Dear Friends:

As 2007 concludes, I am encouraged and excited to have the prospects of 2008. As we progress in life, we must remember that, "It is not the years in our lives that count, but the life in our years". I am fortunate and blessed to be in good health and spirits and I trust you are well and that our Christmas greeting will be informative.

2007 will be a year to remember from a weather position. On April 16th, a wildfire in Ware County was accidentally ignited from a tree falling across a power line. For the next two months, approximately 441,000 acres burned, primarily in Ware and Charlton Counties, representing a loss of $54 million. In Ware County, 123 individual growers suffered losses. Georgia Forestry Commission officials estimate that the fires caused 65% total loss with 35% of the burned area damaged. Approximately 115,000 acres were privately owned that burned with 325,000 acres in the Okefenokee National Wildlife Refuge. The fires were fueled by dry weather, high winds, and low humidity, creating a volatile wildfire situation. There were no fatalities in the fire, very few injuries, and 18 homes were burned. This is a tribute to the suppression effort organized by the Georgia Forestry Commission with cooperation of many local and out-of-state organizations. This was the largest and most damaging fire since 1954, and our sincere expressions of concern are with those private landowners who had their timber stands either destroyed or damaged.

Georgia is in a "level 4-extreme drought" condition with rainfall in East Central Georgia 15" below normal. All reservoirs/recharge areas are at historical lows. Our trees were resilient during the hot, dry summer months and are now like we are, "praying for rain". If rainfall is adequate during the winter and spring to recharge ground water, trees will respond with good healthy growth and vigor. If the forecasters are correct and we have limited or less than normal rainfall, our trees will enter the summer under stress, which will be multiplied by dry soils and lack of moisture as we enter the traditional dry periods of 2008. Pine beetles could become an issue to deal with. We are in "unchartered territory" as far as our natural resource of water and its heretofore perception of being abundant. I, and perhaps you, have the tendency to take many of our natural resources for granted. I have been thirsty, but never without water. Some good from this will emerge, especially conservation measures and increased efficiency in our water use. I have mentioned previously, but good water sources provided by streams, creeks, and existing ponds will become more and more valuable on your land.

The Department of Natural Resources and Environmental Protection Division with the input of the forestry community have developed a "Water Management Plan for Georgia". This plan is being presented over the state via public meetings and with input incorporated, the plan will be implemented. It also involves water sharing of major drains with adjoining states.

This is the time of year when property taxes are due on timberland. If you study your tax bill closely and compare it with previous years, you will see substantial increases in the appraised value of your land, which translates into higher taxes. This is a trend in Georgia counties, resulting from appreciating land values and higher millage rates set by county governments and boards of education. Many of you have enrolled your property in the Conservation Use Program, which taxes your land based on its current use and productivity potential. In a trade off for reduced property taxes, you agree not to sell or develop your property for 10 years. If you do one or the other, the penalty is severe, calculated on tax savings times two.

Georgia is the only southeastern state that taxes land on the hypothetical basis of what it might sell for or how it could be used. Land is taxed on unrealized gains. Rural undeveloped farm or timberland unprotected by the Conservation Use Program is taxed anywhere from $14 to over $20 per acre. A prime example is a timber farm in Jefferson County with a $1,700 per acre bareland value, resulting in an annual tax of $18 per acre. This represents 62% of the annual growth/value increase. In addition to annual land taxes, we also pay a timber or severance tax on 100% of the timber value when it is sold. Many forest landowners, due to Georgia's punitive and obsolete tax system, are forced to sell their land, harvest the trees without reforestation, or land is converted to some other use

Georgia covers approximately 38 million acres, with 24 million acres or 63% timberland owned by private investors producing wood products for various mills supporting the $20 billion forest industry. Our forest land provides wildlife habitat, recreational opportunities, greenspace that cleans our air and purifies water as it filters through the forest into recharge areas. A study shows that for every $1 in rural land property taxes paid, the land only receives $.50 in services. Timberland is passive, requiring no public utilities, but is taxed similarly to a home in a subdivision that requires all of the above and more services. There is an earnest and sincere move in Georgia to provide additional conservation/greenspace that is often funded by governments or public/private partnerships. Why spend tax money on preserving greenspace, when we have 24 million acres of greenspace that can be perpetuated provided property taxes are reformed? A tax reform opportunity will present itself during the Georgia 2008 legislative session.

