer’s other expenses.

Mr. Botek said he had a customer in Washington who gets well over $100 for his trees — a price familiar to many tree buyers in Manhattan. Mr. Church said the supply and the demand for real Christmas trees had been in equilibrium for years, at 30 million to 35 million trees a season, so the guy on the corner, like Mr. Botek’s retailer, was the one profiting mightily, though he did have to stand in the cold for about a month. While there is definitely a profit for the retailer, the industry is made up of mostly family farms, Mr. Church said, which means there is not a lot of need for outside investors.

Timber, however, is open to a certain kind of investor. Since the shape of a tree doesn’t factor into the price of timber, the carrying costs are relatively low, about $5 an acre, which covers insurance, taxes and a forester to clean the property and watch for disease.

The barrier to entry, however, is high. Brian C. Duke, director of agricultural services at Northern Trust, said a 10,000-acre forest could range in cost from $10 million around the Great Lakes to $40 million in the Pacific Northwest. Returns on timberland have historically been around 9 to 10 percent a year, which explains why most of the industry remains dominated by institutional investors and larger timber companies.

Whereas Christmas trees are going to be cut when they reach the height consumers want, deciding when to cut in the timber market can tricky.

Doug Donnell, timberland services executive at U.S. Trust, said a poplar tree six inches in diameter could be sold for pulp, which is currently trading around $800 a metric ton. If the tree grew two more inches in diameter, it becomes a chip ‘n’ saw — a trade term for cutting two-by-fours from the interior wood and pulping the rest, doubling the price. Another two inches and the tree becomes saw timber, which gives it more uses and increases the value even more.

Yet he said it could take a tree seven to nine years to grow from one class to another. “They don’t care what happens in Washington,” Mr. Donnell said. “That’s predictable growth not connected to the marketplace.”

But such a long growth cycle makes timber investing better suited to a family with the means and the desire to pass forestland to heirs. Mr. Duke said the firm managed more than 300,000 acres through various trusts, one stretching back four generations, and many of these families had also built homes on the property to use the land for recreation as well as profit.

Of course, investing in timber is not just about watching the trees grow and shooting a deer or two. Thorne Perkin, managing director of Papamarkou Wellner Asset Management, said there were environmental risks, like fires, hurricanes and insect infestation as well as economic risks in tying up money for so long in exchange for a modest, if consistent, single-digit return. “This is not like owning a share of Exxon that you can just sell,” he said.

There are alternatives, like buying stocks in forest companies or shares in an exchange-traded fund. Some families pool their money. And while timber is a passive investment, Mr. Oughton said it was not as easy as he thought it would be. “When I retired in 2005, I took it up as a full-time project,” he said, from his home in South Florida. “Surprisingly, it’s become more of a full-time job.”

As for the rest of us, the surest way to get a better return on our investment is to pack up the family and drive to a Christmas tree farm.