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MAXIMIZING YOUR TIMBER INVESTMENT

Posted: Thursday, March 16, 2023

Author: Troy Dana, Designated Broker | Licensed in WA, AK

Investment

--------------------------------------------------------------------------------

For a timber owner, the decision to harvest is frequently a function of timing
and often catalyzed by factors such as the economy, age of the timber, log
markets, leverage and, on occasion, naturally occurring events such as
infestation, drought, or fire. There are undoubtedly many more factors not
mentioned here that would impact a timber owner’s decision to harvest. For
purposes of this article, the information below assumes the timber owner is also
the landowner. There are cases where the timber owner is not the landowner, but
the decision process for harvesting is driven by all the same factors as above,
except in the case where the timber owner’s interest has a sunset provision and
their interest in the timber is not perpetual.

Once a timber owner has made the decision to harvest, they then need to decide
whether or not they are comfortable managing the permitting, harvesting, and
selling process, or if outsourcing some or all of the process is preferred.
Factors a timber owner should consider at this point in the process are whether
or not they have experience in these areas and whether they will be able to
maximize return comparable to or greater than the outcome anticipated if the
process were outsourced. Another decision to make is what sale format the
landowner will use to maximize return. It is here in the process when a timber
owner should consult with a Forester who has extensive experience in all aspects
of owning, managing, permitting, harvesting, and sales. Things to discuss with
the Forester are various sale options, which may include stumpage bids/sale,
direct log sales, and contract log and haul.




STUMPAGE SALES

Stumpage sales have been effectively used by timber sellers over the last
30-plus years. In a stumpage sale, sellers identify a stand either by legal
description (or shapefile), or stand ID, depending on how inventory is managed.
A seller of stumpage will then reach out to a known list of qualified buyers and
present the opportunity in a notice of sale. On occasion, if a stumpage seller
is feeling bullish and market conditions favor the seller, they might advertise
the sale publicly in hopes of gaining new bidders and/or increased competition
for the logs. In stumpage, sale bidders are asked to make what is typically a
lump sum bid on the standing trees, and the bidder assumes all costs and risks
in harvesting and marketing the logs. Bidders are normally expected to conduct
their own timber cruise and appraisals and, in reality, they bid at their own
risk. If a buyer overestimates the volume of the standing timber, or bids and
acquires it just before the market takes a dive, a bidder can lose money. In
this instance, most sellers are not terribly sympathetic, given that the inverse
can provide better returns to the bidder. Generally speaking, sellers in this
type of sales process are all generally credible, quality sellers, but on
occasion, buyers can be caught up in scam sales, or a seller may present false
or misleading inventory data. Almost without exception, sellers in stumpage
sales where bidding is required will disclaim any defects in the data, the
process, or the markets, and the bidder assumes one hundred percent of the risk
and liability. These risks can often include permitting, access, and
post-harvest regulatory obligations such as erosion control, RMAP, resurfacing
of roads, and more. When making the decision to sell timber, sellers often will
do a log and haul cost analysis and compare it to what they feel might happen in
a bidding environment. If the seller’s conclusion is that bidding will result in
more net income than if they were to contract to log themselves, the bid process
is where they will focus.


DIRECT LOG SALES

In some cases, timber sellers will contact local mills or log buyers and get
pricing directly from them for various log species and grades delivered to their
yard or specified location. In this case, it is the responsibility of the timber
owner to deliver the logs to the yard, or another specified location. A timber
seller can do this by hiring a contract logger who either has log trucks or can
outsource the hauling. Timber owners who choose this option would be expected to
have some experience with this process and assume all risk for costs,
permitting, and delivery. Timber sellers can see modestly higher values or
returns by selling specific species, grades, or sorts to a log buyer who places
premiums on this type of log. The inverse can occur if the logger does not
deliver logs to spec, the log buyer often drastically discounts the non-spec
logs or, in extreme cases, asks the timber seller to transport them to a
different location and log buyer. The timber seller owns the logs until they are
delivered and accepted by the log buyer.




