Timber Cruise Basics
One thing I’ve noticed over my two-plus decades in the land and timber business is that very few land buyers and landowners genuinely understand what they need or what they are paying for when it comes to getting a “timber cruise.” Many either pay too much or pay for unreliable evaluations.
You need a timber cruise when you are:
Selling timberland. The timber can comprise a substantial part of a property’s value, so it needs to be accounted for.
Selling timber. It’s hard to know what’s a fair price if you don’t know what you have.
Establishing a timber tax basis. If you’ve inherited or purchased land, you’ll want to determine this time-of-acquisition value, so when you sell, you’ll only pay taxes on the timber’s gain in value (capital gains).
Investing in timberland.
Impacted by timber theft, accidental cutover, or natural disasters.
What a Timber Cruise is Not
A timber cruise is not a walk-through “guesstimate.” Many landowners have a narrative formed of a timberman who can stroll through a stand and, at a glance, calculate almost exact volumes. Over the years, I’ve heard many stories of these “wood whisperers” with almost magical board-foot-calculating abilities. While it’s true that some assess timber purchases this way, more times than not, they are buying the timber on the cheap and don’t have to worry about exacting precision. Accurate numbers are the result of proper planning, conscientious data collection, and thorough analysis. When it comes to evaluating your timber’s value, the stakes are too high to rely on unreliable hunches.
What is a Timber Cruise?
A timber cruise is a woodland area survey to determine its timber volume, species composition, and forest product allocation. Since guesstimates aren’t dependable and measuring every tree in a stand is not usually cost-effective, timber cruisers “sample” a stand. At each sample point (see map below), a cruiser records data (species, product, diameter, merchantable height) for the trees that fall within the bounds of the sample area. Sampling allows the cruiser to calculate an estimate of the timber volumes. Product volumes are multiplied by market prices to determine the estimated standing timber value (aka stumpage value).
A larger the number of samples, the more precise the estimate. However, the distribution of the samples, along with and correct measurement methods, also matters.
The Laws of Timber Cruising
Law #1. The higher an area’s variability, the more sample points you need to get reliable estimates.
For instance, a 30-year-old managed planted pine stand will require many fewer sample points than an 80-year-old natural mixed hardwood stand. The pine plantation is very uniform—one sample is very similar to the next. The plantation contains only one species, and within that species, only two or three forest product categories. Value and volume vary little from point to point.
On the other hand, the natural hardwood stand will have tremendous variation. There may be a dozen species and as many or more product categorizations. Value per acre from point to point may vary by 500% or more! The mixed hardwood stand will require many more sample points to achieve the same accuracy level as the pine plantation cruise. We’ll look at these two stands in more detail below (Law #3).
Sources of Variability
Species composition. Mixed natural stands may have large, high-value species in bottomlands, drains, and on the cool, moist eastern and northern facing slopes and poor quality, low-grade species on the ridges and hot, dry western and southern slopes.
Soil productivity. Even in single-species plantations, soils in one area of a stand may produce double the volume and value of another.
Age. Multi-age stands tend to have high variability
Past harvests. Selective harvests performed haphazardly can introduce a tremendous amount of variability, especially on rolling terrain.
Insect and storm damage.
Law #2. Acreage doesn’t determine the number of samples needed; variability does.
A timber cruise is not sampling the acreage; it is sampling the variability of the subject area. A small, variable tract may need as many or more samples as a much larger tract with a more uniform volume and value distribution.
Law #3. You need statistics to back up your numbers. The numbers may be right, but without statistics, they are unverifiable.
Statistics allow me to determine the level of probable accuracy of my inventory.
Below is value data from the two example stands described in Law #1. Stand 1 is a mature mixed hardwood stand located in the rolling hills of northern Iredell County, NC. Stand 2 is a loblolly pine plantation planted on a nearly flat farm field in Union County, NC. Prior to the inventory, Stand 2 was thinned to a uniform density (I marked the leave trees in this stand before the thinning harvest to ensure this uniformity).
The estimated timber value is the average sample value ($/acre) multiplied by the stand acres, meaning it is crucial to have accurate acreages when appraising timber. I can calculate the average timber value estimate from two samples or a few hundred samples. Nothing about this number indicates its reliability.
Since I know sampling results only in an estimate of the actual value, I need to evaluate my estimate’s reliability. I do this with confidence limits. Confidence limits give us a range of likely values at a given probability level. I’ve calculated the timber value ranges at 90% probability. For Stand 1, the natural hardwood stand, I’m 90% certain that, at the stumpage prices used, the value will fall between $38,195 and $50,382, a margin of error of ±13.8% from the estimated timber value of $44,289.