The Speaker of the House has introduced a bill that calls for abolishing all advalorem or property taxes on land, cars, homes, businesses, boats, and any other property plus the state income tax will be reduced from 6% to 4%. Property taxes will be replaced by a consumption or sales tax. The forest community and leaders have not endorsed the Speaker's plan, but we do feel this is an opportunity where reform of the obsolete advalorem tax policy can be attained. The position of the forest community, as developed by the Georgia Forestry Association, "supports a fair property tax system which levies taxes on real property based on the current use of the property reflecting the value of services provided to the property by taxes paid". Tax reform requires the support of all private landowners in Georgia concerned with their high property taxes. This support can be realized through direct communication with your representatives and senators, relating to them the financial burden that the current tax system places on you. The Georgia Forestry Association is the collective voice for landowners, and I would encourage your participation by joining this organization and increasing membership to a point that GFA is a force recognized by elected and appointed officials. If you are not a member of the Georgia Forestry Association, please review the enclosed application and consider becoming a member.

Much is written reference "green house gases and global warming". Climatic changes and ecological progressions are a phenomenon of Mother Nature that are subtle and may not be evident for 50, 100 years, or more. Carbon dioxide, CO2, has been present in our world since man and animals started breathing. CO2 is a minor atmospheric gas that has been associated with global warming and the burning of fossil fuels. There is no hard scientific proof that burning fossil fuel increases the earth's temperature. However, it has become a political and mass media issue based on whatever "sounds good" today.

A hard scientific fact is that trees through growth absorb or sequester carbon dioxide from the atmosphere and store the inert carbon in the wood, bark, foliage, and root systems. A market is emerging that will purchase carbon offsets from landowners to mitigate industrial emissions and to comply with clean air standards. A Georgia Carbon Registry has been established through a cooperative effort between the Warnell School of Forestry and Natural Resources and the Georgia Forestry Commission. The carbon sequestration capacity of a stand of trees or a tract of land can be quantified, documented, and entered into the registry. Markets can access the registry and purchase the carbon credits from the landowner. A "carbon sequestration certification process" was completed by our business in June of this year, and we are certified to quantify the carbon sequestration capacity of a stand of trees. Terms of the carbon contract are negotiable from payment, length, and periodic updates. I am of the opinion this alternative market will not interfere with normal forest management activities. We are currently working on an ownership to estimate carbon credits and will develop a process that may be of interest to you. Your standing trees represent a "carbon bank", which could provide alternative income streams supplementing the normal sale of trees.

With oil pushing $100 per barrel, gas at $3, and diesel at $3.40 per gallon, timing is ripe for alternative fuels. Technology for grain ethanol is some 10 years ahead of cellulosic technology. Wood fiber or biomass has a distinct advantage over grain. It requires .79 units of energy to produce 1 unit of grain ethanol, where it takes .1 unit of energy to produce 1 unit of cellulosic ethanol. Production of grain ethanol is very "fuel intensive". Grain ethanol plants are very common in the Midwest or Corn Belt. First United Ethanol broke ground in Camilla, Mitchell County for a 100 million gallon a year grain ethanol plant scheduled to be in production in mid 2008. This plant will use 40 million bushels of corn annually. Georgia's 2006 corn production was 25 million bushels. The balance of required needs will be shipped by train from the Corn Belt. Approximately 20% of the nation's corn harvest went into ethanol production in 2005. This diversion of grain interrupts the food chain. With 20% of the nation's grain harvest, surely to grow larger, leaving the traditional uses of cereal, food stocks, and livestock food has already created higher prices on the grocery shelf.

