How is Standing Timber Priced

[Tdawg]

Hey All,

Mostly for interest sake, I'd like to get an understanding as to how someone would bid on standing timber. I live in an area surrounded by nearly 40,000 acres of county forest (plantation Eastern Red Pine), which the county manages and tenders out for harvesting. The trees are all in nice tidy rows, are all the same species and are all the same size-so how does the bidding process work? I'm a contractor and I do some work for the county, so I have access to the quotes online and I can tell you they are all over the place. So guys, how does it work?

[Texas Ranger]

Will they, or do they, row thin up there?

[BaldBob]

Hey All,

Mostly for interest sake, I'd like to get an understanding as to how someone would bid on standing timber.

Well to put it in the simplest terms :
1. Determine what you can expect to get for the delivered logs. (get quotes from mills etc.)
2. Determine what it will cost you to cut, skid, load, and haul the logs to the mill.
3. Determine what you need for profit, overhead, mobilization and move out costs .
You will also need a good estimate of the volume to be logged, even if the bid is on $/volume logged, but especially if it is a lump sum bid.

[Ron Wenrich]

Only other factor is how bad the competition needs the timber.  Sometimes you get into a position where you absolutely need the timber and you'll pay a premium to buy a certain stand.  The other factor may be overrun.  That should be put into the price for the delivered logs.  Overrun may vary widely between foresters or sampling methods.

I always found that bidding usually had 3 different types of bidders.  The low end are bottom feeders.  They put in a low bid just to see what others are bidding.  They don't really want the timber, but will take it for a fire sale price.

There will be a clump in the center.  That's generally what they are normally paying for timber.  They'll add the sale to their cut schedule, but if they lose the sale, they really don't care.

Then you'll have a clump at the top that are truly interested in the sale.  They are willing to pay a premium to get the sale.  Sometimes this is only one buyer.  The difference between the top clump and the middle clump is the value of the bidding process.

[Tdawg]

Will they, or do they, row thin up there?

If I understand your question right, yes it is all about thinning to allow the tracts to return to hardwood bush.

[Tdawg]

Thanks for the replies. Some of the tracts put out to tender are really small, so it crossed my mind that when I purchase a sawmill and get my little operation set up, this might be a source for logs. So, if the plan is to mill them myself, how would I find out the going rate for the logs?

Thanks again.

[Texas Ranger]

TDawg, down here we thin plantations by rows, one row out of every 3 or 4, then come back and thin at a latter date.  I ask because it can effect how you bid.  Row thinning is straight forward and simple, but, you take everything and requires a good understanding of what the timber looks like, and if you have a market for all the stems that will show up. 

The other guys tell it straight.  And the only way you are going to learn is to jump in, be one of the "bottom feeders" until you get a feel for it.  Over bidding can kill ya quick.  A knowledge of your competitors is essential, and generally they wont talk about there bidding procedure.

[SwampDonkey]

The going rate is going to be set by the mill, on their specs, that is going to buy the logs. If your using the logs, then if your selling any volume of lumber that price is going to be set by a large operator buying lumber to their specs, a broker or wholesaler or an operation that uses the lumber in secondary processing adding value along the chain of custody. To get an estimate of volume you have to sample the forest by aggregating each uniform stand, say a pine stand or a maple stand, or a mixed stand into individual sample units. Like 10 samples in 10 acres of pine and 15 samples in 15 acres of maple and so on. These might be in several parcels on that property. Could be 5 pine stands for example, but that is one sample unit. You measure diameters at breast height (4.5 feet) and take heights of the sample trees in a fixed area plot or a fixed angle (larger trees in the sample can be further away, smaller ones have to be closer). These measurements are used in volume equations or tables (which are equations in table form). For example standard volume tables have a species column and a dbh row for groups of species with similar form to the tree trunks. The height is used to choose the volume table by species. The intersection of species and dbh is the volume per tree. You have to have some confidence in the dimensional areas that make up each sample unit. Is it 10 acres,? Or if you are in error, maybe it's 7.5 acres. This is part of timber cruising and there is an entire course based on it. If you don't have an inventory such as this your guessing and hoping you don't over bid. Multiply the mill delivered price by your estimates of products and species your selling. You have to work out what it is going to cost you to get the job done: equipment, labour, fuel, trucking, maintenance, insurance....You simply need confidence in the numbers and that comes with experience and methods used to acquire them. Then factor in some wiggle room. Can't really teach that on here. Often loggers will hire the expertise of a forester they have trust in or they have a feel for it after years of work.

