Varietal Forestry:Technology, Performance, Value

Arkansas Forestry AssociationOctober 5, 2011John Pait

Topics

• Varietal Forestry Overview• Field Performance • Financial Analysis & Valuation

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3

CellFor

• Overview: global leader in varietal seedlings for reforestation

• Business Model: Seed technology company serving all timberland owners and managers.

• Company: 100 employees with locations in Victoria BC, Atlanta, Savannah, GA Conway AR, Columbia, SC, Lufkin, TX, Denver, CO

• Structure: Privately held by investors including: ATP, CSFB, BDC, Growth Works, DuPont, and others.

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CellFor’s Global Footprint

British ColumbiaSpruce, Doug Fir

South East USALoblolly, Slash

ChileRadiata

New ZealandRadiata

AustraliaRadiata

South AfricaPatula

> 7,000 varietal lines in trials

Brazil/ArgentinaLoblolly

5

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Drivers for Productivity Gains

0

50

100

150

200

250

1940 1950 1960 1970 1980 1990 2000 2010

Establishment period

Vol

ume

at h

arve

st (

tons

/acr

e)

Clonal andbiotechnology

Tree improvement

Weed control

Fertilization

Site preparation

Planting

Natural stand

Adapted from Fox, T.R., E.J. Jokela, and H.L. Allen, 2004

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Power of Genetics Proven in other Agricultural Crops

Open-Pollinated Varieties1866 to 1933

Double-Cross Hybrids1934 to 1955

Single-Cross Hybrids1956 to 2001

Source: National Agricultural Statistics Service.

Corn Yields 1866 to 2001

Current phase of conifer genetics

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Genetic Options for Reforestation

• Bulk Orchard Seed by generation of advancement– 20 to 40 improved mother trees– Thousands of male genotypes and pollen contamination– Lowest gain and cost

• Open Pollinated ½ Sib Families by generation– Single improved mother tree – Thousands of male genotypes and pollen contamination– Better gain and slight cost increase

• CMP: mass controlled pollination Full Sib families– Single improved mother and father trees– Thousands of genotypes– Higher gain and higher cost

• Varietals: best single tree from best families– Single genotype– Highest gain and highest cost– Holy Grail of Forest Tree Improvement

9 9

What is Varietal Forestry?

Variety (aka clone, line)– Collection of individuals all with the same

genotype (same DNA)– Methods:

• Tissue culture, rooting, grafting, etc.• No genetic engineering involved

Varietal Forestry– Operational deployment of tested varieties– Reforestation on an operational scale– Usually 1 variety per forest stand– Limited number of varieties deployed

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First Patent Issued for A Tree for Reforestation: Varietal CF L3791

US PP19,447, P3 Pait , et al. November 11, 2008 Loblolly pine tree named‘CF L 3791

US PP19, 793, P3 Pait et al. March 3, 2009 Loblolly pine tree named ‘CF Q7766’

US PP21,973, P3 Pait et al. June 14, 2011Loblolly pine tree named‘CF LP17696’

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CellFor Plantings 2000 – 2010

Over 1,000 Forest Stands in +175 Counties

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CellFor Production Overview

Produce Plantable Germinants

Grow Plantable Germinants into Miniplugs

Grow Miniplugs into Finished Seedlings

CellFor Labs

(BC, Canada)

Contract Nurseries

(Canada & USA)

Process completed in 12 to 18 Months

Contract Nurseries

(USA)

13 13

Germplasm Capture and Testing

Selected Parents

Seeds

Embryo Cultures

A BB C D A B C D

Establishment of statistically designed Field Trials

Frozen Storage of Cultures

Somatic EmbryogenesisProduction of selected variety

Field Trials

Create an elite family and then select the very best individual from that family

Selection of best performing variety

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CellFor’s lab process starts with a green cone and immature seed

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Young embryo resides within the megagametophyte

Zygotic Embryo

Embryonal Cavity

Megagametophyte

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Embryogenic tissue from dissected seed

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Embryogenic tissue is multiplied and cryopreserved for long term storage

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Embryo and Germinant Production

Transfer to GerminationMature Pine Embryos Plantable Germinant

Cryo Preserved Tissue Tissue Initiation Tissue Bulk-up

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Germinants from Somatic Embryos

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Seedlings Ready for Transplant

