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Should you sell that timber yet? How to make an informed decision.

Is the timber on your property worth having cut? To make this determination several things need to be considered; the current value, potential growth and cost of deferral.

Start by contacting the state regional forester for your area. They can be located by calling the Department of Forestry (or similar name) in your state capital. The forester can give you a general estimate of volume by type of tree, as well as making a growth potential estimate by taking core samples. They can also provide a list of timber brokers and timber buyers in your area.

A timber broker is a professional who can make a very detailed inventory and growth study, but at a fee. If you decide to have the timber cut, the broker can arrange the sale by publishing its availability, receiving bids, and preparing a sales contract. Normally included is boundary marking and monitoring the cutting to ensure compliance with the contract. Fees are normally based on a percentage of the sales price.

A timber inventory by a professional broker may look like this (an actual inventory for 255 wooded acres in west-central Tennessee):

Should this timber be cut? Here are some of the variables on this particular woodlot:

* Current value was estimated to be $70,000 for cutting all trees over 12" dbh (diameter at breast height, 4-1/4 feet from ground level) at current prices.

* This is part of a larger tract purchase with a mortgage interest rate of 10-1/4 percent.

* A call to the state regional forester revealed average growth rate for this size timber in that area would be an additional 2--2-1/2 ", plus yielding an additional eight foot log at the end of 10 years. Thus, an average diameter of 16.5" and a yield of two 16' logs could be reasonably expected at the end of 10 years.

* Using the Doyle Log Rule Table, this would yield an estimated 138.5 board feet per tree, or a 106.7 percent increase in volume. (The Doyle Log Rule Table should be in any book on timber cutting.)

Based solely on growth potential, the proposition would essentially break even at the 10 year mark. Interest costs on the mortgage would total $71,750, while volume growth would yield an additional $74,690 at current prices, or a return on investment of about 10-1/2 percent per year.

Timber value tends to rise and fall largely on the demand for the end product and cutting costs. This tract is predominantly white oak (used for such purposes as barrel staves) and red oak (used for such purposes as furniture), both sensitive to the overall state of the economy. Cutting costs (e.g., purchase of equipment, wages, milling, accessibility of the tract and compliance with safety regulations) may offset price rises due to inflation. In Southwestern Ohio, the price for standing, mixed hardwood timber has fluctuated around $100 per thousand board feet for some time.

Also to be considered are such aspects as:

* Alternate use of the money (e.g., $70,000 invested at eight percent compounded interest for 10 years would grow to $151,124).

* Tax implications, including alternate minimum tax.

* Timber density (e.g., selective thinning may accelerate growth of the remaining trees).

* Percentage of veneer-quality trees (which increase in value at an accelerating rate as the diameter increases). For example, in 1985 the Tri-State Veneer Corp. paid $20,000 for a single 100-year old, 75-foot tall 30-inch dbh black walnut tree located on the Joliet Army Ammunition Plant grounds in Illinois. The tree was estimated to yield 1,000 board feet of top-quality veneer wood due to the unusually long length of limb-free bore with straight grain.

* Possible wetlands implications (e.g., cutting creek bottom or river bottom timber).

* Future plans (e.g., a cutting now may pay for building a house and another cutting in 20-30 years may provide a tidy nestegg for retirement), and;

* Is price being offered higher or lower than normal.

Beware of unsolicited offers on your timber. One technique practiced by shady cutters on out-of-town owners is to get together to coordinate offers. You might receive an offer $X, followed shortly by an offer of 1.5X and have that followed shortly by an offer from a third cutter at .75X. The 1.5X offer starts looking pretty good -- after all, you did receive three bids. However, that price may be only a fraction of the true value, with the tree cutters alternating who gets to offer the higher price.

If you are interested in possibly selling timber, my overall recommendation would be to determine current value, determine future growth potential and then talk to your banker or financial advisor.

Also see the article, "Not All Woodlots Have Equal Value," in Countryside 75/1:43.

(Board foot is a unit of measure for timber equal to a board one foot square and one inch thick. Thus, a length of 1" x 6" x 4' would contain two board feet, while a 2" x 4" x 4' length would contain 2.67 board feet.)
COPYRIGHT 1993 Countryside Publications Ltd.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Scharabok, Ken
Publication:Countryside & Small Stock Journal
Date:Jan 1, 1993
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