Stumpage Prices Research Articles

Wavelet Analysis and Forecasting using Open-Access Lumber Market Indices for Assessing the Impact of Hurricanes on Southern US Stumpage Prices

Abstract In the aftermath of events such as hurricanes, the economic impact of downed timber can reach billions of dollars. Accurate forecasting of stumpage prices after such events is crucial for maximizing recovery value while minimizing salvage costs. However, this poses challenges because of the inherent nature of the data. This study addresses these challenges by exploring the application of wavelet analysis, a novel approach in the field of forestry economic analysis. Wavelet analysis offers a unique framework for studying periodic phenomena in time series data, particularly when frequency changes over time are present. By leveraging wavelet analysis, this study uncovers relationships between timber market indices and hurricane seasons. The combination of traditional correlation analysis and wavelet coherence analysis enhances the statistical analysis in this study, offering a comprehensive examination of the relationship between the Timber Market Survey data and market indices. This innovative analytical approach enables a deeper understanding of the dynamics of the timber market and the potential effects of hurricanes on timber prices. Furthermore, this research highlights the recent advancements in wavelet methodology and the availability of open-source packages in the programming language R, such as WaveletComp and WaveletArima, that facilitate wavelet analysis and time series forecasting. The Wavelet-ARIMA model used in this study demonstrates its effectiveness in reducing noise and improving prediction accuracy. The study incorporates an extensive data set consisting of 10 Consumer Price Indices, 7 Producer Price Indices, 30 state-wide Timber Market Survey indices, 54 TMS subregions, and 6 open market series.

Estimating timber supply elasticity of private forest landowners in the US South

In the US South, private forest landowners own the majority of timberland; therefore, understanding the timber supply behavior of these landowners is a fundamental forest economic question. This study estimates the pine stumpage supply equations and elasticities of private landowners in TimberMart-South (TMS) regions. It uses individual landowner pine stumpage (sawtimber, pulpwood, and Chip-N-Saw [CNS]) sales data from 2010 to 2019 and employs the seemingly unrelated regression (SUR) to estimate supply elasticities. Over the study period, nominal sawtimber stumpage price has decreased, while CNS stumpage and pulpwood stumpage prices have not effectively changed. The SUR estimate results revealed that pine sawtimber (2.452) and CNS (1.675) stumpage supply were price elastic, while pine pulpwood stumpage supply was price inelastic (0.352). Furthermore, there was a significant and negative effect of sawtimber price on pulpwood and CNS volume supplied and vice-versa, however, the effect of the former was larger in magnitude. This study provides not only a nuanced understanding of landowners' supply elasticities of three principal stumpage products but also a valuable empirical basis to better understand the market outcomes and welfare changes that market participants might experience due to new policies and market shocks.

Active timber management by outsourcing stumpage price uncertainty with the American put option

Timber production is risky, with price uncertainties caused by stumpage price fluctuations. In this study, the American put option is employed to outsource such uncertainty and establish the reservation prices at various stand ages. Put option values and the reservation prices derived thereof, thus, help forestland owners decide whether the stumpage price is high enough to justify an immediate timber harvest. With a series of simulations, we demonstrated that using an American put option to cover the downside price risk could substantially increase the average land expectation value compared to the certainty case. Besides, the simulations confirm that buying an American option as a price insurance would deduct land expectation values compared to the methods proposed by Brazee and Mendelsohn. In addition, we proposed a rolling put option method that allows forestland owners to buy partial length put options to balance their cost and price uncertainty protection. Overall, with the help of American put option, forestland owners for the first time could actively make their harvest decisions from the price setter perspective instead of being pure market price taker like they have been since the beginning of commercial forestry.

Forecasting pine sawtimber stumpage prices: A comparison between a time series hybrid model and an artificial neural network

We conducted a comparative analysis of the predictive ability of classical econometric models and artificial neural networks (ANNs) for pine sawtimber stumpage prices across 22 TimberMart-South regions in the US using quarterly prices from 1976 to 2022. We evaluated model accuracy via root mean square error and mean absolute percentage error metrics and employed the modified Diebold-Mariano test to determine if there was a significant difference in forecast accuracy between the two models. Our findings demonstrate that ANNs outperform classical models in predicting turning points, whereas classical models tend to smooth price trends and produce forecasts that are biased toward the average value. This study provides a basis for predicting timber prices in the southern timber market using ANN models and contributes to ongoing discussions on the effectiveness of machine learning algorithms in generating precise forecasts within the forest industry. The findings can help timberland investors to make informed business decisions in the timber market.