CONTRACT LOGGING

Contract logging can take a wide variety of paths, but we will focus on two
widely accepted approaches. A timber seller will hire the logger with a contract
based on a percentage of gross log sales, or the logger is contracted to log the
timber on a per 1000 board feet (bf) basis. This can include hauling costs or,
on occasion, timber sellers will hire a log truck(s) to deliver the logs and the
logger separately. In percentage sales, the logger is expected to receive a
percentage of gross sales for logging and delivery of the logs. Here, timber
sellers typically rely on the logger to optimize value, because the respective
interest is aligned. While the alignment is theoretically true, the result for
the timber owner is not always better. Things that could negatively impact the
timber seller are an inexperienced logger, an overly generous percentage of the
gross proceeds, or the logger delivering logs not properly sorted or
manufactured, resulting in large discounts to the timber owner.

Most loggers are reputable and will often work with timber sellers to achieve
the best outcome. It’s probably safe to say loggers prefer percentage sales,
because the opportunity to make better than wages is available to them, and they
are equally incentivized to do good work and strategically market the logs. More
sophisticated timber sellers generally favor contract logging on a per 1000
board feet basis because they may already have the markets, or they have loggers
under contracts at specified rates. Rates vary from $150/1000bf to harvest and
deck logs, to $300/1000bf for challenged, steep ground, or logging permits with
numerous restrictions or compliance criteria. Hauling costs vary widely,
depending on the number of trips a log truck can make in a day. Depending on
location and destination, one to three trips per day are common. The timber
seller owns the logs until they are delivered and accepted by the buyer.




THINGS TO CONSIDER AND DISCUSS WITH YOUR FORESTER

A single big leaf maple tree can have a retail value of $60,000. As a timber
seller, the success of your timber sale depends largely on the knowledge and
integrity of the people contracted to harvest. Specialty trees and forest
products are other areas where timber sellers can realize value. In the Pacific
Northwest, for example, the ubiquitous broad leaf western maple was regarded as
a nuisance by most timberland owners and professional foresters. A canopy of
100-year-old western maple (Acer Marcophyllum) can cover nearly 10,000 feet of
forest floor if it is in good health. The aesthetic value of these trees in
music applications began first on the East Coast and in Europe. Luthiers of the
day prized these maple trees for the three-dimensional figure pattern that could
be enhanced with stain and lacquer. Luthiers coveted the stripped magical
appearance and the look achieved when the artist would book-match two pieces for
a violin or cello. Maple was preferred by Italian violin makers such as
Stradivari, Amati, and Guarneri as far back as the 15th-century. They used maple
for its superior sound and resonance qualities, as well as the look,
predominantly seen on the back of the instrument. Figured maple was a staple in
the construction of stringed instruments for the next four hundred years,
primarily on the backs of these pieces of art. In the 19th-century, guitar
builders, starting with Les Paul and, 40 years later, Paul Reed Smith, began
making instruments featuring these stunning figured maple pieces on the front of
the instrument. These brands became iconic with the finest figured maple tops.
One in one hundred mature maple trees will have what is referred to as curly or
flame pattern maple, and one in ten thousand mature maple trees will have what
is regarded as quilted maple figure pattern.


THINGS TO ASK YOUR FORESTER

Ask your Forester to do an assessment of the standing trees and ask whether
there are high-value specialty trees present and, if so, whether they should be
marketed outside of the traditional log yard. Another thing to consider is
post-logging impacts. Ask your Forester what, if any, impact will occur if the
harvest is clear-cut versus selectively logged. Is the logging likely to impact
surface water quality? Will remaining standing timber be wind-firm? Ask your
Forester if there are quality trees that would be better left standing for soil
stability or habitat, and what

VIEW FAY RANCHES' TIMBER PROPERTIES FOR SALE

--------------------------------------------------------------------------------


MEET THE AUTHOR

TROY DANA

Fay Ranches
Designated Broker | Licensed in WA, AK


(360) 402-5500

tdana@fayranches.com

View Bio


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