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Miniplugs Await Transplanting

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Containerized Seedling Nursery

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Bareroot Nursery Crops

Key Drivers to Varietal Value Creation

• Growth & Productivity• Stand Uniformity & Sawtimber Potential• Disease Resistance• Survival

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Q7766

18 months old

Resource Mgmt. Service

Bolton, NC

Growth

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GROWTH:Q7766: 24 months

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Growth:New CellFor Variety Winning by 47% in CellFor Line Trial

in Argentina at Age 2

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Growth: Q7766 Age 2 North Carolina

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Outstanding Growth: CF O3621 Age 6 R.O. Martin

Uniformity in 20 Year Old Stand Varietal trial

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Disease ResistanceAge 6 years: Rust Impacts STP

Q3802 0% Stem Rust

OP Family22% Stem Rust

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0%

5%

10%

15%

20%

25%

30%

35%

Rust Average Site Rust-Prone Site

0%2%

7%

33%

Ste

m R

ust (

%)

Varietal Mean Check Mean

Reduced Risk: Disease Resistance is Dramatic

Uniformity in Varietal Loblolly Pine

UniformityQ3802

Age 5, Alabama 5

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Log Quality

Q3802Small Branches

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CF Q3802

Q3802 showing smaller and less frequent branches resulting in fewer and smaller knots

Check

Varietal Branch Diameter (Future Knots) is Small & Stable

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1 Very Small2 Small3 Small to Avg.4 Average5 Avg. to Large6 Large7 Very Large

75% score 3or better

Log Quality:Pulpwood vs SawTimber

7-56 CellFor CF Q380237

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Crown Characteristics Can Be Selected

Loq QualitySampling for Wood Density Analysis

Log Quality: Densitometry of Varietals vs Seedlings

O39

71N

3977

L361

5Q

3875

N34

07L3

412

Q33

40Q

3831

N34

55N

3748

L369

1K

3973

N38

52L3

480

L363

5K

3690

Q38

46N

3960

Q34

72L3

642

L359

8Q

3802

Q38

80N

3759

L378

9L0

000

Q00

00O

3621

OP

7056

N35

59N

0000

L326

3Q

3606

L351

9N

3818

Q35

07N

3903

OP

2300

1Q

3469

OP

2206

3

Wood specific gravity at age 5 SE clones and checklots

Spe

cific

gra

vity

0.40

0.42

0.44

0.46

0.48

FS checklotsOP checklotsSE clones

Clonal height and wood specific gravity

Wood specific gravity age 5

0.41 0.42 0.43 0.44 0.45 0.46 0.47 0.48

Hei

ght a

ge 5

(ft)

22

23

24

25

26

27

28

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Growth Rate & Wood Density: Independent Traits with Varietals

Containerized Seedlings & Varietal Seedling Survival

• CellFor varieties are available in bare root or containerized stock types.

• Containers:– Risk Reduction: High survival rates: – Widest Planting Window: October to May– Lower TPA: – Plantability:

• Hand: Consistent seedling size facilitates hand planting

• Machine: Yes

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Operational Survival of Containerized Varietal seedlings VS Bareroot OP seedlings in a droughty year Data from Central Arkansas, 2007

Survival of Containerized CellFor Variety compared to Bareroot OP seedlings on the same site. North Louisiana 2009

Operational Survival of Containerized Varietal seedlings VS Bareroot CMP seedlings in a droughty year Data from the Florida Panhandle, 2011

Operational Survival of Containerized Varietal Seedlings VS Bareroot OP and CMP seedlings Data from Central South Carolina, 2011

• Fast Growth Rust Free Straight Low Forking Small Limbs Narrow Crowns

Good Wood Density

Only with Varieties can all these value traits be

stacked and exhibited in every tree on every acre planted

CellFor Elite Varieties = Stacked Value Traits

• Q3802: Age 12 & 70 feet tall• Stacked Traits

• Superior growth• Disease free• Highest log quality & value

Varietals: Combine Traits in One Tree

Topics

• Varietal Forestry Overview• Field Performance • Financial Analysis & Valuation• Sustainability

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Operational Performance Plots of CellFor Varieties

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Reduced Risk: 7% Average Increased Survival

Average difference 7%; n=66

Height Advantage of Varieties Increases Year over Year (15 Tests With Repeated Measures)