Productivity and Cost of Post-Tornado Salvage Logging in Upper Coastal Plain of South Carolina, USA

Salvage harvesting is common in the US South following natural disasters such as tornadoes and hurricanes; nevertheless, few studies have evaluated the productivity and costs of these harvests because of their geographic dispersion and the short interval between natural disasters and salvage harvesting. An Enhanced Fujita Scale 3 (EF3) tornado with winds in excess of 250 km per hour struck Aiken County, South Carolina in April of 2020, uprooting trees and severing other stems above breast height. The goal of this study was to estimate the productivity and cost of salvage harvesting in loblolly pine (Pinus taeda L.) stands following severe tornado damage. Salvage harvests were conducted with a rubber-tired drive-to-tree feller-buncher, grapple skidder, tracked loader, and chipper. All stems were chipped and used to produce energy; no roundwood was produced from the harvests. Elemental time-and-motion studies were conducted in three pulpwood-sized stands (<30 cm large-end diameter) and three sawtimber-sized stands (≥30 cm large-end diameter). Hourly harvesting costs were estimated using the machine rate method and per-ton costs were estimated using a modified version of the Auburn Harvesting Analyzer. Skidding productivity was low in each harvest unit, but especially so in the three pulpwood-sized stands because of stem breakage and low weight per stem. Harvesting costs averaged $29.78 and $19.97 (USD) per tonne (onboard truck) in the pulpwood- and sawtimber-sized stands, respectively. High salvage harvesting costs mean that landowners can expect significantly reduced stumpage prices from these harvests; nonetheless, landowners do benefit from reduced reforestation costs. Harvesting promptly after a tornado can reduce harvesting costs and increase timber value recovery.

How much wood can we expect from European forests in the near future?

Abstract The demand for wood in Europe is expected to increase in the coming decades. However, any theoretical maximum supply will be affected by sustainability constraints, the motivations of forest owners and regional factors, such as incentives, species and assortments. However, the influence of these factors on supply is changeable. In this study, we quantify what might be realistically available as additional wood supply from currently existing European forests, based on a combination of results of the forest resource model EFISCEN-Space and a literature review of national supply projections. Wood mobilization scenarios for 10 representative Model Regions in Europe that assume forest owners and managers in the simulated regions will adapt their behaviour to alternative behaviour as recorded from other regions were projected with the EFISCEN-Space model. The realistic additional potential based on the literature review is 90 million m3 yr−1. This potential should be attainable within 10–20 years. However, the simulations in the Model Regions found potentials to be lower in 7 out of 10 cases as compared with the country they are located in. On average, the model regions reached less than half of the potential as compared with the literature review. This suggests that the realistic additional potential at the European scale may well be lower if all mobilization barriers are taken into account in more detail, but also highlights the uncertainty surrounding these estimates. We conclude from the analyses that although there are large differences in potential between regions and the analysis method employed, there are no ‘hotspots’ where a large pool of accessible wood can be quickly mobilized using existing infrastructure for nearby industries. An increase in harvest would therefore only be possible with a large effort that spans the whole chain, from forest owners’ behaviour to capacity building, financial incentives and matching resources to harvesting capacity. The additionally available wood can most likely only be mobilized against higher marginal costs and will thus only become available in times of higher stumpage prices. The largest potential lies in privately owned forests which often have a fragmented ownership but will most likely be able to supply more wood, though mostly from deciduous species. In the long term (more than 20 years), additional wood, compared with the amounts we found for short term, can only be made available through investments in afforestation, forest restoration, improved forest management and more efficient use of raw material and recycled material.