In Stand 2, the planted pine plantation, I achieved a much lower margin of error (±7.5%) with less than half the samples. Why? Because the stand had minimal variation overall.
Once I’ve collected sample data, I can estimate the number of samples needed to achieve a desired margin of error. Look at the margin of error/# samples needed section at the bottom of the Stand 1 data. You can see that to achieve the same margin of error level (±7.5%) as Stand 2, 151 samples are needed, which is not practical for a 21-acre tract.
On small, highly variable, high-value tracts, it is sometimes worthwhile to “tree count” the timber. This process involves measuring every tree in the stand.
Bottom line: If the inventory you pay for doesn’t include the statistics, it may be close to correct, but there is no way to know if it is or not. Early in my career, I took a timber tax course at Virginia Tech. The instructors were the authors of the USDA Forest Landowners’ Guide to the Federal Income Tax. One lasting impression the course made on me was their strong emphasis on the importance of having the numbers and data to back up your timber valuations. That means if you’ve established a timber tax basis, harvested the timber, then get audited by the IRS, you need the documentation to prove that your tax basis (derived from your timber cruise) was correct. The IRS employs foresters to determine if you are fudging the values on your basis calculations and the burden of proof is on you!
The IRS employs foresters to determine if you are fudging the values on your basis calculations and the burden of proof is on you!
Getting the Most Bang For Your Buck
In some cases, such as when purchasing a large tract of timberland, the buyer doesn’t need detailed, stand by stand, timber appraisal information. The purchaser’s primary needs are to:
Assess the entire tract timber value to know how much money he is putting in the “dirt.”
Establish his timber tax basis once the purchase is complete.
Get reliable numbers fast and at a reasonable rate.
Example: Investor Purchasing Timberland
The potential purchase tract has 90 wooded acres, comprised of three stands. The purchaser is under contract and has 30 days of due diligence period remaining. He needs values quickly to determine if he wants to follow through with the purchase or back out. If he does go through with the purchase, he’ll use the cruise values to establish his timber tax basis.
Note the data for the entire tract, highlighted in green. I collected 90 samples over the 90 acres, resulting in a ±6.6% margin of error, a pretty good level of certainty.
While the cruise’s reliability for the whole tract timber value is good, it is less so at a stand level. Stands 1 and 3, when considered on an individual basis, have acceptable levels of reliability. Stand 2, on the other hand, had lousy reliability. It was a highly variable hardwood drain. At my sampling intensity of one point per acre, relatively few sample points fell within Stand 2. The variability is high enough that if the client wanted the same level of certainty as for the whole tract, I’d have to take 90 samples, which is not economically feasible for a 16-acre stand.
I’ve found that at least 20 samples are needed to get reasonably reliable estimates in even the most uniform stands. In mixed natural stands like 2, where the timber is located on hillsides and drains, has some natural mortality, and past partial harvesting, it is virtually impossible to sample enough to get reliable values. For stands with relatively low overall values like stand 2, you live with the uncertainty because it is not worth the expense of tree counting the stands.
If the client had wanted high certainty levels at a stand level, the cruise would’ve doubled or tripled in cost. By combining all stands for the value calculation, the variability was spread over a larger number of samples, giving the client reliable numbers for making a purchase decision at a fair price. In the future, should he choose to sell one of the stands of timber, the variability data exists to determine the level of sampling that is needed to determine a more accurate volume and value estimate.
Important note: When multiple stands are grouped for computing value, the same sampling intensity (samples per acre) must be maintained in each stand. Otherwise, the results will be skewed.
Questions to Consider Before Contracting a Cruise
Do you need an accurate total tract value, or do you need highly accurate numbers stand by stand?
What is your budget?
How quickly do you need the valuation?
Is the cruise needed for general management assessment, or are precise financial numbers needed?
Factors that Impact the Cost of a Timber Cruise
Number of samples needed for the desired level of accuracy
Tract conditions. Steep terrain, gulleys, and dense understory impede mobility and visibility, slowing down the inventory process.
Tract size. While a large tract may not require any more samples than a smaller tract, covering a larger acreage takes more time due to the distance between sample points.
Time of year. In many stands, when the leaves are off the trees is the best time for a cruise. Visibility is much better, meaning the work goes faster.
Need a Timber Cruise?
If you need a cruise, contact me with the tract information and details, and I’ll be glad to help you determine your needs and provide you with a quote.