Stand Valuation

Factors Affecting Value of Timber 1. The nature of the timber Species, total volumes, grade, etc. 2. The nature of the tract on which the timber is located, and its market access; and 3. The circumstances surrounding the sale Stumpage price is paid by the mill. They expect to absorb the cost of logging and still make a profit from the lumber.

The Desirability of the Timber CHARACTERISTIC POOR STAND EXCELLENT STAND Timber volume per acre Low High Total Volume in tract Size of trees Small Large Frequency of limbs and knots Multiple limbs Merchantability length generally clear of limbs

Desirability of the Timber Location CHARACTERISTIC POOR STAND EXCELLENT STAND Exterior Access Intermittent Road All weather road touches property Interior Access No log roads Log roads within ¼ mile of all of tract Average number of months loggable per year Four months or less due to: Soil trafficability Obstructions Severe slopes Year round except during severe weather; no obstructions which block skidding or hauling Distance to delivery point Lack of proximity to: Rail transportation Concentration yards Close to wood using facilities

Quality of the Transaction FACTOR PRICE WEAKENING PRICE STRENGTHENING Number of bids Only one Many Buyer & Seller Seller: poorly informed or under financial duress. Buyer: facing facilities shutdown due to low wood supply Seller: knowledgeable and under no duress Buyer: knowledgeable and under no supply problems Bid results Wide spread between high and second bid Narrow spread between high and low bids Adequacy of time allotted Hurry-up sales cutting contract of six months or less Wide exposure of sale to market and adequate cutting time Involvement of middlemen Sales to middlemen Sealed bid from forest products firm Form of payment Below-market interest rate on deferred payment All cash transaction

Sources of Timber Pricing Comparable timber sales Timber price reporting services Timber Mart South http://www.tn.gov/agriculture/article/ag-businesses-forest-products-bulletin Extraction from delivered log prices

Data from Tennessee

Not ready for harvest? LEV – Land Expectation Value Present Value = a/(1+i)t-1 a = value received every t years in perpetuity i = interest rate t = years between annuity payments This is covered in Timber Management class