ANR-1086 Alabama Stumpage Price Trends
ANR-1086,
New Jan 1998. By
Daowei Zhang
, Extension
Forester, Assistant Professor, and John Bliss, Extension
Forester, Associate Professor, both in Forestry at
Auburn University.
Alabama Stumpage Price
Trends
|
Forests dominate the landscape of
Alabama. Non-industrial private forest owners own 72 percent of
the state's forest land. Generating income through timber sales
is a primary objective for many landowners. The sale of timber
significantly influences the rate of return of their timberland
investment.
Non-industrial private forest landowners
typically sell their timber on the stump to loggers or forest
products firms. The price of standing timber is called stumpage.
Since many landowners sell timber infrequently, they may not be
well informed about the current level and future trend of stumpage.
What is the trend in stumpage in Alabama? Is there any difference
between southern pine and hardwood and between pulpwood and sawtimber?
What is the rule in determining whether to harvest timber this
year or next? This article provides some answers to these questions
and will help non-industrial private forest landowners maximize
their financial gains from timber sales.
Current Price Level
For many years stumpage prices were
not recorded in Alabama. This situation changed in 1977 when Timber
Mart-South, Inc., started a stumpage reporting service for the
13 southern states. Today, Timber Mart-South is published
by the Daniel B. Warnell School of Forest Resources at the University
of Georgia. Price data from Timber Mart-South is reported
quarterly. Timber Mart-South generates stumpage price data from
timber buyers, consultants, and timber sellers, and a simple average
price is reported for each product (pine sawtimber, pine pulpwood,
hardwood sawtimber, hardwood pulpwood, etc.) in each region. This
reporting method has several drawbacks: it does not report sale
volumes or number of sales, and the selection of reporters is
not systematic. It is nevertheless the primary reporting service
in the South. The data used in this document are from Timber
Mart-South.
Alabama is divided into two reporting
regions: Southern Alabama and Northern Alabama (Figure 1).
Figure
1. Timber Mart-South reporting regions in Alabama.
The shaded area between these regions
is a transitional area where stumpage prices may more closely
resemble one region or the other, depending on the individual
sale characteristics.
A quarterly stumpage update from Timber-Mart
South is provided by Auburn University and distributed to all
Alabama Cooperative Extension System county offices. Forest landowners
who sell timber infrequently or who do not know the current stumpage
price level can contact their county Extension office. However,
the stumpage prices that individual landowners receive may not
be identical to these reported (average) prices. Stumpage prices
for individual forest tracts depend on species composition, volume,
wood quality, location, harvesting conditions, sale methods, use
of assistance foresters, and other factors.
Stumpage Price Trends
Southern Pine Sawtimber
Figure 2 shows the trend in nominal (not adjusted for inflation)
southern pine sawtimber stumpage prices. It indicates that the
nominal stumpage price was high in 1980 and in 1992-97. Over the
last 20 years, stumpage prices increased on average at an annual
rate of 5.7 percent. In 1996, stumpage prices were about 3 times
of the price level in 1977.
Figure2. Southern
pine sawtimber stumpage prices.
Figure 2 also shows the real (corrected
for inflation) southern pine stumpage prices calculated by dividing
the nominal stumpage price by the producer price index. Since
this price adjusts for inflation, it represents the "true"
stumpage price. Between 1977 and 1996, much of the apparent price
increase is a result of inflation. The real price increased at
an annual rate of 2.0 percent. Real southern pine sawtimber stumpage
prices (in 1982 dollars) increased more than 40 percent in the
20 years, from $153 in 1977 to $222 per thousand board feet (log
rule, Scribner Scale) in 1996.
Hardwood Sawtimber
The trend exhibited by hardwood sawtimber stumpage is similar
to that of southern pine sawtimber (Figure 3).
Figure 3. Hardwood sawtimber stumpage price.
However, the real stumpage appreciation
for hardwood sawtimber is much greater than that of the southern
pine stumpage. From 1977 to 1996, the nominal rate of price appreciation
in hardwood sawtimber was 9.2 percent, and the real rate was about
5.5 percent annually. Real hardwood sawtimber stumpage prices
nearly tripled in the last 20 years.
Southern Pine Pulpwood
Southern pine pulpwood stumpage prices parallel those of southern
pine sawtimber (Figure 4).
Figure 4. Southern pine
pulpwood stumpage price.
From 1977 to 1996, the rate of real
price appreciation was about 1.5 percent annually, resulting in
an increase of 33 percent in southern pine pulpwood stumpage.
Hardwood Pulpwood
Perhaps the biggest (and, for some landowners, the most pleasant)
surprise is the dramatic increase in real hardwood pulpwood stumpage.
Figure 5 shows that real hardwood pulpwood prices increased steadily
and more than tripled between 1977 and 1996.
Figure 5. Hardwood pulpwood
stumpage price.
This means that the real hardwood
pulpwood stumpage prices appreciated at an annual rate of 6.4
percent.
A Misperception About Pulpwood
Stumpage
Forest products prices have risen
in the last 200 years, outpacing all other natural resources (Manthy
1977, Clawson 1979). However, there is a misperception about pulpwood
stumpage prices. Based on timber sale data from national forests
from 1920 to 1975, several studies concluded that real sawtimber
stumpage had been going up while real pulpwood stumpage had not.
This has certainly not been true in Alabama during the last 20
years. Data from Timber Mart-South suggests that pulpwood
stumpage increased at least as fast as sawtimber stumpage in the
last 20 years.
