# What is Your Timber Worth?

posted in: Economics, Timber Sales | 0

So you’ve decided it is time for a timber sale. Once you’ve determined the boundaries, the next question big question is “What is it worth?” While this may sound like a simple question, the fact is that determining the value of a stand can be harder than it seems.

#### Timber Volume

The first step in determining value is the estimation of the total volume of each product present. To keep things simple, we’ll just discuss pine products for this article. In most southern markets, the three top pine products are pulpwood (small diameter trees – 5″ to 9″), chip-n-saw (small diameter logs – 10″ to 12″) and sawtimber (larger diameter logs – 13″+).

Since it is typically not cost-effective to measure and count every tree, a forester performs an inventory (also known as a “timber cruise”) in which a representative sample of the timber is taken. A timber cruiser determines a stands total volume by collecting data at sample points spread over the subject property–see sample layout below. All estimates calculated from sampling will have some degree of error. The key is to take enough samples to reduce error to an acceptable level–the more samples recorded, the greater the accuracy.* A statistical analysis of collected data should be a part of any cruise to ensure its level of veracity. It is important to note that different individuals may come up with differing volumes and values. This variation is due to measuring error, market specification differences, the number of samples taken, inventory method, market prices used in the calculation, acreage estimation, plot layout, and placement, or a combination of all.

#### Stumpage Value

The term “stumpage value” is the value of timber as it stands. This value is the amount paid (or can be paid) to the landowner after all buyer’s expenses (commission, legal, logging, transport, and access) are deducted from the mill delivery price.

A simplified formula for stumpage is as follows:

Stumpage Value = Delivered Mill Value – Buyer’s Expenses

#### Putting it all Together

After thinking it over, you have decided to hire a consulting forester to appraise and sell your timber. Upon completion of the field work he has presented you with the following data:

• Total Stand Acreage: 75 acres
• Value (\$) = tons of product x \$/ton
• 1875 tons pulpwood x \$8/ton = \$15,000
• 3900 tons chip-n-saw x \$18/ton =\$70,200
• 2475 tons sawtimber x \$30/ton = \$74,250
• Total Tons: 8250 Estimated Total Value: \$159,450

Statistical analysis showed that the inventory was likely to be within plus or minus 5% of the estimated volume.

#### Variations in Price Offered

As mentioned before, inventories performed by different individuals will come up with slightly different results. Buyers negotiate delivery prices with their markets and harvest and transport rates with their logging contractors. Also, they must estimate road work costs, legal fees, and commissions (profit). Even if the various buyers all are working with the same volume estimate (which is highly unlikely) there can still be a substantial difference in the price offered. In the consultant’s workup, there are 8250 total tons. Let’s assume a buyer estimated the same tonnage. If he can negotiate a \$0.50 per ton higher mill delivery price, a \$0.50 per ton lower logging and transport rate, and settle for \$0.50 per ton less commission, he will be able to apply \$1.50 per ton more to the offer, resulting in \$12,375 additional dollars. What if his inventory estimates 5% more volume? That would push the bid price to \$180,416.25. Seemingly trivial volume and price variations can add up to substantial differences in offers when a tract of timber on the competitive bid market. In general, tracts with either a diverse product mix, high volumes, or high-quality logs (or a combination of all) will have a greater variation in bid results.

#### Timing

When you sell your timber makes a big difference. Timber markets can be volatile at times, with the value of certain products fluctuating up to 50% or more in just a few months time. In particular, tracts that have good access and soils that are conducive to logging in wet conditions (when mill inventories are low) can bring a premium when their sale is expertly timed and marketed.

#### Summary

A timber appraisal is an objective estimate of timber value at a particular point in time—it should include volumes and values of each product along with the statistics to verify accuracy. An offer from a buyer is not an appraisal. Timber prices are moving targets and change frequently. A timber value calculated in January may not be accurate in July due to market demand shifts. An inventory will always contain some error, but a properly executed cruise will keep the error to a minimum.

*Note. Mixed or hardwood natural timber stands usually require considerably more samples than a planted pine stand to achieve the same level of accuracy. Tract variability determines the number of sample plots needed for the desired level of accuracy, so it’s possible that a highly variable 20-acre tract will need more sample plots than a uniform 100-acre tract.