Timber Sale Valuation

Timber Sale Valuation

Timber value is determined of many factors, including tree species, size and grade of the trees, access to the trees, season of the year, local and regional market conditions, weather conditions, size of the sale, and method of payment.  Because of all these factors, timber sale valuation is a very complicated and controversial subject for landowners, foresters, loggers and sawmill owners.  The following will review all of these factors.

Species:  The highest values are associated with products which have the highest end uses, that is, veneer and lumber for fine furniture, cabinetry and flooring.  These so-called grade hardwood species include red and white oak, black cherry, sugar maple, white ash, yellow and black birch, plus clear (knot-free) white pine.  They all are easily manufactured into veneer or lumber and have attractive color and grain characteristics.

 So-called low grade hardwoods like beech and hickory don't have the physical characteristics for manufacturing into veneer and lumber.  They check or split in drying. Other low grade hardwoods like red maple and white birch don't finish easily and don't have attractive color and grain patterns.

Size and Grade:  Even grade hardwood trees like red oaks can be worthless for lumber if they are too knotty, have seams or are too crooked--or if they have mineral stain or checking in their heartwood.  Large trees without these defects will saw out more and wider lumber and are therefore worth more.

The attached log specification and price list is typical of the larger sawmills in southern New England.  Specifications will vary somewhat among mills.  Prices will vary considerably among mills and from season to season.

Logging Costs:  Costs for felling, skidding and bucking with conventional chainsaw and skidder will range between $60 and $110 per Mbf, depending on the length of the skid and roughness of the terrain.  Road and bridge construction costs sometimes have to be factored in.  Cost for trucking logs to the sawmill will range between $30 and $60 per Mbf, depending on trucking distance.

Costs are generally toward the lower end of these ranges where skidding distances are less than 1000' and trucking distances are less than 20 miles.  Some sawmills will give partial rebates on trucking costs for long hauls in order to expand their procurement areas.

Season of the Year:  Prices for logs and timber are highest in the fall, winter, and early spring.  This is due to higher demand for lumber during these seasons.  Demand is higher because there is less chance of lumber staining.  Logs and green lumber of many species stain easily during the warm months of the year.

Ground conditions for logging are also likely to be better during the winter when the ground freezes and/or there is snow cover to protect forest soils.  But if conditions are too good, there may be an over-supply of logs, which will depress prices. 

Market and Weather Conditions:  Overall demand for lumber and logs will fluctuate according to the season of the year and the regional supply of logs.  Special orders for particular species and grades from lumber buyers will influence the local markets in unpredictable ways.  It's often the case that a sawmill will have a special lumber order that has to be filled by a certain deadline and will therefore pay a premium price to get the logs it needs.

In recent years, the weather has played a very important role in driving markets.  Prolonged favorable, dry conditions as in the fall and winter of 1994-95 created an over-supply of logs which depressed prices through 1995.  Prolonged unfavorable, wet conditions through most of 1996 created shortages of logs which raised prices.

Size of the Sale:  Loggers have fixed costs for transporting their equipment to and from the job site.  If these costs can be spread over a larger sale, the negative effect on stumpage prices is less.  Sawmills also like larger sales because they can project their production more easily.

But there is an upward limit to these economies of sale imposed by future market uncertainty.  Very large sales that could take more than a few months to complete could easily drag into a downturn in the market.  The optimal size for timber sales in is the range of 100 to 400 Mbf.

Method of Payment:  Loggers and sawmills like pay-as-cut methods because they don't have to tie up their capital and because they get to determine the grade and scale.  Foresters and most landowners like payment in advance based on the forester's tally because this method circumvents the possible conflict of interest of the logger or sawmill.  Fractional payments in advance of fractions of the sale area is a compromise method that has found wide acceptance.

Competitive bidding will usually bring the highest price.  Negotiating prices is tricky because it's difficult to determine what the pricing standards are.  The Southern New England Stumpage Price Reports are one such standard, but they are always at least 3 months old and they don't allow for determinations of value based on tree grade.  I have tables of values by species and grade for use in estimating harvest values based on inventory data and individual tree tallies.