Average Tree Height (ft) in January 2010 and January 2011

3.5 ft difference

4.1 ft difference

Average Height Gain 13% Over Improved Genotypes: (%) over comparison genotypes by variety and test

N= 61

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Georgia

Loblolly Pine Variety O3621 vs. OP 7-56 Jeff Davis Co, GA, Operational Planting, Age 6 Data

CellFor Varietal Stand vs OP Family Age 6: GA

CellFor 7-56

CF O3621 vs. OP 7-56 , Tree Volume Age 6 Jeff Davis Co, GA

17%

CF L3514, O3621 vs. OP 7-56 Check Tree Volume of STP Trees Only, Age 6

Jeff Davis Co, GA

61%63%

CF O3621 vs. OP 7-56 Tree Volume of STP Trees Only

Age 6 Jeff Davis Co, GA

54%

CF O3621 vs. Adjacent OP 7-56 Survival, STP and Stem Defects, Age 6

Jeff Davis Co, GA

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CellFor Varietals: High SawTimber Potential

Q3802 OP Family Crop Tree

Spatial Distribution of Stem Defects in O3621 and Adjacent OP 7-56 PlotJeff Davis Co, GA, Age 6

100 STP tree0 Non-STP tree

O3621 OP 7-56

100 100 100 100 Dead 100 100 100100 100 100 100 Dead 100 100 0100 100 100 100 Dead 100 0 Dead100 100 100 100 0 100 0 Dead100 100 100 100 0 Dead 100 Dead100 100 100 100 100 100 0 100100 100 100 100 0 100 100 100100 100 100 100 100 100 100 0100 100 100 100 0 100 100 100100 100 Dead 100 0 0 100 100100 100 0 100 100 100 Dead 100100 100 100 100 100 100 100 100100 100 100 100 100 0 100 1000 100 100 100 0 100 Dead 100

100 100 100 100 100 100 100 100100 100 Dead 100 100

100 0 1001000

Spatial Distribution of Stem Defects in OP 7-56 PlotsJeff Davis Co, GA, Age 6

0 100 100 0 Dead 100 100 1000 100 100 100 Dead 100 100 00 100 0 100 Dead 100 0 Dead

100 Dead 100 100 0 100 0 Dead100 100 0 0 0 Dead 100 Dead100 100 100 100 100 100 0 100100 0 Dead 0 0 100 100 100100 100 100 100 100 100 100 0100 100 0 100 0 100 100 100100 100 0 100 0 0 100 100100 0 0 100 100 100 Dead 100100 0 Dead 0 100 100 100 1000 100 100 0 100 0 100 1000 0 100 0 0 100 Dead 100

100 100 100 0 100 100 100 100100 100 0 100 Dead 100 100

100 0 1001000

100 STP tree0 Non-STP tree

Plot 1 Plot 2

O3621 and Adjacent OP 7-56 Plot Before and After Hypothetical Thinning

Thinning OP 7-56 plot: all non-STP trees resulting in 314 TPAThinning O3621 plot: all non-STP and the smallest trees resulting in 314 TPA

O3621 OP 7-56

100 100 100 100 Dead 100 100 100100 100 100 100 Dead 100 100 0100 100 100 100 Dead 100 0 Dead100 100 100 100 0 100 0 Dead100 100 100 100 0 Dead 100 Dead100 100 100 100 100 100 0 100100 100 100 100 0 100 100 100100 100 100 100 100 100 100 0100 100 100 100 0 100 100 100100 100 Dead 100 0 0 100 100100 100 0 100 100 100 Dead 100100 100 100 100 100 100 100 100100 100 100 100 100 0 100 1000 100 100 100 0 100 Dead 100

100 100 100 100 100 100 100 100100 100 Dead 100 100

100 0 1001000

100 100 100 100 100100 100 100 100 100 100

100 100 100100 100100 100 100 100 100100 100 100 100 100100 100 100 100 100 100100 100 100 100 100 100100 100 100 100 100 100 100100 100 100100 100 100 100 100 100100 100 100 100 100 100 100100 100 100 100 100 100 100