[Tdawg]

This is great stuff guys, thanks for taking the time. I have no idea if this system is used elsewhere, but this is how Simcoe County goes about it. In the late 1800's and early 1900's this whole area was basically clear cut. In the 1920's the county decided on a re-forestation plan. They began buying up plots of land and planted stands of Eastern Red Pine. As time went on and the forests matured they started harvesting and used the proceeds to purchase more land to re-forest. Each tract of forest is named after the former owner and it might be 3 acres or 75 acres, the point being that all the plantation pine on each plot was planted at the same time, so the DBH and tree height are pretty much identical. When a tender goes out, it will be for thinning out the Smith tract or the Davis tract (for example). The forest is nearly 40,000 acres but tenders are offered by tract only.

I guess what I'm asking is this-as a commodity, is there a reference for the going BF price of species by area or would I bid based on what I could get downstream for the sawn (is that a word? ) lumber that I produced? 

[Tdawg]

SwampDonkey, I have family in Edmunston that I haven't seen in a loooong time. Are you anywhere near there?

[SwampDonkey]

Over 100 miles away.  Check the members map in my profile.

[SwampDonkey]

I guess what I'm asking is this-as a commodity, is there a reference for the going BF price of species by area or would I bid based on what I could get downstream for the sawn (is that a word? ) lumber that I produced?

There is, but usually requires a membership/subscription fee with your local lumber grading authority. This is for dressed, graded and kilned which is 3 stages of value added. The information will show trends in prices. Our local marketing board gets periodic reports by fax from the Maritime Lumber Bureau. Our regional lumber grading authority. As far as stumpage prices your DNR may issue reports or you can ask. Here in NB we have marketing boards that we call upon for this info. If I know, all the other guys do to.

[Tdawg]

I'm still working my head around this. Maybe someone could help me with the math. The Ministry of Natural Resources publishes reference prices by species (thanks Swamp Donkey ). A recent tender was issued for harvesting 484 cubic meters of red and white pine, the current MNR reference guide has red/white pine priced at $570/MFBM. So what is this timber worth and how is it calculated?

Thanks guys.

[SwampDonkey]

The 484 m³ I would believe to be gross merchantable volumes? and the $570 is for sawlogs. What specs are the logs based on? 

{edited conversion thanks to Doug}

484 m³ x 423.8 = 205119 bf  ,  how much of that is logs? you have to do a cruise or see theirs?

What about the other products in the harvest, they won't be all logs unless they are high grading.

[DouginUtah]

484 m³ x 6 = 2904 bf  not much wood...

What is it that I don't understand about your calculation?

1 m³ = 423.8 bd.ft., but you are using 6?

[SwampDonkey]

Doug, I believe you are right I have that conversion, but also the figure I used. But looks like a typo in my conversion sheet here. Actually two other conversions say 166 bf in a m³. Will change the math a bit. Anyway the 423.8 makes sense to me now.

[Tdawg]

The 484 m³ I would believe to be gross merchantable volumes? and the $570 is for sawlogs. What specs are the logs based on? 

{edited conversion thanks to Doug}

484 m³ x 423.8 = 205119 bf  ,  how much of that is logs? you have to do a cruise or see theirs?

What about the other products in the harvest, they won't be all logs unless they are high grading.

Yes thanks Doug, when I read this post earlier I was REALLY confused . I'm not quite sure what specs you're referring to. The bid lists the species-Red Pine 642 trees and White Pine 210 trees, the average diameter-26 cm. and the estimated volume-Red Pine 382 m³ and White Pine 106 m³ (which I now realize equals 488 m³....duh!) They are all sawlogs. I watch the operation all the time and at the end of the day there's only limbs in the bush and logs on the landing.

[SwampDonkey]

Tdawg, that's more than I knew earlier. So what your saying is they aren't actually thinning, but only taking logs? What about the less than sawlog quality trees? Something is amiss, I have never seen a stand of timber produce all logs. There is always pulp quality or junk.

[Tdawg]

Swampdonkey, me and the dog and the camera will take a walk tomorrow and I'll show you what I'm talking about. Thanks for taking the time to help me understand.

[SwampDonkey]

The specs I refer to are the mill specs for the logs they will buy. A saw log has to meet certain specs to be marketed. Such as how many faces (out of 4) are knot free, defect such as "catface", seems or frost crack, spiral grain (twist), size of knots, sweep of the log, min top diameter, length. That type of stuff.