Most forest landowners know that their timber is a valuable asset. But how valuable? As a farmer you know what the market will pay for your agricultural commodities. Why? Because of your familiarity with the agricultural markets. You have experience selling your commodities on a regular basis: weekly, monthly, seasonally, and annually. But timber is different. Most forest landowners including farmers sell timber infrequently, sometimes only once in a lifetime. And too often timber is sold under less than optimal situations: dad needs an expensive operation, a vehicle must be replaced, John is going to college – do any of these situations sound familiar? Even if your need for cash is immediate and the window for selling timber is relatively short, you can still realize top dollar for your timber by following a few basic steps.

What many landowners don’t realize, at least not before they sell timber, is that the value of their timber has as much to do with the way that it is sold as it does with the volume and quality of the timber itself. Put another way, there is a potential difference between what your timber is worth (what the market will pay for your timber) and the price you actually receive. How much of that potential market value you realize depends on how well you understand the timber sale process and market your timber.

The price your timber is worth is what somebody is willing to pay for it. But for any given tract there are many potential buyers. So how do you know what all of these buyers are willing to pay? The answer is straightforward, but before we dive into what drives timber values and the timber sale process, we’ll cover the basics: some statistics on forestry in Virginia and a few working definitions. I will not attempt to address the tax considerations of timber sales in this article other than to say that timber taxes will greatly affect your bottom line. Keeping good records is essential, as is the use of a professional forester or accountant familiar with timber taxation. Timber sale revenues bump many landowners into the next tax bracket; a knowledgeable professional forester and accountant can greatly reduce Uncle Sam’s cut of your timber sale proceeds. We’ll cover timber tax issues in later articles.

Virginia is 60 percent forested - about 15 million acres of total forestland. 60 percent of this total consists of mixed hardwood species such as oaks, hickories, yellow-poplar, maple, and ash - and occur mostly in the mountains and piedmont. The remaining 40 percent of Virginia’s forests are southern yellow pine (loblolly, shortleaf, and Virginia). There are significant pine stands in the mountains, and likewise, major hardwood forests in the coastal plain. In other words, Virginia’s forests are very diverse. This forest resource supports one of the largest manufacturing industries in the state ranking first in employment (about 300,000 employees), second in wages, and fourth in value added processing. What may surprise you is who owns these forests: nearly 80 percent of Virginia’s forestland is owned by private landowners with no affiliation to forest industry. The federal government owns about 10 percent (the Washington and Jefferson National Forests), and forest industry companies own the remaining 10 percent. Private forest landowners supply the majority of wood used by the forest industry. Through their collective marketing and land management decisions, private landowners have the greatest effect on the current and future condition of the forest resource.

Standing timber is called stumpage and is sold by weight or volume. The common weight unit is tons, and the industry trend is toward the purchase of wood on a per ton basis. Volume units include cords (4’ x 4’ x 8’ = 128 cubic feet) and board feet (1” x 1” x 12” = 1 cubic foot). The word timber is used to include all stumpage sold in a timber sale, regardless of end product. That is, most timber sales include stumpage that will end up as a mix of different forest products including sawtimber, pulpwood, veneer (or plylogs), chip-n-saw (pine logs 10 and 11 inches in diameter), utility poles, pilings, and firewood. The two most common timber products are pulpwood and sawtimber. Pulpwood is generally defined as any tree (or part of a tree) 6 to 11 inches in diameter at breast height (DBH, which is 4.5 feet above the ground). Low quality trees up to 20 inches DBH that are unsuitable for sawtimber logs are also used for pulpwood. While pulpwood has historically been purchased in cords, forest industry has moved almost entirely to buying pulpwood by the ton. Sawtimber stumpage is sold in either tons or thousand board feet (MBF) and is generally defined as a pine or hardwood tree 12 inches DBH or larger.