100 100 100 100 100100 100 100 100 100 100 100100 100 100

100 100100

100 STP tree0 Non-STP tree

Tree removed

O3621 OP 7-56Vol/tree ft3 = 5.91 5.05Gain in Vol/tree = +17%

O3621 OP 7-56Vol/tree ft3 = 6.59 5.04Gain in Vol/tree = +31%

O3621 OP 7-56

Louisiana

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April 29, 2011

Loblolly Pine Variety CF Q3802 vs. OP Check Columbia Land and Timber, Merryville, Beauregard Parish, LA,

Operational Planting

37%

CF Q3802 vs. OP 2nd Gen Check, Height Age 4Columbia Land and Timber, Beauregard Parish, LA

151%

CF Q3802 vs. OP 2nd Gen Check, Tree Volume Age 4Columbia Land and Timber, Beauregard Parish, LA

230%

CF Q3802 vs. OP 2nd Gen Check, Volume per Acre Age 4

Columbia Land and Timber, Beauregard Parish, LA

R.O. Martin

CF O3621

Age 5,

Provencal, LA

Height (ft) Age 5

+ 31% (4.9 ft)

Volume (ft3/tree) Age 5

+ 113%

DBH Class Distribution per AcreAge 5

O3621_Prov. 1st Gen OP TPA = 445 421 HT = 20.8 15.9 DBH = 3.4 2.7 STP = 96% 88% Gain in Vol/tree = +113%Gain in Vol/acre = +125%

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Outstanding Growth: CF O3621 Age 6 R.O. Martin

April 29, 2011

Loblolly Pine Variety CF Q3802 vs. OP Check Columbia Land and Timber, Merryville, Beauregard Parish, LA,

Operational Planting

37%

CF Q3802 vs. OP 2nd Gen Check, Height Age 4Columbia Land and Timber, Beauregard Parish, LA

151%

CF Q3802 vs. OP 2nd Gen Check, Tree Volume Age 4Columbia Land and Timber, Beauregard Parish, LA

March 25, 2011

Loblolly Pine Variety CF Q3802 vs. 2nd Gen Family

Deltic Timber, Union Pa, LA, Operational Planting, Age 6

CellFor Q3802: Age 6, Deltic Timber

79

22.7

29.3

18.6

23.5

15

20

25

30

He

igh

t (f

t)

CF Q3802 Check

+6.6 ft

+4.9 ft

25%

CF Q3802 vs. 2nd Gen OP, Height at Age 5 and 6Deltic Timber, Junction City, Union Pa, LA

2.7

4.7

1.9

3.4

0

1

2

3

4

5

Tre

e V

olu

me

(ft

3)

CF Q3802 Check

+2.0 ft3

+1.5 ft3

38%

CF Q3802 vs. 2nd Gen OP , Volume at Age 5 and 6Deltic Timber, Junction City, Union Pa, LA

92%

82%

100%

76%

0%

15%

0% 0% 0%

10%

0% 0%0%

20%

40%

60%

80%

100%

Survivalrate

STP Crooked Forked Rust Suppr.

CF Q3802 Check

CF Q3802 vs. 2nd Gen OP Survival, STP and Stem Defects

Deltic Timber, Junction City, Union Pa, LA, Age 6

Arkansas

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Variety CF Q3802 vs. 2nd Gen Family Molpus Operational Planting, El Dorado, Union Co, AR,

Age 6 Data

Q3802

2nd Gen Family

Molpus, Union County AR: Age 6

25.1

26.9

20.0

21.7

19

24

He

igh

t (f

t)

CF Q3802 Check

+1.8 ft

+1.7 ft

27%

Height Gain: CF Q3802 vs. 2nd Gen FamilyMolpus, El Dorado, Union Co, AR

4.3

5.1

2.6

3.0

2

3

4

5

Tre

e V

olu

me

(ft

3)

CF Q3802 Check

+0.8 ft3

+0.4 ft3

68%

Volume Gain:CF Q3802 vs. 2nd Gen FamilyMolpus, El Dorado, Union Co, AR

90%88%93%

75%

0%

18%

4% 2% 0% 0% 2% 5%

0%

20%

40%

60%

80%

100%

Survivalrate

STP Crooked Forked Rust Suppr.

