How Long Does Timber Company Wait to Cut Again After Thinning
Introduction
Possibly one of the most important fiscal decisions a forest landowner will make is determining when to harvest timber. This decision will influence the status, growth, and composition of the next forest. For most landowners, the decision to harvest timber is a hard one. While the coin is attractive, other issues, such as the process and effect, may exist new and different, especially the first time. Many times the harvest decision is driven past financial considerations--for example, an emergency cash need or high timber prices. Notwithstanding, the landowner should also consider other factors, including forest health, condition, and sustainability.
Timber harvesting is an integral office of forest management. Often, a harvest blueprint intentionally creates wildlife habitat and enhances biodiversity and, if done properly, volition increase long-term timber value. Active forest management can accost wood health issues and increase growth rates driven by species composition or forest-stocking atmospheric condition. Landowners can improve stand quality and reallocate stand growth by using appropriate silvicultural practices such as intermediate thinnings, timber-stand improvement, and regeneration harvests. Studies prove that returns from well-managed stands with properly scheduled harvests are significantly higher in value than similar unmanaged stands.
This publication discusses issues pertaining primarily to the financial conclusion to harvest timber. The first section is a brief overview of how to judge timber value and cost. The side by side section covers what is meant past forest "maturity," and the final section shows how to determine and calculate when to cutting timber to maximize financial returns.
The Value of Copse
As trees abound in size, they logically increase in volume and get more valuable. Managing for loftier-quality hardwood trees tin can increase income for forest owners. Tree species, stalk quality, height, and bore dictate specific market value. Tree-stem bore determines the type of product (due east.thou., sawtimber, pulpwood). Tree size for woods products is expressed as bore at breast height (DBH), which is measured at 4.5 feet in a higher place the footing on standing trees. Generally, Pennsylvania's hardwoods become merchantable for pulpwood when they are 6 inches DBH or larger and attain sawlog size at 12 inches DBH.
Equally tree DBH increases, value shifts from pulpwood to sawtimber and finally to veneer depending on species and stem quality (Effigy ane). The value of college-quality desirable hardwood tree species can increase dramatically over fourth dimension as it adds additional diameter growth. The quality of trees is described past standardized tree-grading rules used to assess value. Tree grades are determined past the top diameters and the number of clear faces in the get-go log (i.e., the lack of defects such as branches, knots, cracks on the log surface). Most of the value in a tree is in the first 16 to xx feet (the butt log). Grading trees depends on a number of factors beyond the scope of this publication. High-quality form one and veneer logs are usually more than than 16 inches DBH. In Pennsylvania, prices for high-valued species used to make grade ane or veneer may be 3 to x times greater than that attained from a tree of the same size and species only lower quality.
Figure one. General pattern of stumpage prices and course shifts for hardwood timber of dissimilar diameters.
While size (book) and grade (quality) describe tree conditions, they do non necessarily fix market prices. Ultimately, the value of hardwood copse is set by market demand. Local and global demand for these high-quality hardwoods has raised stumpage prices (the toll paid for the continuing timber on the stump, earlier harvest) in real terms (i.e., over and higher up inflation). This trend is clearly axiomatic in timber market place reports (see the Timber Market place Written report). For case, stumpage prices for the more valuable Pennsylvania hardwoods, such as maples and ruby-red, increased in the past decade betwixt 4 and 8 per centum annually (Figure 2). There are years when the economy is soft and timber prices drop. At these times, shifting consumer demands, changing markets, and even weather tin touch on prices. In 2006 and 2007, such a downturn occurred for northern red oak (see Table 1). Fortunately, astute wood owners can withstand downturns in the market by belongings their timber until stumpage prices rebound.
Effigy 2. Book growth of copse over time showing optimal rotations.
Factors influencing stumpage prices received for private forest stands include forest type, species composition, site quality, volume available, accessibility (e.g., slope/ roads, proximity to markets), and logging and transportation costs. At that place are fixed costs associated with logging, such as equipment-moving and site-setup costs; therefore, the more than volume a landowner can offer spreads these stock-still setup costs over more than copse and should yield higher per-unit stumpage prices. The silvicultural system used and blazon of harvest (e.one thousand., thinning, comeback harvests, clear-cut, shelterwood regeneration cuts, or single-tree and group-selection harvests) also bear upon logging costs.
| Species | Region of Pennsylvania | |||
|---|---|---|---|---|
| Northwest | Northeast | Southwest | Southeast | |
| Source: Timber Market Report | ||||
| Black red | 4.90% | four.threescore% | 4.74% | 7.03% |
| Northern crimson oak | -ii.24% | -0.73% | -0.28% | -one.12% |
| Difficult maple | v.45% | 5.74% | vii.59% | 5.90% |
| Soft maple | 3.86% | 2.56% | ii.23% | -0.05% |
When Is a Forest Mature?