The simple answer is cellulosic ethanol, and as announced on November 10th, "Range Fuels breaks ground on a commercial cellulosic ethanol plant in Treutlen County, Soperton, Georgia". Construction of the first phase is expected to be completed in 2008, producing approximately 20 million gallons of ethanol per year. The first expansion will increase capacity to 30 million gallons and the company plans to eventually have a capacity of 100 million gallons per year. This plant will use wood and wood waste from local timber growers and other sources from Georgia. The Department of Energy intends to invest in 6 commercial scale cellulosic ethanol refineries, including the Soperton plant, and this is the first one to break ground. I have said this before and remind you that trees are the only renewable natural resource and to convert wood waste and other small diameter trees into alternative fuels reducing our dependence on fossil fuels makes all the sense in the world. Along with UGA and Georgia Tech, the Herty Foundation at Georgia Southern is a vocal and ardent proponent of alternative fuels from trees that are grown in our state. Progress towards alternative markets for our trees has been made during 2007, and it is encouraging to perceive this as continuing.

The estate unified exemption for 2008 continues at $2 million per individual or $4 million per couple. This increases to $3.5 million in 2009, and then in 2010, the legislation that created these higher exemptions expires. For those who had reforestation projects in 2007, $10,000 can be expensed in any calendar year rather than capitalized. An individual can gift $12,000 per donee as a way of preserving net worth and initiating a plan for your assets. This can also be done in the form of timberland via gifting undivided interests. Conservation easements continue to provide positive tax credits for land that has specific amenities or parts of properties that are unique. Applications for either the Conservation Use or Preferential Assessment programs must be made between January 1st and April 1st with the local tax assessor. During the 2006/2007 planting season, we planted approximately 60 acres of varietal or cloned seedlings. There are reasons for encouragement and we continue to monitor their growth and development. Some trees were outgrown by our normal bareroot seedlings, while others showed 4 feet growth. We continue to think varietal/cloned seedlings have application and I am pleased to have these in the ground for observation.

Stumpage prices in Georgia enjoyed high levels during the first and second quarters of 2007. With the normal dry weather anticipated during the summer and with full inventories at mills, prices showed seasonal adjustments. During the last half of 2006 and continuing into 2007, interest rates and mortgage rates continued to show modest increases and home building was declining. Then in August, the credit crisis became apparent and we continue to deal with it. Many lending institutions erroneously qualified buyers, and this has resulted in a high foreclosure rate, increasing the inventory of unsold homes. When there are periods of boom, there are periods of adjustment, which we find ourselves in. Currently, pine sawtimber prices are in the $40 per ton range, chip-n-saw, $16 to $18 per ton, pulpwood, $5 to $8 per ton, with hardwood products being in good demand, continuing to show strong prices for mixed hardwood at $25 to $30 per ton, oak and poplar, $35 to $40 per ton, and hardwood pulpwood, $10 to $12 per ton.

Timber sale activity, not only in our business but with many landowners, has diminished, due to the downturn in the stumpage market. Lumber prices are at 10 year lows. The value of the dollar against Canadian and European currencies has significantly reduced lumber imports into our country. As we move towards a balance of supply and demand in our lumber market, it is encouraging that lumber prices have shown modest increases since November 9th. Trees are a true commodity subject to forces beyond our control that create demand for the products we grow. As we move into 2008, I am cautiously optimistic that stumpage prices will stabilize, and as the supply of lumber adjusts to demand, along with winter weather where mill inventories are interrupted, I anticipate increases in sawtimber prices.

I continue to be a proponent of management driven thinnings in younger stands in order to grow and develop pine sawtimber, which is our value product. When our trees attain the "sawtimber status", we have options. At this stage, growth is value growth and the market can come to us. Land and timber continue to be excellent investment vehicles, which weather adjustment periods quite well, and have and will continue to show long term positives gains.