Hardwood pulpwood and sawtimber stumpage
prices increased more than southern pine in the last 20 years
because technological advances in the paper industry and recent
developments in the furniture industry in Alabama have increased
the demand for hardwood. Hardwood was rarely used in pulp and
paper production in the 1970s. As southern pine pulpwood stumpage
prices increased, the industry responded by developing technology
that utilizes a cheaper resource--hardwood pulpwood. At the same
time, the furniture and other secondary industries also started
to invest in Alabama and demand for hardwood sawtimber increased
as well. Today southern pine stumpage is still higher than hardwood
stumpage, but the gap between them has narrowed in the last 20
years.
A Simple Rule For Predicting Stumpage
Price Changes
Many analysts have observed that the
stumpage price increase in the last few years in the South coincides
with the cutbacks in timber production from public forests in
the Pacific Northwest. It seems reasonable to attribute the increase
in southern stumpage to the reduction of timber harvesting in
the Pacific Northwest. However, there is a more fundamental reason
for the increase in stumpage prices.
In the long run, percentage change
in stumpage price plus percentage change in growth (growth rate)
equals the interest rate of the economy. Although this is not
always true, it does mean that many thousands of forest landowners,
acting independently in timber harvesting, produce this result
as long as there are not significant volumes of timber imports
from other countries. Therefore, some landowners can hold their
forests for an extra year, gain additional growth and stumpage
appreciation, but lose interest generated by revenues from timber
sales. If this rule does not hold, opportunities arise for forest
landowners to either gain extra revenue by holding their timber
for an extra period, or sell immediately. For example, if the
percentage price in stumpage change plus the growth rate is larger
than the interest rate in a particular year, landowners will make
more money by postponing timber harvest for another year.
From 1995 to 1996, Alabama's forest
has grown 1,185 million board feet, representing an increase of
5.2 percent in inventory in 1 year, approximating the annual rate
for the last 20 years (Teeter 1997). On the other hand, real interest
rates in the market were about 6 to 7 percent in the last 20 years.
Therefore, it is not surprising to see that the real prices appreciate
at an annual rate of 0.5 to 2 percent.
Determinants Of Southern Pine Sawtimber
Stumpage
Individual forest landowners generally
cannot change the biological growth rates of their forests in
the short run without incurring costs. They know their current
and expected personal interest rates. Therefore, they need one
additional variable stumpage price forecast in order to plan their
timber harvesting activities. The stumpage price level for the
next few years is influenced by many supply and demand factors.
Pine sawtimber, hardwood sawtimber, pine pulpwood, and hardwood
pulpwood stumpage prices correlated (meaning that the others will
follow if one goes up or down). Listing the determinants will
give forest landowners a general idea of the factors influencing
the stumpage price movement.
- One significant determinant of southern
pine sawtimber stumpage is the price of softwood lumber. The
price of lumber is in turn influenced by housing starts and interest
rates. More housing starts in the United States means higher
sawtimber stumpage prices. Interest rates, however, have two
opposite impacts on sawtimber stumpage. High interest rates negatively
affect the construction industry and housing demand. But on the
other hand, high interest rates make stumpage prices appreciate
more in the future. The overall impact is that an increase in
interest rates will have a positive impact on stumpage prices.
- Significant amounts of softwood
lumber have been imported from Canada in recent years. Therefore
the exchange rate between the United States and Canadian dollars
has a significant impact on southern pine sawtimber stumpage.
The higher the exchange rate (expressed as $CND/$US), the lower
the stumpage prices.
- Southern pine sawtimber stumpage
in Alabama is not influenced by season. Some believe that more
timber is harvested in the summer and early fall when logging
sites are usually dryer. Therefore stumpage prices might be expected
to be lower in these seasons than the others. However, the seasonal
price difference is not significant enough to conclude that there
is seasonality in stumpage at the state level, although stumpage
prices may still be seasonal at the local level (which is most
important to landowners).
Conclusions
Non-industrial forest landowners who
sell timber infrequently might find the price reports by Timber
Mart-South (available from county Extension offices) useful
when deciding to sell timber. Managers, who purposely grow hardwood
or southern pine species, pulpwood or sawtimber, should be encouraged
by increasing stumpage prices.
Owners contemplating a timber harvest
should consider the relationship between the biological growth
rate of their forests, the growth rate of forests in Alabama and
surrounding states, their personal interest rate, and possible
stumpage price changes. If landowners think the rate of stumpage
price change plus the biological growth rate of their forests
is larger than their personal interest rates, they should hold
the forest for at least 1 extra year. Otherwise, they should cut
the forests immediately.
Finally, those who want to know the
rate of change in stumpage prices should closely follow forecasts
on housing starts, interest rates, and exchange rates between
the United States and Canadian dollars.
References
Clawson, M. 1979. Forestry in the
long sweep of American history. Science 204:1168-74.
Manthy, R.S. 1977. Scarcity, renewability, and forest policy.
Journal of Forestry 75:201-05.
Teeter, Larry. 1997. Timber Supply Analysis for Alabama: A Dynamic
Programming Approach. School of Forestry, Auburn University. Auburn,
AL 36849.
For more information, contact your county Extension office. Visit http://www.aces.edu/counties or look in your telephone directory under your county's name to find contact information.
Issued in furtherance of Cooperative Extension work in agriculture and
home economics, Acts of May 8 and June 30, 1914, and other related
acts, in cooperation with the U.S. Department of Agriculture. The Alabama
Cooperative Extension System (Alabama A&M University and Auburn
University) offers educational programs, materials, and equal
opportunity employment to all people without regard to race, color,
national origin, religion, sex, age, veteran status, or disability.
|
If you have problems loading
this document, please email publications@aces.edu
for assistance.
Publications Homepage | ACES Homepage
|