In nearly cases, a forest contains both high- and low-value species. It is likely that some trees are growing faster than others. Factors affecting individual tree growth are competition among trees, sunlight, tree historic period, and soil weather condition. Young trees generally abound faster in superlative than older trees, and they add relatively little stem diameter. Depending on contest, as copse get older and larger, annual height growth decreases, merely bore growth continues, albeit, at a slower rate. Eventually, average annual volume growth decreases. Biological growth is non constant over the life of a tree and follows an S-shaped curve (Figure 2).
Looking at a tree's cantankerous-department, information technology is apparent that the width of annual rings decreases; yet, the volume increment represented past smaller rings may remain the same. That is, the same volume of wood is spread around an increasingly larger circumference of the tree stem. Trees in a airtight-canopy forest may grow slowly. It is not uncommon to see growth of an inch in diameter per decade. When advisable tree species for the site are grown on good soils in a managed forest, they may increment their bore 3 to 4 inches in x years.
While difficult to generalize, a tree in Pennsylvania's hardwood forests reaches biological maximum when diameter growth of dominant and codominant trees slows dramatically. Biological maximum refers to the age when a tree begins to turn down in vigor and health in a forest. Site conditions and species strongly influence this biological maximum. For example, reddish maples approach this maximum before 150 years, while sugar maples can thrive across 200 years of age. Black cherry, a loftier-value early successional species common in Pennsylvania, may brainstorm to reach physical maturity at 120 years and decline speedily and dice, affecting economic returns. At maturity, a typical stand may have lxxx to 120 copse per acre and the volume of sawtimber can range from 5,000 to 15,000 board feet (BF) per acre. Poorer-quality sites may only have a few large trees.
USDA Forest Service data shows the net growth in board feet per acre per yr for different historic period classes and different site productivity classes averaged across all timberland in Pennsylvania (Table 2). Internet growth generally increases with age and as site productivity class increases, merely at more than 100 years, growth clearly begins to decline. Based on this, many of Pennsylvania's forests may be close to their biological maximum.
| Site productivity course | Stand historic period (5-yr classes) | ||||
|---|---|---|---|---|---|
| 21-25 | 41-45 | 61-65 | 81-85 | 100+ | |
| Source: FIA Mapmaker | |||||
| 85-119 (high) | 87 | 192 | 307 | 435 | 247 |
| 50-84 (medium) | 84 | 165 | 195 | 257 | 249 |
| 20-49 (depression) | 12 | 97 | 145 | 189 | 165 |
Foresters express biological growth in terms of volume produced per acre per year averaged across the stand or forested property and over the life of the stand. This is known every bit hateful annual increment (MAI) and is the average annual timber book growth, which is constitute by dividing the full volume of a stand past the age of the stand up. When MAI is maximized, this is referred to equally the maximum sustained yield (MSY). The rotation at which MAI is maximized is oftentimes called the biological rotation equally opposed to the economic rotation (financial maturity). Meet Effigy 2a. Biological rotations do not take into account costs and benefits.
Financial maturity is different from its biological counterpart and generally occurs earlier in the life of a stand due to the concept of earning "interest" from the forest investment. Call up of the value of the tree or stand every bit equating to the master in a bank account and the value increase (from volume growth) being the interest earned on that principal. This value increase tin exist expressed as an annual chemical compound interest and compared with alternative investments or a desired charge per unit of return. Usually, a tree or a stand up of copse is considered financially mature when its rate of value increment falls below an adequate or minimum charge per unit of return that tin be earned from culling investments comparable in duration, risk, liquidity, and other factors. Value growth may continue to increase simply at a slower charge per unit. Somewhen, the charge per unit of value increase is also slow to justify keeping it as an investment. Figure 2b schematically shows the financial maximum render when the timber-value growth percent equals the culling charge per unit of return. Under nearly conditions, financially optimal harvest ages are oft considerably shorter than the MSY rotation.
Thinking of this from an individual tree perspective, if the tree's expected charge per unit of value increase exceeds the desired charge per unit, the tree is not financially mature and should exist immune to grow for the specified time period. If the tree'southward expected rate of value increase is less than the desired rate, the tree is financially mature and, based on that criterion lonely, should be cutting.
When to Harvest Timber to Maximize Financial Returns
here are many factors to consider when deciding to conduct a timber harvest. These include sustainability bug, such equally ensuring adequate desirable regeneration, and fiscal and legal considerations, such as timber prices, taxes, boundaries, logging contracts, and liability. Information technology is important to fourth dimension the harvest to obtain the nearly favorable fiscal gain. Fortunately, timber is not a crop that has to be harvested as annual crops do, such as corn or soybeans--it is oft advisable to delay harvests to meet your management objectives. However, all tree species practice eventually reach a biological maximum.