Over the past fifteen years, real stumpage prices have increased significantly for all of the products mentioned above. From 1985 to 2000, southern sawtimber stumpage (average pine and hardwood) has more than doubled from about $90/MBF to $200/MBF. Likewise, southern pulpwood prices have increased dramatically during the same period. However, these prices are southwide regional averages and do not take into account the many local, regional, and even global factors that influence stumpage prices. Variations in local factors have justifiably brought much lower and higher prices than southern market averages. That’s why I caution landowners about basing their price expectations based on market averages or even what your neighbor sold his timber for last year - variations in price are great, even for similar tree species in a given locality. More importantly, what different buyers are willing to pay for the same tract of timber can and often does differ by tens of thousands of dollars.

The factors that affect what your timber is worth (and also impose limits on your forest management activities) fall under three broad categories: biologic, social, and economic. Biologic factors include soil productivity, site conditions, climate, and existing plant and animal species. For example, the direction your harvest site faces, called aspect, has a huge impact on the tree species and quality of trees found on that site. Ridgetops, south and west facing sites receive more sunlight and are typically dryer and have poor, shallow soils. Therefore these sites tend to support lower quality and lower value species such as Virginia pine and eastern red cedar. On the other hand, north and east facing coves are wetter and have deeper soils that support higher quality and higher value hardwood species such as yellow-polar and northern red oak. As with cropland, soil productivity is a critical factor determining tree quality, growth, and yield.

A landowner’s past management and harvesting decisions are also a major biologic factor influencing price. Poorly placed and designed skid trails and logging roads often lead to soil erosion, decreased site productivity, and poor tree growth and form. A related issue, particularly in mountain hardwood stands, is diameter limit cutting. Also known as high grading or selective cutting (not to be confused with selection harvesting), diameter limit cuts remove all trees greater than a specified DBH, generally 14” or greater. Diameter limit cutting is often conducted and even encouraged as an alternative to removing all trees from a stand (clearcutting). However, these cuts favor the removal of the high grade timber and allow low quality, less vigorous trees to remain and dominate the stand. Practiced over multiple harvests, diameter limit cuts eventually leave an unhealthy stand of low quality, low value hardwoods that are more susceptible to disease and insect damage. From both a financial and ecological standpoint, diameter limit cutting is a very poor practice, is conducted solely for the financial benefit of the timber buyer, and has no place in sustainable forest management.

Social factors such as water quality and harvest practices laws, local ordinances, and neighboring landowners may limit what, where, and when you harvest, thereby reducing the price you receive for your timber. Finally, economic factors affecting timber prices include your proximity to markets and mills, the demand for your products (local, regional, and global), market cycles and time of harvest, and labor and capital constraints. Product demand and market cycles are probably the most significant economic factors for forest landowners to consider. While you can do little about what markets are doing, unlike agricultural commodities you can time the market and choose not to harvest until prices rise. Unless your trees are dead or dying, they will continue to grow in value until you decide to cut. Further, some price cycles are predictable. For example, stumpage prices generally follow seasonal climate changes - during wet weather, logs become scarce because many sites become too wet to harvest. Consequently, during these wet periods, stumpage prices generally increase and dryer sites bring premium prices. On the other hand, prices often decrease following natural disasters such as hurricanes and ice storms which tend to flood the market with downed and damaged wood.

So how much is your timber worth? Again, the value of your stumpage has no set value, but is worth whatever you and the buyer agree to. Chances are, if someone knocks on your door and gives you an offer for your timber it’s a pretty sure bet that your timber is worth more than their first offer, potentially a lot more. It’s also fairly certain that there are many other potential buyers interested in your timber as well. Different buyers are willing to pay different amounts for the same tract of timber for reasons that usually center around production efficiencies. Some loggers have lower costs of production, e.g. they have shorter haul distances or their equipment is more suited to the conditions of your site. If the timber buyer is a mill, they may simply need the wood more than other buyers in the area, or need the specific species and quality of trees on your site and are therefore willing to pay better prices for your timber. But unless you are intimately familiar with local timber markets, market cycles, and the factors that affect timber prices, the best way to identify the best buyer and capture top dollar for your timber is to involve professional foresters.

READ PART 2: SOURCES OF PROFESSIONAL ASSISTANCE