CHAPTER FOUR

CHAPTER FOUR

FACTORS INFLUENCING STAND VALUES

Tree Species

Prices for wood products vary significantly among the various species of trees. That includes end product prices as well as the prices paid for standing trees. Certain red oaks, white oak, yellow poplar, walnut, and ash are a few of the species of trees that have historically brought high prices in Tennessee. More recently, loblolly and other species of pine demand very favorable prices in some areas of the State. Sweetgum, cottonwood, red maple, and hickory are examples of species that have traditionally held considerably less value.

Some futurists claim that price differences among various species of trees will become less important if wood supplies shorten, and as consumer wants and technologies are certain to change. Perhaps they are correct, but it is difficult to bet against those species whose prices have withstood the test of time. The important consideration for a woodland owner, however, is to always fit the greatest number of the highest value species into the portfolio of every stand. More trees! Now, where have we heard that?

Tree Size

The influence of tree size to prices is a relationship associated with harvesting and manufacturing costs, plus the availability of large logs, coupled with potential end product values. That is because it is usually much more expensive to harvest many small trees than a few large ones. Loading and transporting a truckload of small logs is usually more costly than transporting a full truckload of larger ones. It is more costly for a sawmill to saw one or two boards from a small log, than for them to saw several boards from a large one. Normally, the larger the logs, the more economical it becomes for wood industry to manufacture wood products.

Very small trees can only be used to manufacture paper products or some type of chipboard, and unit prices paid are, as a rule, the lowest in the industry. Slightly larger trees will be sawn at a sawmill. Normally, the unit prices increase as the sizes of the logs become larger. Again, there is a relative shortage of large diameter trees, so supply and demand factors drive prices up for large trees, logs, and lumber.

For example, with construction grade lumber, 2 X 10 boards which can only be sawn from fairly large trees bring higher unit prices than 2" x 4" boards, cut from small trees. Veneer mills manufacture a high-value product and are willing to pay very high unit prices for the large trees they require. Once again, we see the financial rewards of growing bigger trees!

Tree Quality

The quality of trees is related to the end products that can be manufactured from them. All trees contain certain defects such as knots, decay, insect damage, crookedness, or mechanical damage of various types. The fewer the defects, the higher the unit value of a tree.

A large, "high-quality" white oak tree with few defects can have ten to twenty times more value than a "low-quality" white oak of the same size with many defects. Indeed, trees can become so defective as to have no value at all.

Woodland owners must be very aware of how tree quality affects forest values. All things being equal, it takes the same amount of time to grow a high-quality tree as it does to grow the same size low-quality tree on the same site. Growing high-value trees in the shortest amount of time possible is the goal of most woodland managers. Better Trees! Well, you get the picture.

Supply and Demand

As with other businesses, supply and demand factors greatly influence the price of your forest products over time. When viewed nationally and internationally wood product values are affected by such factors as competition in a global wood economy, trends in home construction, the value of the dollar against foreign currencies, trends in furniture design and manufacturing, interest and inflation rates, government regulations on timber harvesting both here an abroad, and other macro-economic factors. Viewed locally, new markets or the loss of existing markets, weather conditions, insect or disease epidemics, or local ordinances could affect the supply and demand for timber in your area for either the short or long term.

Our knowledgeable managers understand how these supply and demand factors will significantly influence timber values. Long-term goals and stand management objectives take projected supply and demand forecasts into consideration. Over the short-term, however, there are "up" and "down" cycles, normally lasting only a few months, during which value-minded woodland owners time the sale of their timber. Selling timber during a down cycle in the market could cost you thousands of dollars in lost income. As already stated, you might not be able to properly "time" the happenings on Wall Street, and we will help you time your timber sales.

Economies of Scale

Foresters and wood industry representatives routinely get calls from homeowners who want to sell a large tree they want removed from their front yards. Many are astonished to discover that no one is interested in purchasing and removing what appears to them to be a valuable asset. Apart from the fear that over the years enterprising youngsters have filled such yard trees full of nails, plus the liability associated with cutting down trees in an urban setting, buyers normally cannot economically justify moving equipment to cut and haul one tree at a time.

There are a couple of exceptions to the example given above. Certain specialty products can only be manufactured from a particular species, size, and quality of tree. Most notably in Tennessee, paulownia and walnut trees are sometimes purchased individually provided they meet very stringent standards. Even so, these trees are purchased in rural, and rarely urban settings. Again, nails wreak havoc on expensive saw blades, so sawmill operators routinely reject logs delivered to them if they discover that the logs were cut from yard trees.

Timber buyers are interested almost exclusively in purchasing entire stands of trees. The larger the stands, generally the more economical they become to log. A small stand of, let's say less than ten acres, can be very interesting to buyers provided it has a high volume of high-quality trees. However, ten acres is a minimum stand size that most owners should consider in managing their woodlands for attracting very much interest from buyers. Likewise, stands can be so large, and demand such a potentially high price that many small or mid-size operators cannot afford to buy them.

Stand sizes should be determined on the basis of meeting ownership goals such as providing periodic income, diversifying the investment, or visual and wildlife considerations. We recommend that keeping stand sizes between ten and fifty acres is a good rule of thumb to bear in mind.

Available Markets

Owners of good timber are no longer bound to local wood dealers who rely on raw materials purchased from private woodland owners. Increasingly, sawmills, pulpwood dealers, and other purchasers are willing to travel more than one hundred miles to obtain the quantity and type of timber they need for their operations. Buyers of high quality veneer trees have virtually no travel limits.

Not all sawmills, pulpwood dealers, veneer buyers or other wood processors are equally good at marketing their products. As a seller of timber, however, you should not care how successful an individual might be in his business as long as he offers you a higher price for your wood than his competitors, and demonstrates an ability to meet your contract requirements.

Not all wood processors have the same need to purchase a given tract of timber at any given time. Timber buyers routinely purchase tracts well in advance of their needs to ensure a constant supply of raw materials to keep the mills running. A company that has already bought an adequate future supply of timber might not be willing to purchase an available tract, or could choose to offer less money than a competitor who is facing a wood shortage. The point is, timber buyers are willing to pay more or less for wooded tracts based upon the current or anticipated needs at their mills.

It is important for woodland owners to remember that timber companies do not make money buying timber. They make money by selling wood products manufactured from trees, whether that be lumber, plywood, paper or other goods. For these companies to succeed in Tennessee, they must rely upon the continued supply of logs harvested from privately owned woodlands.

Site

A site is a defined area with consistent soil properties and landscape position features. Sites with good characteristics can produce high volumes of high quality trees. The converse is true. Poor quality sites grow low volumes of low quality trees. Understanding sites is one of the cornerstones of successful woodland management, because sites dictate management strategies.

Sites can be measured to determine their inherent productive capabilities. On the basis of those measurements, management alternatives can be considered.

To complicate matters a little, though, a site that is good for one tree species might be less productive or even deadly for other species. A site that produces poor quality, slow growing oaks might produce high quality, fast growing loblolly pine. A cypress can grow in standing water, but most other species would perish in those conditions.

Stands should be established and managed on the basis of sites. Oak stands should be grown on good oak sites, yellow poplar stands on good yellow poplar sites, loblolly pine stands on good pine sites, and so on. Failure to establish the correct relationships will substantially reduce stand yields and income. Our foresters know how to bring this all together for you.