Spatial Spillover Effects of Pine Sawtimber Stumpage Prices in the US South

Abstract Timberland returns have three main drivers: biological growth, timber price, and land value. Among three of these drivers, timber price is the most volatile. Therefore, modeling and predicting timber prices has been of great concern for timberland investors and other stakeholders. In this study, the spatial dependency and spillover effect of sawtimber prices were investigated across 11 southern states with three different spatial panel models. The findings revealed a strong positive spatial dependency in sawtimber prices across these states, and the observed spillover effect for significant independent variables was over 35% of the total effect. Similarly, pulpwood prices not only have positive impact on the sawtimber prices of a given state but also on its contiguous states. In addition, the impact of COVID-19 pandemic on sawtimber prices was positive and significant. These results would facilitate the valuation of timberland investments as well as predict future timber prices. Study Implications: The sawtimber prices of one state positively affect the future sawtimber prices of neighboring states in addition to its own. Similarly, a shock in a given state also affects the sawtimber prices of its neighbors. Given the volatile nature of timber prices, gaining a better understanding of spatial integration of timber markets improves prediction of sawtimber price fluctuations and trends that ultimately help timberland investors to make effective decisions.

Wood density and microfibril angle from pith to bark of a sugi cultivar (Cryptomeria japonica, Japanese cedar, Tosaaka) grown in a Nelder plot

The current stumpage price in harvesting of a 50-year-old sugi (Japanese cedar, Cryptomeria japonica) plantation is not enough to motivate forest owners to reforest. Therefore, it is vital to reduce the cost for reforestation after logging as well as for logging and wood transportation of the preceding stands. Low initial tree density has been emphasized as one of the important basic measures to reduce directly the reforestation costs. In this study, for better understanding of the mechanical properties and dimensional stability of lumbers from sugi trees grown in low initial tree density, we examined the effects of initial tree density on wood density and microfibril angle of the S2 layer in the secondary wall of tracheids in rings from pith to bark in a sugi cultivar (Tosaaka) grown in a Nelder plot (initial density zoning symbols; D (4823 trees/ha), E (3349 trees/ha), G (1615 trees/ha), H (1122 trees/ha) and J (541 trees/ha)). Ring width and latewood percentage in J tree (541 trees/ha) were significantly larger and smaller than those of other initial tree density zoning symbol trees, respectively. Average wood density and earlywood wood density in J tree (541 trees/ha) were significantly smaller than those of other initial tree density zoning symbol trees (Tukey’s honestly significant difference test (Tukey HSD), p < 0.05). However, effects of initial tree density on the microfibril angles (earlywood and latewood) in rings from pith to bark and the transition patterns of microfibril angle from earlywood to latewood in an outer ring (ring number 22) were not significant or very small. Heartwood width in H trees (1122 trees/ha) and J trees (541 trees/ha) were significantly larger than those in other initial tree density zoning symbol trees (Tukey HSD, p < 0.05). There were no significant differences of ring width, average wood density, earlywood density and microfibril angle between H trees (1122 trees/ha) and E trees (3349 trees/ha) in many rings from pith to bark (Tukey HSD, p > 0.05). Based on these results of Tosaaka, a sugi cultivar grown in a Nelder plot, it was assumed that mechanical properties and dimensional stability of lumbers from sugi trees grown in low initial tree density (1000 trees/ha) might be quite similar to those from sugi trees grown in the regular initial tree density (3000 trees/ha), although lumbers from J trees (541 trees/ha) might be different from those of sugi trees grown in the regular initial tree density (3000 trees/ha). By taking the effects of genetic factor (variation of sugi cultivars) and the interaction between genetic and environmental factor (initial tree density) into consideration, the effects of low initial tree density (1000 trees/ha) on mechanical properties and dimensional stability of lumbers from sugi plantations in Japan might be smaller than the effects recognized in Tosaaka in this study. In this study, we did not examine the effects of initial tree density on the knots and the cross grain of lumbers. Low initial tree density might increase the negative effects of knots and cross grain on mechanical properties of lumbers. However, recent wood processing technology could minimize these negative effects.

Value of a Flexible Forest Harvest Decision with Short Period Forest Carbon Offsets: Application of a Binomial Option Model

Forest carbon offset programs have suffered from low landowner uptake, in large part to their long duration. A recent innovation in forest carbon offsets is the use of short period delays to harvest, which extend the rotation age of the stand beyond what is optimal for timber alone and increase sequestered carbon. Here, we assess the economic value of a short period delay “option pricing” in forest harvest with price uncertainty using a binomial option approach, accounting both for timber and carbon. Results from an option pricing model showed that landowners can generate considerably higher revenue with managerial flexibility along with the additional revenue from carbon offset programs. These results can help forest landowners make proper ownership decisions to withstand the risk and uncertainty associated with stumpage prices, while benefiting from carbon offset revenues.

