Tough Question for Our Foresters

[WDH]

What is a poor landowner to do?

This week I was traveling with my Boss and we were talking about the wood business.  We have lots of sawmills that, like most other Industrial softwood high production sawmills, are struggling financially because of the drop in demand for lumber.  He asks me from a Procurement Forester's perspective, "Why is it that we can't get our wood cost down to a level that is in line with the price we can sell our lumber".  Very fair business question.

As a Procurement Manager in a previous life, I pondered the question.  I offered several theories.  But here is the crux of the issue to me.  As a tree growing landowner, the prices I can get today for my trees, sold on the market as standing timber, is at about the same prices that the same timber was selling for in 1987, or maybe sightly less .  Now tell me.  What large commodity is priced less today than it was 20 years ago, not considering inflation?  Considering inflation, the situation is beyond miserable. 

How can people own land and grow trees and stay solvent?  Everything else that I pay has increased significantly, like taxes for example, or fuel.  I am very concerned about the health of our industry.  I see it and catch it from both sides.  Every plot of land cannot be a real estate development, can it?

What are we tree grower to do?  Gut it out and hope for a miracle?  Sure, you will say things go in cycles.  You will say that this is one of the typical downturns.  However, the outlook I have seen from the experts looks grim. 

What are we tree growers to do?

[Tom]

Don't sell!

Look for income somewhere else on the property.

I'm no forester, but I have trees.

I get a bad taste in my mouth when I hear of the prices of stumpage.  Growing and cutting trees is like growing chickens.  The mills own the loggers and land-owners the same as Tyson Foods, Gold Kist, and Perdue Farms owned the chicken farmers. 

The landowner is "told" what he will receive for his trees by the mill. The mill does not have to shop.  If it weren't for the use of Foresters, most landowners would have a ring in their nose. Many do. Mills are very independent when it comes to fiber.  They don't take advantage of fires and floods and will turn down wood when their yard is full regardless of the price.  They send loggers away with their trucks loaded and limit them to 2 or three loads a week, making them stand in line, for hours, to sell.  Mills are closing because paper mills are closing and the paper mills own the sawmills. When they decide they want wood, the loggers are gone and land has houses on it.  The trees were ground up and put back on the ground or sent to a dump.

I think it would be healthy if the mills hung on a rope and had to wait for the landowner to be satisfied with his price and the logger to know that he would't be left holding the bag while the mill scheduled the industry to suit their terms.  It would be healthy for the landowners and the chicken farmers to take control.  The problem with that scenario is that there are few landowners who are really tree farmers.  There are real estate holders who happen to have trees on their land and they look upon them as something to get rid of so that the land can be developed.   The reasons for that are many but can be traced to the stigma of being a farmer and the greediness of the tax man.

Florida and Georgia are going to have an abundance of burned wood.  The mills will take some, but they won't devise a way to take more.  That is wood that could be gotten for a song if the engineers would devise a way to clean it up.  Even if it were used for fuel it would help.  So the big Mill decides it wants to sell its lumber for xx dollars when it's being imported for x dollars.  I don't feel that sorry for them.

[SwampDonkey]

I do recall the odd occasion where a landowner 'negotiated' the right price for his logs. He had large timber in an era when average softwood saw log sizes are becoming smaller and smaller. That large wood is less costly to produce 1000 bf of lumber because you handle less pieces over a given amount of time. This aloud the owner to get a premium price. Trouble with a lot of owners in my area they jump the gun and liquidate a lot of woodlots that are barely mature. Some things working against them is stands of over mature wood with 1/3 to 1/2 on the ground or second growth that was never thinned, which suppresses their diameter growth. The 'jumping the gun syndrome' is for various reasons, including paying inheritance taxes, paying a mortgage, dividing assets, or investing the $$ from the harvest. It's quite mind boggling to. The estates get clearcut for $$ obviously, but it's near impossible to get the family to have free silviculture work done, like pre-commercial thinning. I don't understand the thinking or 'culture' behind it.  Another thing depressing the wood prices is an over abundance of the stuff and the mills can always get it a little cheaper from another 'Joe Landowner' because most of them in a group could never agree with one another on a price or even stick together when one is negotiated.