CF Q3802 Check

Survival, STP and Stem DefectsCF Q3802 vs. 2nd Gen Family

Molpus, El Dorado, Union Co, AR, Age 6

Financial Analysis

• Discounted Cash Flows• IRR• Valuation: pre-merchantable analysis

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Varietals vs 2nd Gen Benefits

Financial Criteria

Varietal Seedlings

2nd Gen Seedlings

Net Benefits

BLV $1,696/ac $935/ac + $761/ac

NPV $1,225/ac $676/ac + $549/ac

IRR CellFor Seedling

13.0% 0.0% + 13.0%

Revenue@ Rotation

$6,299/ac $3,783/ac + $2,516/ac

Varietals vs CMP Benefits

Financial Criteria

Varietal Seedlings

CMP Seedlings

Net Benefits

BLV $1,696/ac $1,078/ac + $618/ac

NPV $1,225/ac $779/ac + $446/ac

IRR CellFor Seedling

16.8% 0.0% + 16.8%

Revenue@ Rotation

$6,299/ac $4,474/ac + $1,825/ac

Value of Varietal Traits

57% Value Accretion

Marginal Return on CellFor Investment

Marginal Rate of Return Initial SI 70, T12CC22, Three levels of genetic gains

NoTax, 500TPA & Discount rate 6%

13.0%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

0.30 0.32 0.34 0.36 0.38 0.40 0.42 0.44 0.46 0.48 0.50

$/seedling

Mar

gin

al I

RR

40% Gain 50% Gain 60% Gain

Gain by + Growth & Yield

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

0.30 0.32 0.34 0.36 0.38 0.40 0.42 0.44 0.46 0.48 0.50

Gain by + Growth & Yield + Rust Reduction + Forking Reduction

Marginal Rate of Return Initial SI 70, T12CC22, Three levels of genetic gains

NoTax, 500TPA & Discount rate 6%

14.6%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

0.30 0.32 0.34 0.36 0.38 0.40 0.42 0.44 0.46 0.48 0.50

$/seedling

Mar

gin

al I

RR

40% Gain 50% Gain 60% Gain

Gain by + Growth & Yield + Rust Reduction

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

0.30 0.32 0.34 0.36 0.38 0.40 0.42 0.44 0.46 0.48 0.50

Gain by + Growth & Yield + Rust Reduction + Forking Reduction + Improved Straightness

Marginal Rate of Return Initial SI 70, T12CC22, Three levels of genetic gains

NoTax, 500TPA & Discount rate 6%

15.0%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

0.30 0.32 0.34 0.36 0.38 0.40 0.42 0.44 0.46 0.48 0.50

$/seedling

Mar

gin

al IR

R

40% Gain 50% Gain 60% Gain

Gain by + Growth & Yield + Rust Reduction + Forking Reduction

Marginal Rate of Return Initial SI 70, T12CC22, Three levels of genetic gains

NoTax, 500TPA & Discount rate 6%

16.8%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

0.30 0.32 0.34 0.36 0.38 0.40 0.42 0.44 0.46 0.48 0.50

$/seedling

Mar

gin

al IR

R

40% Gain 50% Gain 60% Gain

Gain by + Growth & Yield + Rust Reduction + Forking Reduction + Improved Straightness

Timber & Housing Market Pricing: Are we there yet?

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Varietal Seedlings and Stumpage PriceRegime: LCP, 484/434TPA, SI 60, One Thinning, 40% Volume Gain, Seedling Prices at $0.05 and $0.40

New Markets: Biomass

• Georgia Biomass began operation April 2011• 750,000 tons of pellets per year• 1,500,000 tons of pine per year

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Practice Good Silviculture

• Address Limiting Factors: Site Specific• Weed Control• Hardwood Control• Nutrition Management• Planting Quality• Thinning Execution

98

Planning is Critical

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Silviculture & Varietal Stocking Rate Cost Per Acre…..Not Cost Per Seedling• Varieties have much higher STP with uniform

straightness, stable crown width and limb size.– Crop tree focus– Wider row spacing at establishment– Lower stocking rate

• Less tillage• Less herbicide • Lower planting costs• Use of containerized seedlings enhances survival and

seasonal flexibility

Varietal Silvicultural System: Higher Value for Equivalent Cost

Summary

• Varietal forestry is operational in the southern US with loblolly pine.

• CellFor varietals are thoroughly tested.• Varietal silviculture system uses fewer trees per

acre and allows for more flexibility.• Varietal operational performance is high and

stable.• Financial analysis indicates substantial gains in

NPV, IRR and Revenue.

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