Financial Revenues from Timber Harvesting in Secondary Cloud Forests: A Case Study from Mexico

Secondary forests, i.e., those arising after the clearance and abandonment of previously forested land, dominate tropical forest landscapes, rapidly sequester carbon, provide essential ecosystem services and are prone to re-clearance. Secondary cloud forests (SCF) play a particularly critical role for biodiversity and hydrological regulation. To promote their persistence, sustainable management is necessary; however, there is limited information regarding SCF potential for sustainable timber production. We estimated the revenue from selective timber harvesting in a pilot study in a 20-year-old SCF in Mexico. We explored the effect of the harvested timber volume, harvesting costs and price of forest products on the Net Present Value (NPV). Small landowners could only extract 17% of the harvestable standing volume due to a high number of small trees, a high (34%) volume of non-timber species, and their limited capacity to process timber. A third of the income derived from fuelwood, and overall financial returns were negative. A positive NPV may result from a 20% harvesting intensity, a 10% reduction in harvesting costs, or a 20% increase in stumpage price. Our results warrant the development of forest policy instruments and economic incentives for small-scale SCF landowners to alleviate poverty and meet national and global restoration and climate mitigation goals.

Stochastic Dynamic Optimization for Forest Rotation with Uncertain Stumpage Prices

Abstract This study investigates the effect of uncertain stumpage prices on the optimal forest rotation decision and related profitability under various silvicultural scenarios. The study applies loblolly pine (Pinus taeda L.) growth and yield models with distinct silvicultural scenarios in the Piedmont and Upper Coastal Plain region of the southeastern United States. It then applies chance-constrained dynamic optimization to derive optimal rotation age and related profitability on per acre basis. The growth and yield models show that using a combination of herbicide and fertilizer silvicultural treatment leads to a higher timber yield and profit at a lower optimal rotation age than other treatment scenarios. Furthermore, the stochastic optimization model shows that low risk tolerance results in low returns. Within a particular risk tolerance level, silvicultural treatment options with higher standard deviations almost always produce higher returns. The findings of this article contribute to the literature on optimizing forest management when considering uncertain stumpage prices over time, given different risk tolerance levels.

Sawmill Willingness to Pay Price Premiums for Higher Quality Pine Sawtimber in the Southeastern United States

The southeastern United States is widely regarded as a leading region for intensively managed, short rotation pine forests. One drawback of this intensive approach is the production of more juvenile wood with lower quality properties that are less desirable for solid end uses. Improved construction sectors (e.g., housing) demand larger diameter sawtimbers. Delaying the final harvest allows for the production of larger diameter higher quality solid wood; however, this approach may incur additional costs to the landowner, which may disincentivize extending the rotation without additional monetary compensation. Sawmills are a primary consumer of pine sawtimber and exert a strong influence on stumpage prices. Therefore, understanding the importance of wood quality to sawmills is important for understanding price dynamics. To explore this aspect, we conducted a mail survey of softwood sawmills in the southeastern United States to determine willingness to pay price premiums for higher quality pine sawtimber. Most sawmills (57%) were willing to pay price premiums. The mean willingness to pay, estimated using a tobit regression, ranged from USD 4.22/ton to USD 12.98/ton. Sawlog size, procurement radius, sawlog grade, and the number of employees positively influenced sawmills’ willingness to pay a price premium for higher quality sawtimber, while sawmills’ processing capacity and the number of years in business had a negative impact. The results will be useful to landowners considering delaying the final harvest to grow large diameter sawtimber.

Estimating available unused dead wood materials for heat generation in Mongolia: how much coal can unused dead wood materials substitute?

