2011 Indiana Consulting Foresters Stumpage Timber Price Report

This stumpage report is provided annually and should be used in association with the Indiana Forest Products Price Report and Trend Analysis written by Dr. William Hoover in cooperation with Indiana’s forest products companies. Dr. Hoover’s report is published in the Fall issue of the Woodland Steward Newsletter.

Stumpage price was obtained via a survey to all known professional consulting foresters operating in Indiana. Reported prices are for sealed bid timber sales only (not negotiated sales) between a motivated timber seller and a licensed Indiana timber buyer. The data represents approximately 10 to 15 percent of the total volume of stumpage purchased during the periods from April 16, 2010 through April 15, 2011. This reporting period has been modified from previous reports where data was collected from June16 thru June 15. Some overlap of the reporting period did occur.

The results of this stumpage price survey are not meant as a guarantee that amounts offered for your timber will reflect the range in prices reported in this survey. The results simply provide an additional source of information to gauge market conditions.

WHAT ARE SEALED BID TIMBER SALES: The sealed bid timber sale process is for trees marked by a professional forester. The species, number of trees and volume in a sealed bid sale are determined prior to the notice of sale. A notice is sent to licensed timber buyers who then inspect the timber and offer a price for said trees at a predetermined time and place. Under conditions determined in the bid notice, the owner then accepts or rejects the bids.

Upon acceptance of the bids by the owner and the fee paid, the owner then conveys the right to cut the advertised trees to the purchaser. This is frequently referred to as a lump sum timber sale. More detailed information on this process is available in Purdue FNR publication 111 – "Marketing Timber" or FNR – 138 "How to get the Most from Your Timber Sale". These publication and others are available on line at: http://www. agcom.purdue.edu/agcom/Pubs/fnr. htm

This report reflects "spot market" prices, not the average price paid by timber buyers. The bidding process used by consultants "spots" the maximum amount any buyer is willing to pay for a particular lot of timber at a particular time and place, not the average price paid for timber. High bids frequently reflect an urgent need for timber because of special orders for lumber or veneer, low log inventories at the buyer’s mill, poor logging conditions due to wet weather, or other special conditions.

Hardwood lumber is sold in a highly competitive commodity market. Competition comes from mills within the state, region, and hardwood lumber producers in the Lake States, Northeast, South and Southeastern production areas. This market competition means that the cost of stumpage in other producing regions determines in part the amount Indiana mill and loggers can pay for stumpage. If all timber were sold on a bid basis the spot market would no longer exist and the average of the highest bid price offered would be lower than now observed. This explanation isn’t meant to deter you from seeking the best available price. It’s meant to explain the apparent discrepancy between the two price reporting systems.

CATEGORIES OF TIMBER REPORTED: The prices reported are broken into three sale types; high quality, average quality, and low quality. A high quality sale is one where more than 50 percent of the volume is # 2 grade or better red oak, white oak, sugar maple, black cherry, or black walnut. The low quality sale has more than 70 percent of the volume in # 3 “pallet” grade or is cottonwood, beech, elm, sycamore, hackberry, pin oak, aspen, black gum, black locust, honey locust, catalpa,or sweet gum. The average sale is a sale that is not a low quality sale or a high quality sale as defined above. In the 2008 report some minor adjustments were made in the categories from previous surveys. White ash was previously included as a component of the high quality timber sales and hickory was previously in the low quality group. No additional changes in the groups have been made since, so the 2011 data should compare well with data collected from 2008 thru 2010.

SALE ACTIVITY INCREASING: In 2011, 271 sales (plus 13 negotiated sales) were reported compared to 206 sales in 2010, 247 sales in 2009, and 283 in 2008. Seventeen consulting firms report data in 2011, compared to 21 firms in 2010, 16 firms in 2009 and 11 firms (representing 14 to 15 current firms) in 2008. Most of the 14 firms that reported in both 2011 and 2010 showed a 39% increase in the number of sales, increasing from 169 to 235 sales during the period. All consultants that reported had sales in this reporting period, whereas 4 firms had reported no activity during the last period. There appears to have been a drop off in the number of sales at the end of 2010 and in early 2011, but activity is picking up again. The drop in activity was likely impacted by a short term oversupply of available / accessible timber due to the ideal logging conditions most of the state experienced during the fall and may have been influenced by a rush to sell timber before the Bush tax cuts (capital gains) expired at the end of 2010 (extended until 2012). There is also typically a seasonal drop that is due to a reluctance of some consultants to sell prior to spring thaw (wet weather).

Figure 1 – Average number of bids per sale by sale quality type and all total sales.

Sales by quality type for the 2010 period were 101 high quality sales (67 in 2010), 145 medium quality (111 in 2010), and 25 low quality sales (28 in 2010).