 

[WDH]

Another thing depressing the wood prices is an over abundance of the stuff and the mills can always get it a little cheaper from another 'Joe Landowner' because most of them in a group could never agree with one another on a price or even stick together when one is negotiated.
 

SD, you are right.  There are plenty of trees.  Also, there are fewer manufacturers and there has been significant consolidation in the Industry.  As a result, prices have fallen with the drop in lumber prices.  I need to 2nd thin about 40 acres, but the price for that Chip-n-saw sized tree is at its lowest point, down about 30% from a few years ago.  30% is an awful big price  drop to stomach and still thin on time.  I believe I will at least wait until the Fall and see where things are going.  At least I will get some growth for the rest of the year (not if it does not rain.  Where, Oh where is the rain ).

The person who wants to own land, manage timber, and grow trees may become an endangered economic species. 

[arojay]

I don't want to get too far off the thread, but this topic of rain is being seen in many posts.  I encourage everyone to read up on the Pacific Decadal Oscillation.  Here is one link:

         http://www.atmos.washington.edu/~mantua/REPORTS/PDO/PDO_egec.htm

Generally speaking, the dry weather you are experiencing in the southeast US is predicted on this site as is most of the weather we are seeing over all of North America.  An internet search of the topic will give you a number of other sites to read.  I don't know why this climate phenomenon isn't given more weight by weather forecasters.  Maybe because it was only recognized about 10 years ago.  I think that anyone who's life and living is influenced by weather(and who's isnt) should be aware of the pdo and how you might use it in your long term planning.  These guys are not fringe whackos looking for a soapbox. 

[thurlow]

What are we tree growers to do?

It's not just the tree growers (I realize that this is a FORESTRY FORUM); it's everyone who grows food and fiber for a living.  As a (retired) farmer, when I drove up to the supply house, it was "How much is it"?.........not, "I'll give you xxx dollars".  When I drove up to the elevator/cotton gin/livestock sales barn, it was, "What are you paying today"?..........not "This is what I'm selling for".  Buy retail.........sell wholesale. 

We've seen what's happened to the chicken and pork industries and how control is held by a VERY few players;  few enough that they essentially set their price.  I haven't figured out how this will play out for the beef industry and the rest of the food and fiber, because it's much more complicated.  I believe it'll happen.

[Ron Wenrich]

When I was buying timber, the boss would say that since we didn't make money on the last sale (mills fault, not the landowners), we would drop the price on the next sale's stumpage.  In other words, all costs are driven back to the stump. 

Too often the industry (mills, loggers and consultants) looks at landowners as their private little wood resource.  They tell landowners that anytime is a good time to sell, even if prices are depressed.  They tell them their timber is mature, even though it needs a lot longer to grow.  Not all landowners sell just for the bucks, some are talked into it. 

We sit around and tell landowners that forest management pays, then turn around and liquidate all the landholdings.  Too many mixed messages.

Then, there's all the suppression of stumpage because of all the middlemen.  Retailer, wholesaler, lumber brokers, mill, log brokers, loggers, and consultants.  That all chips away at the stumpage prices.  Too many profit takers and levels of bureaucracy on the landowners back. 

Economics should handle the problem.  When supply isn't needed, then prices should drop and the resource shouldn't be cut due to low prices.  But, what usually happens is that the landowner is strapped for cash and liquidates, further suppressing prices.

Prices are also kept down by needy mills.  They have bought high dollar stumpage and aren't good at predicting market movements.  So, to recoup their high stumpage prices, they dump it on the market, which further suppresses prices.  I've seen those cycles way too often, and they never learn from past mistakes.  Just drive it back to the stump.

[Ron Scott]

Hold your timber longer on the stump until there is a decrease in wood supply and increase in wood demand for the specific species that you have. Don't be in a rush to sell your timber unless it is absolutely necessary for other personal reasons. The trees will continue growing in storage on the stump until demand and prices get better in your market area.