In this study, we estimated the technoeconomic availability of three types of dead trees, namely commercially fallen, normally fallen, and standing, in Mongolian subgroups. For dead trees of three major Mongolian tree species (Siberian larch, Scotch pine, and Asian white birch), lumber, firewood, and unused material as sources of energy were quantified and operational costs (marking, felling, skidding, transporting, loading/unloading, processing, and stumpage prices) were estimated. As a result, most Mongolian subgroups were profitable and suitable for the harvest of unused materials. Moreover, unused materials of dead trees can substitute nearly 5.45 million tons of coal, although it is not sufficient to meet the 0.6years of coal demand across Mongolia. However, in some places, unused dead wood materials can completely substitute coal for decades. Therefore, although the heat utilization of woody biomass is not suitable for Mongolia as a whole, it is feasible in specific regions where forest resources are abundant, such as some Mongolian sub-provinces. Promoting the use of dead trees can reduce the risk of damage caused by wildfires and pests, which are serious problems in Mongolia, and keep the forests healthy. Furthermore, unused materials can generate new income opportunities, and the forest land can be well prepared by removing dead trees to promote planting for sustainable forest management. Finally, dead trees can be used as a resource until transition to sustainable forests with living trees.

Stumpage Price Distributions and Correlations and Their Impact On Timberland Investment Modeling: An Analysis Using Maine Stumpage Prices (1961–2017)

Abstract This paper analyzes more than 55 years of Maine stumpage prices and finds that the normal distribution does not best characterize many of the primary species and products located in the state. Nontrivial correlations are also identified among many of the species and product stumpage prices. The implications of these findings are discussed for the value of species and age diversification and the use of financial simulations to assess projected return distributions from timberland investments. Specifically, we look at two hypothetical timberland investment scenarios with varying amounts of species and age diversification and demonstrate the differences in the projected return distributions timber analysts would obtain with simple (normal distribution and independence) versus data-based (best-fit distributions and correlations) assumptions.

Synchronized movement between US lumber futures and southern pine sawtimber prices and COVID-19 impacts

We analyzed the synchronized movements of lumber futures and southern pine sawtimber stumpage prices in the United States since 2011 and their response to COVID-19 events using wavelet analysis and event study. We found that the sawtimber and lumber prices have followed complex comovement patterns in the time–frequency domain and both reacted to COVID-19 events with a higher response intensity of the lumber price. Although they reacted differently to the early COVID-19 episodes and vaccine news, the sawtimber and lumber prices responded similarly to the COVID-19 pandemic declarations by the World Health Organization and US president, the US Food and Drug Administration panel’s recommendation of the first COVID-19 vaccine, and economic stimulus legislation. The patterns of synchronized movements between the sawtimber and lumber prices varied with time and frequency, but their comovement at low frequencies (&gt;64 weeks) has strengthened since 2014 and been led by the lumber futures price; COVID-19 episodes have not changed this trend. The different magnitude of response of the two prices to the COVID-19-related events, as well as the long-term dominance of the lumber price in the comovement, reveals asymmetric price negotiation power and benefit distributions among the agents of the lumber value chain.

Real option valuation of timber harvesting contracts

AbstractA primary challenge for forestry businesses is valuing timber harvesting contracts. This article presents an empirical application of determining the optimal harvest volumes under stochastic prices to determine the economic value of timber harvesting contracts and manage business risk using real options theory. We illustrate a dynamic optimization solution procedure and the choice between a single long‐term versus two short‐term timber harvesting contracts from a risk management perspective. A case study of timber harvesting contracts sold in British Columbia is used to demonstrate specification of the many details and adaptations that are required in such valuation problems. Our article offers some interesting results. The highest timber harvesting contract values occur with optimal harvest quantities rather than an equal annual allowable cut (AAC). The difference in values can be substantial (two to three‐fold). Consequently, forestry businesses can benefit by timing their harvest to nonequal quantities in later years of a timber harvesting contract. Depending on the quality of timber, the maximum stumpage value for the second short‐term timber harvesting contract ranges from $12 to $17.8 per cubic meter, resulting in lower profit margins for equal AAC. In contrast, with optimal harvesting, the maximum stumpage value ranges from $2 to $8.5 per cubic meter and higher profit margins. These bounds for stumpage price and profit margins would be useful for forest businesses to better manage business risks when bidding for timber harvesting contracts.

