Exercise Caution When Selling Timber

Exercise Caution When Selling Timber

Roughly 70% of the timberland in Georgia is owned by non-industrial private forestland owners. Most of these timberland owners go to a job every morning that has nothing to do with the growing, harvesting, or marketing of timber.  Given timber is such a unique asset class and selling it occurs so infrequently, the marketing of their timber overwhelms most landowners with uncertainty.    Over the past two decades, there has been an increasing trend for timberland owners to sell timber using a “per unit” sale method.

In a per unit timber sale contract, the purchaser pays the landowner a price per ton for each product class harvested, and the purchaser’s logger is responsible for merchandising the timber into the most valuable product class.  While there are many product classes for southern yellow pine timber, the three most common in the US South are pulpwood, chip-n-saw, and sawtimber.  These three product classes undoubtedly account for 90% of the pine timber harvested in the US South today.

One of the most critical aspects of a per unit sale is proper merchandising of severed timber into the most valuable product class with the goal of generating the most revenue for the landowner.  Poor merchandising of timber can materially affect landowner revenue – sometimes as much as $300 to $400 per truckload of wood leaving a landowner’s property.  Below, we have included an example to help illustrate how important timber merchandising is in a per unit sale.

 

Big Timber Farms, LLC Example

In a per unit timber sale, Big Timber Farms LLC recently sold a 100-acre clearcut of pine timber to Quality Logging Inc.  The following table shows the timber volume by product class established from an inventory completed by a consulting forester as well as the contracted unit timber prices by product class.

 

Initial Timber Estimates – 100-acre Clearcut – Big Timber Farms, LLC

Product Class	Tons	% of Total	Price/ton	Total $
Pine Pulpwood	2,000	25%	$10.00	$20,000
Pine Chip-n-saw	4,000	50%	$18.00	$72,000
Pine Sawtimber	2,000	25%	$25.00	$50,000
Totals/Averages	8,000	100%	$17.75	$142,000

 

The following table shares the final volumes and revenue by product class as reported from logging settlements following the completion of the Big Timber Farms, LLC timber harvest.  For simplicity, the initial total timber volume estimate and the actual timber volume harvested were held constant.

 

Actual Results – 100-acre Clearcut – Big Timber Farms, LLC

Product Class	Tons	% of Total	Price/ton	Total $
Pine Pulpwood	3,200	40%	$10.00	$32,000
Pine Chip-n-saw	3,600	45%	$18.00	$64,800
Pine Sawtimber	1,200	15%	$25.00	$30,000
Totals/Averages	8,000	100%	$15.85	$126,800

 

In this example, notice the large difference between the estimated timber volumes and the actual harvested volumes by product class.  The harvested pulpwood volume increased significantly while the volume of chip-n-saw and sawtimber decreased as compared to the initial estimated volumes.   The net of these volume differences would result in Big Timber Farms LLC receiving $15,200 less revenue!  As you can see, proper product class merchandising by the timber purchaser’s logger makes a huge difference!

Early in my career, a long-time industry veteran shared that he had completed extensive research on product class separation.  The result of his work showed that over 40% of wood received at his company’s pulpwood consuming mill should have been merchandized into a higher valued product class.  With differences in product class prices historically ranging from $5 to $25 per ton, a landowner receiving such blatantly poor merchandising would suffer huge financial losses!

Whether dealing with real estate, stocks, bonds, or timberland, sound professional advice from a skilled asset manager consistently leads to better financial returns.  Assuring your timber is sold and merchandised properly is just one example of how Forest Resource Consultants can add value to your investment.