Right now timber markets are the worst we've seen them. We are just trying to get the existing timber harvest contracts completed amd not we are not placing many new privarte landowner sale on the market. Current timber sales are not selling, no matter what the species. Prices are dropping faster than what the timber can be appraised for. There is a real flood on the market at present.

Hopefully some of us can get into some additional bio-energy fuel wood needs.

[WDH]

Arojay, thanks for the info.  The website was interesting reading.  Our climate is complicated .

Ron W, I believe economics will handle the problem.  The kicker is that growing trees is a long term enterprise, and does not always mesh with short term economics.  I don't think there is really anything we can do about that.  Growing trees is much riskier than most people realize.  Just ask the folks in South Mississippi, South Louisianna, and Southeast Texas (Katrina and Rita).  Also just ask those folks in South Georgia and North Florida (Fires, fires, and more fires).  If the land ownership pattern was different in Canada, just think of the financial devastation that would hit individual landowners in British Columbia with the mountain bark beetle. 

Ron S, I spent 20 years doing everything just about right to get my plantations to this second thinning stage when the wood is supposed to be small grade and worth more.  The basal areas are right for the second thin, and I can't wait too long without sacrificing some growth/value.  I will wait a while and maybe things will begin to sort back out in a healthier way next year.  I am worried about the viability of our Industry, though.

I know that y'all know this, but I guess I needed to vent a little. 

[Sid]

WDh, this is a question I've been wrestling with about nine years . In 1998 we lost about 300 acres of timber due to fire. The question was to replant trees or what else can bring in income. We went back with trees. The timber price,stumpage, has been on decline  ever since. I've noticed around Homerville,Ga. they put a roll chopper in about six-seven year old pines and then planted blueberries. I can't bring myself to do what they did in Homerville. Looking to maybe put in berries when we clearcut a tract. One correction: We sold burnt wood in 1998 for bout 1\2 price and lost 50 acres.

[WDH]

Sid, 

Fires have been very unkind to that area.  I understand your reluctance to push up the trees.  Since they are about 9 years old, they will have merchantable value as pulpwood in another couple years if you can hang on.  After that, you can re-assess your options.   

[Phorester]

WDH, Stumpage prices here in the last 5 years have been higher than in my entire 30 years in this area.  Except for red oak, all other species are high.  Yellow poplar especially has increased dramatically in the last few years.  Below is a message I posted a couple of years ago:

"We always talk about badly handled timber sales, there's good ones too;

In 1984 a  landowner asked me for management advice.  Lo and behold he took my advice and hired a consulting forester to handle a selective harvest timber sale on his 50 acres of mixed eastern hardwoods.  Nice, clean logging job.

In 2004, the original owner's son had inherited the property and wanted another timber sale.  He contacted the same consulting forester, who marked the same 50 acres of timber.  It was sold and cut last summer. Another nice, clean logging job. Volumes are International 1/4" scale.

1984:  438 trees, average vol. per tree of 214 bd. ft. total vol. 94,000.                     

2004:  453 trees, average vol. per tree of 329 bd. ft., total vol. 149,000.

Same consulting forester, same acreage, almost the same number of trees. But a volume increase of 55,000 thousand bd. ft. (MBF).  Plus, this 55,000 bd. feet of increase in tree size was put onto high quality trees left in the 1984 harvest by the forester.

As foresters know, prices in timber sales are subject to many, many variables.  It's also hard to compare timber prices 20 years apart because markets change, different buyers are in the mix, etc.  (But there were better quality trees in the 2004 sale than the 1984 sale.)  With that, the 1984 sale grossed $229/MBF, or $21,500.  The 2004 sale sold for $715/MBF, or $106,400.

A good comparison of almost duplicate timber sales on the same acreage 20 years apart. And there is even better quality trees left this time for the next harvest. Shows what a landowner can accomplish by following the advice of a professional forester working for him. "

[WDH]

Phorester, that is an excellent comparison and real proof that management increases value. 