Optimal Forest Management Using Stochastic Dynamic Programming Approach – A Case Study from the Hyrcanian Forests of Iran

ABSTRACT The aim of this study is to estimate the optimal forest harvest considering economic and environmental objectives in an uneven-aged forest in the north of Iran. Required data were collected such as stumpage price, harvesting variable costs, growth, volume, basal area, sequestrated carbon, carbon dioxide storage, and price. The required input models for optimization were estimated using the collected data. A stochastic dynamic programming technique was used for optimization. The results indicated that the harvesting volume was higher when only the economic objective was considered instead of considering economic and environmental objectives. The results also indicated that the harvesting volume would occur at a higher level of volume per hectare if we only consider the environmental objective. The results showed that the expected present value was higher when economic and environmental objectives were considered simultaneously. The results indicated when interest rate increased, the harvesting time and the expected present value decreased. The results showed that the expected present value increases with increasing the risk. The results of this study can be a guideline for optimal forest management.

Wood pellets versus pulp and paper: Quantifying the impacts of wood pellets on the pulpwood markets in the southeastern United States

Since the early 2010s, the production of industrial wood pellet for overseas exports has grown considerably in the Southern United States (U.S.). In order to meet the increasing demand for woody biomass feedstock, the wood pellet mills in the U.S. South consume roundwood pulpwood along with low-valued logging residues and sawmill wood wastes. By estimating empirical roundwood pulpwood market models based on the bi-monthly time-series data, this study estimates the impacts of wood pellet production, precipitation, and the COVID-19 Pandemic on the hardwood and softwood pulpwood stumpage prices in 12 southeastern Atlantic coastal micro-markets. Results suggest that the wood pellet industry has led to an increase in pine pulpwood prices, but no statistically significant impact is found on the hardwood pulpwood prices. Rainfall is found to be a positive determinant of the roundwood pulpwood prices. Furthermore, since March 2020, the COVID-19 Pandemic is estimated to lead about 6% decline in both pine and hardwood pulpwood prices. This study provides empirical evidence and additional insights on the timber market dynamics and how small roundwood markets have reacted to the additional wood demand from a growing bioenergy industry in the U.S. South.

Does It Pay to Conduct Midrotation Competition Control and/or Fertilization? Results from Two Thinned Loblolly Pine Studies in the Coastal Plain of Georgia

Abstract The effects of midrotation competition control and fertilization were studied in two loblolly pine stands in the Coastal Plain of Georgia. The use of fertilizer or herbicide alone did not enhance wood yields above the control, which negates the cost spent to conduct these practices. The combined treatment of fertilization and herbicide promoted higher average pine annual increment and greater proportion of sawtimber. Site limiting factors, most likely both competing woody vegetation and low nutrient status, largely determined the effectiveness and priority of midrotation treatments. The economic returns of the combined treatment varied considerably depending on stumpage prices, treatment costs, and magnitude and duration of the growth response. Sawtimber prices (absolute value and relative to pulpwood and chip-n-saw) play a critical role in the marginal returns of midrotation treatments. Continued depressed sawtimber prices will discourage private landowners from investing in midrotation vegetation control and fertilization.

Forest to Mill Timber Price Trends and Volatility for Mississippi Timber Products

Abstract We examined timber price trends along the Mississippi roundwood supply chain. Quarterly statewide data from Timber Mart-South for pine sawtimber, pine pulpwood, mixed hardwood sawtimber, and pulpwood were obtained covering 1992 to 2018. Prices for stumpage, delivered logs, and timber conversion—measured as the difference between delivered wood and stumpage—were analyzed across products for the 27-year series, as well as three equally spaced 9-year periods (Period 1, 1992 to 2000; Period 2, 2001 to 2009; Period 3, 2010 to 2018). Flat delivered wood prices, increased rates for timber conversion, and declining pine sawtimber and pulpwood stumpage prices were revealed over the long term. Hardwood product prices, however, increased across their supply chains. Prices have generally become less volatile, particularly from Period 2 to Period 3, indicating an increasing degree of price homogeneity within each product's market. The exception to this was pine sawtimber, suggesting resource, locational, and/or market differences may have emerged for this product. The hardwood price trends supported, as appropriate, considering silvicultural options to allow this resource's continued growth. Declining price expectations for pine products call into question any strictly financial rationale for extending rotation length.