BIDDING REMAINS STRONG: In 2011 a total of 1,391 bids were submitted for the 271 bid sales or 5.13 bids per sale (Figure 1). This is down from 2010 (5.7 bids per sale – the highest since the stumpage report began in 2000) but is virtually the same as the average of all sales since 2000 (5.14 bids per sale). The 2011 average of 5.13 of bids offered per sale includes 6.0 for high quality, 4.8 for medium quality, and 3.3 for low quality. Each shows a decline from 2010 (6.8, 5.6, 3.6 bids per sale, respectively) but are very similar to the 11 year average (6.2, 4.7, and 3.2 bids per sale, respectively). As stated above, the higher number of bids last year may be in part due to a decreased volume of timber on the market. The volume of timber on the market this year has returned to levels submitted prior to the beginning of the recession in 2008.

VOLUME / VALUE SOLD, RETURNS TO PRE-RECESSION LEVELS: A total stumpage volume of 24,367,251 board feet was reported to have been sold during the current period, up considerably from 17,687,648 board feet sold during the 2010 reporting period and 19,256,439 board feet in 2009. The volume of timber sold in the last year is very similar to the volume of around 25 million board feet sold in 2008 and 2006 (Figure 2).

High quality sales totaled 8,598,937 board feet up considerably from around 5 million board feet in 2010 and approaching the 10 million board feet levels of 2008 and 2006.

Figure 2 – Total sale activity per year.

Medium quality sales totaled 14,077,574 board feet up from the 11 to 12 million board feet from 2006 thru 2010. Low quality sales totaled 1,690,740 board feet up from 1,457,071 board feet in 2010 but down from nearly 3 million board feet in 2009, 2008, and 2006. The adjustment in the reporting categories that occurred in 2008 likely impacted the volume sold in each grouping with a decrease in the volume of high quality sales due to a drop in ash timber prices and decrease in low quality sales due to an increase in the price of hickory.

Total timber value sold in the 2011 reporting period was $10,678,849 up from 2010 and 2009 ($ 6,889,190 and $ 7,278,302, respectively) and similar to the values reported in 2008 and 2006 (volume of timber sold was also similar during these periods). Total value by type was $ 5,257,530 for high, $ 5,052,387 for medium, and $ 368,932 for low. Last year several consultants reported a reluctance to sell high quality timber. The data shows a large increase in the number, volume, and value of high quality timber sold by consultants in Indiana from April 2010 thru April of 2011. Strong demand for white oak and black walnut fueled much of this activity. Demand for sugar maple and black cherry was still weak while red oak seems to be improving slowly.

EFFECTS OF THE ECONOMIC DOWNTURN: Due to the drastic change in the economy in 2008, it was decided in 2009 to collect information on the date of the timber sale in order to track month by month activity.

Figure 3 – Average and median monthly stumpage prices.

The Monthly Stumpage Price ($/MBF) for all sales dropped from June 2008 through June 2009 (Figure 3). The trend is mostly upward since with the exception of the temporary drop that occurred this winter attributed in part to a short term oversupply of inventory. The median price appears to be a better indicator due to less influence of higher quality sales that can distort the average price. Stumpage value by year are approaching pre-recession levels (see Figure 4).

Beginning in December 2008 and generally continuing through July 2009 the number of sales and timber marketed dropped considerably. Since then activity has generally increased with the data reported in April of 2011 showing similar numbers to those reported prior to 2008. The data shows an apparently short drop in activity in late 2010 and early 2011, that has been at least partially attributed to an oversupply of logs at many sawmills in the region due to the ideal logging conditions last fall. Since then activity and interest appears to have increased.

Most consultants are continuing to sell timber although there are some concerns that higher fuel costs (increased operating costs for the timber industry) will potentially adversely affect the economic recovery.

Figure 4 – Average (top) and median (bottom) stumpage price by year.

STUMPAGE PRICE RECOVERING WELL: Figure 5 shows the stumpage price for all sales, high quality sales, average quality sales, and low quality sales held from April 16, 2010 thru April 15, 2011. High quality sales generally have a wide range of stumpage prices due to higher quality timber or veneer potential. All sales can be affected by sales with a potential veneer component. This year one sale was excluded from the analysis for this reason. It is important for landowners to realize their timber typically will fall within the range of stumpage prices, but probably will not fall into the outlying values. This makes it important to work with a professional when selling timber so that you know what you have. For example a few walnut trees can greatly distort the value of a low quality improvement sale dominated by pallet material.

The average stumpage price of high quality sales was $589 per 1000 board feet (MBF) up from $532/MBF (2010) and $572/MBF in 2009 (median price was $592/ MBF in 2011 compared to $498/MBF in 2010 and $549/ MBF in 2009) (See Figures 2 and 3).