The situation with Southern Pine, because of the Government funded Conservation Reserve Program, is impacted by the huge acreage of Ag land that was planted in pine trees.  The majority of acres were planted in the late 1980's and early 1990's.  Interestingly, Forest Industry's Company land was heavy to these age classes.  So, abundant supply and decreased demand result in low prices .

It looks like grade hardwood in the Mid-Atlantic, Cumberland Plateau, Ohio Valley, Midwest and Northeast has held its value, but there has not been a huge influx of planted acres over this time-frame. 

Nothing but good old economics at work.  Economics are not always kind to those who make long term investments with risk associated with future changes in technology and markets. 

[Rocky_Ranger]

You know though, I've been digging into this "carbon credits" thing and see we now are (USFS) tieing stewardship contracts to amounts of carbon sequestered.  Not a whole lot of info out there on the long term economics, but one in particular is paying $6.00/ton/yr for sequestered carbon.  Given the average of 5.0 tons/year of actual carbon starts to make the CRP lands valuable to remain as standing growing stock.  Some of the economics show they are worth from $25 - 70/ton/year.  I guess it depends on how much "sinning" a company is doing. 
Then - what happens at harvest, do ya thin, etc. kick in but to me, our good old growth and yield tables can easily be converted to carbon sink calculators.

Time will tell if this takes off but I now believe it will.  The best way to "save the planet" is to plant trees and manage our stands.  Oh yeah, prescribed fire every 2 -4 years too.  What a novel idea>>>>>>>>>>>>

[SwampDonkey]

Stumpage here remains high, the price is a lot lower at the mill and a lot of loggers have left the scene. The majority of timber sales now are with owners that have been shown some reasoning why the logger can't afford those high stumpage price. Meanwhile, the crown in NB has dropped stumpage 25 % twice over a 5 month period in the last 18 months. Keep in mind, we have an over supply of pulp and an over capacity of sawmiling in NB.

[Tom]

You might be able to get started up again if you would turn some of those ships around.

Driving the price back to the stump again. It's the guy that bought the land and grows the trees that has to foot the bill for everybody else's indiscretions.

I think it's time to drive the price back into the market.  We need to turn our plantations and forests into Recreational parks until the public runs out of toilet paper.

[BrandonTN]

I think it's time to drive the price back into the market.  We need to turn our plantations and forests into Recreational parks until the public runs out of toilet paper.

 

[Ron Wenrich]

How much of your demand drop has come from better utilization?  When you planted those trees, no one considered engineered wood.  Now, they are using plywood trusses where they used to use a bunch of 2x stock.  That cuts back on the wood demand.  OSB wasn't used that much back then, either.

So, are you going to grow peeler trees or trees for dimension stock?  My guess is that there is plenty of dimension stock in the second and third cuts of those peeler trees.  That helps flood the market.

Growing trees for current market conditions always leads to a couple of surprises.  I remember when red oak was worth next to nothing.  Then it took off.  Its run its cycle and is now on the downswing.  But, back in the '80s & '90s, everyone was trying to establish red oak forests. 

[WDH]

My goal is sawlogs with multiple thinnings.  The plywood market around here is not significant due to distance to the mills.  Trees are the best use for the land as long as I want to keep the land.  The other option is to sell it, but then where would I go roam around and spend my time  

I enjoy managing the trees, with all the associated activities, so that is why I do it, even if it is economically challenging.

[DanG]

It is a tough question alright, and one of the things that makes it tough is that the answer varies with location.  I don't mean just regionally, but locally as well.  For instance, WDH says there's no market for peelers in his area.  I'm only 150 miles away, though, and there is a big plywood plant in my County.  There is also the huge OSB plant just south of us, so the thinnings have a place to go.  Then, there is the new wood alcohol plant going in to the east of WDH, probably 75 miles or so, still a long pull for log trucks at the prices they will pay.  I'm still clinging to the hope that the industry will recognize the value of our rail system.  They're using it here on a very small scale, but I'm thinking that it is no coincidence that the new OSB plant has the railroad running right through the middle of it.  Maybe that is part of the answer.