In New South Wales there are one million acres of land bearing cypress pine and held under lease from the government. This land is suitable for the joint production of timber and livestock or for timber production alone. Alternatively, the timber can be harvested to provide capital for property development. Farm management plans have, however, been constrained by the land tenure policy which aims to promote both closer settlement and timber production. In this paper the opportunity costs of the current tenure system are evaluated against the freehold situation. The conditions which favour either specialized timber production or the joint production of timber and livestock are examined. Finally, the cost of achieving a timber production target is examined in terms of loss of income to the individual grazier and the nation.