Figure 5 –Stumpage prices by number of sales for sale quality type and all total sales, 2010-2011.

The average stumpage price for average quality sales was $359/MBF in 2011 compared with $347/MBF in 2010 and $320/MBF in 2009 (median price was $358/ MBF for 2011 compared to $352/MBF in 2010 and $314/MBF in 2009). The median price for average quality was similar to the median stumpage price in 2008 ($359/MBF) and 2006 ($357/MBF).

The average stumpage price for low quality was $218/MBF with a median price of $217/MBF in 2011 compared to $239/MBF in 2010 and $225/MBF in 2009 (median price $234/MBF vs. $228/MBF in 2010 and 2009, respectively). The data shows a slight drop in the price for lower quality sales, likely due to higher operating costs which are likely to increase in the future due to energy costs.

The weighted average stumpage price by sale type (obtained from this survey in 2000, 2002, 2004, 2006, 2008, 2009, 2010, and 2011) is reported in Figure 2. The weighted average of the stumpage price is the total value ($) for each sales group (high, average, low) divided by the total volume by sales group. The median stumpage price by sale type per year is reported in Figure 3. The median price is the amount where half of the sales are higher and half are lower. The price reported is per 1000 board feet (MBF) of standing timber. To obtain a price per board foot, divide the price by 1000. An average price of $378 per thousand (MBF) is the same as 37.8 cents per board foot stumpage. The average stumpage price for all sales was $430/MBF, $589/MBF for high quality sales, $359/MBF for average quality, and $218/MBF for low quality (see Table 1, page 7).

SUMMARY: The last few years have been very volatile. Fortunately things are looking up. Prices for the most part have returned to levels prior to the recession, so more timber is going on the market. Demand for some species, such as black walnut and white oak is very strong which is largely responsible for the increase stumpage price for high quality sales. Demand for high quality timber remains the strongest, as usual, with prices for average quality also up. The data shows a slight drop in the price for lower quality sales, likely due to higher operating costs which are likely to increase in the future due to energy costs. Low quality sales are generally improvement cuts where trees are harvested that are impeding the growth of future higher value crop trees, therefore the opportunity costs of leaving the trees may cost more in lost productivity, so it generally is not advantageous to delay selling lower quality if the price is reasonable.

When the economic downturn began many sawmills had large inventories of standing timber, logs, and lumber. Those inventories have been reduced resulting in an increase in demand for standing timber. The industry still seems to be carrying a smaller inventory and cutting sales quicker than in the past, creating more of a spot market for timber sold. There is still some reluctance from some consultants to market some species.

The comment section below is offered to our readers by the consulting foresters who participated in this survey:

• The higher costs of operating for loggers and sawmills is impacting timber prices.

• Larger diameter trees in high demand, I attribute this mostly to productivity issues (higher costs) of processing smaller trees.

• Most mills are keeping lower inventories of standing timber than in the past.

• Better terms, lower up front deposits matter even more in this economic climate.

• Demand for standing timber strong last summer and fall. Appears to be continuing into 2011, following a short end of year dip.

• Excellent logging conditions last fall and winter resulted in an oversupply of logs at many mills slowing demand temporarily.

• Sales heavy to tulip saw less interest in late 2010 and early 2011.

• Sales heavy to tulip saw less interest in late 2010 and early 2011.

• White oak demand strong, especially for higher grades and larger diameters

• Walnut demand extremely strong

• Tougher grading of delivered logs, particularly red oak, sugar maple, and cherry.

• Black cherry and sugar maple market still soft, so I am not marking when healthy.

• Red oak improving, but stumpage price seems to fluctuate widely.

• Extremely wet logging conditions this spring has had some mills struggling to get logs.

Consulting Foresters that have contributed to this report in alphabetically order include: Arbor Terra Consulting (Mike Warner) Jim Akard, Crowe Forest Management LLC (Tom Crowe), Christopher Egolf, Gandy Timber Management (Brian Gandy), Gregg Forestry Services (Mike Gregg), Haubry Forestry Consulting, Inc. (Rob Haubry), Multi- Resource Management, Inc. (Fred Hadley, Thom Kinney, Justin Herbaugh), Meisberger Woodland Management (Dan Meisberger), North Slope Forestry (Don Duncan), Schuerman Forestry (Joe Schuerman), Stambaugh Forestry (John Stambaugh), Steinkraus Forest Management, LLC (Jeff Steinkraus), Glen Summers, Tree Inc.(Tim Martin), Turner Forestry, Inc. (Stewart Turner), and Wakeland Forestry Consultants, Inc. (Bruce Wakeland).