The majority of our market in the Southeastern United States consists primarily of timberland. One of the biggest problems I encounter with both Buyers and Sellers of timberland is that they don’t understand the value components of timberland tracts and what questions to ask to determine them on a tract by tract basis. A bigger problem is that many times, neither does their agent. Understanding what to look for in timberland enables you to be a smarter seller, buyer, or agent.
What makes a good timberland tract? A combination of important factors come into play with timberland: soils, site preparation, stocking/ stand density, and as always with real estate: location.
In regards to soils, you want to ensure that the soils are capable of growing the species that perform best on that site and grow at a rate competitive with other species/products in your timber market. And while you can take actions to enhance your soil’s growth rate like fertilizing or mechanical site prep applications like bedding, the better your soils are to start with, the faster you’ll see results from your timberland. Learn what site index rating the property has for the species you intend to grow or the species it’s already stocked with. The site index correlates closely with the yield of your forest. It acts like a score; that score is the height of that species at a certain age. The higher, the better. A site index score of 70 for loblolly pine in a plantation setting, the most common species see in timberland in our market, indicates that under normal conditions, a dominant and codominant loblolly pine would be 70 feet tall at 25 years old. Always remember that Site Index is species and age-specific and can vary greatly by both, so before using a tract’s site index rating to make a financial decision, be sure to confirm what base age is being used.
Regarding site preparation, an analogy I use frequency is a vegetable garden. Which grows best – A garden that was tilled and sprayed or removed competing weeds, etc. or one that was planted directly into the soil without any site preparation? The prepared site of course. Timberland is no different, especially in a plantation setting. Reducing the initial competition through chemical and/or mechanical site preparation applications can greatly affect the long-term yield of timberland.
When it comes to stocking and density, understanding your goals is key. Some saplings, speaking primarily of pine here, are genetically designed to grow fast but not necessarily clean, meaning more limbs and wider growth rings, both of which can affect the stand’s ability to grow lumber grade logs and poles (in pine stands). These stands will be more prone to produce products that are pulp and chip-based throughout their financial lifetime, also known as a “rotation.” Regardless of the source/type of seedlings you have, stand density can also affect the quality of your timberland. Wider spacing equals fewer trees. That helps them grow in diameter faster, but may limit vertical growth and the natural pruning that occurs in a properly stocked stand. Beyond that, a more simplified explanation can be fewer trees potentially equals fewer harvests and less money over the lifetime of the stand.
Assuming all things being equal between two tracts of timberland, location can be the most important factor in determining which is more valuable. Logging and hauling costs are the first expense that comes out of the gross income generated by a timber sale. The closer your proximity to mills that process the products your timberland will produce, the less it will cost to harvest that timber and the more competition you’ll see for that wood, both of which yield a higher net income to the landowner. The net income from a timber sale is also known as “stumpage”. Stumpage is the rate most experts are quoting when asked about current timber prices. Location can also determine what types of weather you can perform harvests in, which affects when you can bring your timber to market. Tracts with logging limitations due to weather concerns, such as wet natured or floodplain tracts, can be restricted to selling during the dry season vs tract with dryer ground or abundant road frontage that can be logged year round. Being able to sell your timber in a wet weather market can allow you to take advantage of huge swings in timber prices because when supply is limited, demand rises, and prices along with it. I’ve witnessed timber prices go as high as four times the norm due to wet weather logging demand.
I’m often asked how “the timber market” is doing or “isn’t timber down right now?” It’s important to remember that timber is a commodity and there is no single “timber market”. Every species can produce several product classes, each has their own market with contributing or limiting factors, and the current value of each product class is driven by supply and demand. One market may be down while another is up. Arming yourself with a true expert in timberland is imperative to ensuring your maximum yield is reached as a buyer or seller of timberland.
This post is part of the 2018 Future Leaders Committee content generation initiative. The initiative is directed at further establishing RLI as “The Voice of Land” in the land real estate industry for land professionals and landowners. For more posts like this, click here.
Clint Flowers, ALC is a top producer with National Land Realty, a member of the REALTORS Land Institute of Alabama, and a member of the 2018 Future Leaders Committee. He was a NLR Top Producer Nationwide in 2016 and 2017. He also won the 2017 APEX National Broker of the Year award for Timberland.