Once a timber inventory has been completed and total volume by product has been determined, the value of the timber can then be estimated. This is an essential preparatory step prior to selling your timber as it helps ensure you will get market value for your timber.
Variation in Average Price over Time
Timber prices are negotiated between the seller and the buyer based on the relationship between supply and demand factors. As a result, every sale price is influenced by a large range of variables that are unique to each timber tract: species, tree size, tree quality, volume of sale, distance to market, site accessibility, logging difficulty, market conditions, current mill inventory levels, and any restrictions the landowner may have placed on the site in order to protect residual trees. Because all these factors may be taken into consideration, determining the fair market value can be a complex undertaking.
All valuations should start with the most recent local market prices available. During the process of determining the value of the timber, however, adjustments may need to be made to these numbers to account for changing external factors and the unique characteristics of the tract itself.
The primary external factors are changes in demand and supply. The general economy, the performance of housing, paper and packaging, export and wood bioenergy industries all affect demand in individual markets. As new facilities open or close, demand expands or shrinks. If a particular class of timber is being used by several competitors, it will be in high demand and the price may need to be adjusted upward. If a mill closes in the area, however, demand will contract and therefore prices may need to be adjusted downward.
Changes in supply have a similar effect. If plenty of timber is being offered for sale in the area, the market price may be lower than the published number, as inventories at area mills will be sufficient to meet demand. If facilities are having difficulty finding timber, the opposite may be true Mills pay a higher delivered cost when inventories are low resulting in buyers being able/willing to pay a higher price for stumpage.
Published price reflects the average market price which will vary due to the larger supply/demand forces and macroeconomic factors described above. These changes in supply and demand will necessitate adjustments in price only if changes have occurred in the market since the date of the last published price.
Variations between Average Published Prices and Sale Prices
Stumpage prices for a landowner will largely vary from published prices due to other variables affecting market value have to do with the tract of timber being sold. Each tract is characterized by a large range of variables that are unique. Each of these characteristics may require an adjustment to published prices:
- Species. Prices for individual species will differ widely depending on location and as a result of changing market demand. A local consulting forester and your state forestry commission and association are good sources of information about timber markets in your local area.
- Size. Height and diameter matter. Taller, larger diameter trees contain higher usable volumes than smaller ones, and trees with higher volumes and use value bring higher prices. As a result, veneer-sized logs are more valuable than sawlogs, and sawlogs are more valuable than pulpwood.
- Quality. Large, knot-free trees bring higher prices. High quality trees are straight, with few branches on the lower portion of the tree (12 – 36 feet). Any defects, such as crook and sweep, reduce the value of trees.
- Volume of sale. Logging operations are capital intensive. Equipment costs, costs to construct roads and loading decks, drainage structures and moving equipment between jobs add up. With large volume tracts, buyers can afford to pay more for stumpage since their fixed costs are much lower per unit of volume access roads and easy access to highways make it easier for log trucks to get in and out of a site, thereby reducing the cost of logging and increasing tract desirability.
- Logging difficulty. Ease of logging also affects market value. Flat, well-drained tracts generate more interest and higher prices than tracts with steep slopes and high levels of soil moisture.
- Contractual restrictions. Requesting specific harvesting and skidding techniques to protect residual trees, water sources and soil conditions can affect price, as they may add to the cost of logging.
Ultimately, the market value of timber is whatever the buyer and seller agree to. Armed with the published price, an assessment of the changes that have occurred in supply and demand in the area and a knowledge of the positive and negative characteristics of the timber tract, timber sellers can proceed through the negotiating process confident that the timber’s fair market value will be realized.
Once the prices have been negotiated, a total value of the sale can be estimated. This table shows the inventory results and final pricing for a 97-acre tract. Have a clear understanding of the value of your timber? Now it's time to market your timber and hire a logger.