If selling timber today, values can be estimated using timber marketplace reports and site inventories for timber volumes. Y'all simply demand to multiply the timber volume by today'south timber market price for each species present in the sale. Nonetheless, to summate the expected time to come financial return from a harvest in today's dollars, yous must include a discount rate and growing-menstruation length in the calculation. This procedure, known as "discounting," takes an expected future render in a given time period and discounts it (using a given interest rate) back to the present (today's) value. This process is essential for comparing forestry investments to other investments, especially given the long-term nature of growing timber. (For specific examples of discounting, see Forest Finance 1: Sustainable Forest Harvesting .) If the time value of money and interest rates are non considered in calculating timber values, you would cut timber when the book growth over time produces the maximum MAI. However, considering of the ability to receive interest on investments, the optimal time to cutting timber from a financial view is before than when the MAI is maximized equally shown in Effigy 2. How much earlier depends on the timber-value growth rate and the acceptable or alternative rate of return that is set. When these 2 rates are economically equal, it is fourth dimension to cutting.
Postponing a harvest may come at a cost because timber is a long-term asset and has changing market value. By harvesting timber today, money received can be used elsewhere. Logically, if a harvest is postponed, the coin remains invested in the trees. If y'all determine to filibuster a harvest, you will need to determine whether the rate of render from standing the investment in the copse is worth more than the charge per unit of return received from investing that coin in other opportunities (also known as alternative rate of render or minimum acceptable rate of return). Stated another way: Will the increased value of the trees not cut outweigh the alternative render if the money was invested elsewhere?
Use the post-obit rule to determine whether to cut today or wait and compare the expected financial charge per unit of return received from delaying harvest to the rate of return received from an culling investment (i.e., harvest today and invest the income elsewhere): If the rate of render for continuing to grow the copse (due east.yard., 5 to 10 years or more) is greater than an alternative rate (e.g., stock market, CD, common funds), then the harvest should be postponed; if it is less, so harvest at present.
For instance, to calculate the expected rate of render from postponing a harvest, compare the ratio of time to come value to the nowadays value as shown in the hypothetical instance (Worksheet 1) on the adjacent page. Instructions for filling out the worksheet and assumptions are given below; a bare worksheet is provided at the end of the publication. In the scenario, the stand up of mixed hardwoods has 6,000 board feet (6 MBF) per acre. The average stumpage price is $300/MBF, or $1,800 per acre full value. Should the landowner harvest now or await v years?
Worksheet: Estimating the Rate of Render for a Growth Menses
| i. | Today's volume per acre (MBF/acre) | vi |
| 2. | Today's stumpage price ($/MBF) | $300 |
| 3. | Today'due south stumpage value (MBF/acre) [Line 1 ten Line 2] | $ane,800 |
| 4. | Growth period (years) | v |
| v. | Annual volume growth (MBF/yr) | 0.2 |
| 6. | Full volume growth over growth catamenia (MBF/acre) [Line four x Line 5] | 1 |
| 7. | Expected future volume (MBF/acre) [Line i + Line 6] | 7 |
| 8. | Rate of inflation (percent/year) | 0 |
| 9. | Rate of real price increment (percent/year) | 3 |
| 10. | Add Lines 8 and 9 | 3 |
| 11. | Toll adjustment factor (see below for equation) [using data from Lines 4 and 10 above] | one.sixteen |
| 12. | Expected future stumpage price ($/MBF) [Line two x Line 11] | $348 |
| 13. | Expected future stumpage value (MBF/acre) [Line 7 x Line 12] | $2,436 |
| 14. | Ratio of future value to present value [Line 13 ÷ Line iii] | 1.4 |
| 15. | Expected rate of return earned over growth period using data from Lines 4 and 14 (percent/year) | 7 |
Explanations past Line
- The current volume is vi MBF/acre.
- The current stumpage price is $300/MBF.
- The current stumpage value is $one,800/acre.
- In this case, the annual growth flow is v years. It could be 5, 12, xviii, or whatsoever other number of years.
- The almanac volume growth per year is 200 lath anxiety per acre per year. Futurity volumes can be estimated using information on local growth rates. A forester tin can determine past diameter growth by taking increment cores from several trees in your stand or other local sites or by looking at regional studies reporting boilerplate growth.
- Five years multiplied by 0.two MBF gives total volume growth over the period at 1 MBF.
- In v years the expected hereafter book will be 7 MBF/acre (Line 1 + Line 6).
- Optional: Choose an appropriate inflation rate for the growth period. In this case, no inflation rate was used.
- Optional: Choose an appropriate average almanac rate of stumpage value increases. In this example, nosotros use 3 percentage. Future values tin can be estimated using appropriate boilerplate historical annual rates of real stumpage cost increases during the growing period (Timber Market place Report).
- Make up one's mind the total expected rate of price increment by calculation Line 8 and Line 9. Often, to keep things simple, it is mutual to ignore inflation and price increases. In this instance, it is 3 percentage.
- To decide price adjustment, add i to Line 10 (converted to a decimal value) and enhance it past the nth yr (n = number of growing periods). In this example, the growth period is 5 years (Line iv) and the real price increase is three percentage: Price adjustment factor = [Rate increase (Line x) 10 100]n = 3% x 100 = 1.03 and 1.035 = 1.16
- The expected time to come stumpage price is Line 2 x Line xi = $348/MBF.
- The expected hereafter stumpage value is Line 7 10 Line 12 = $ii,436/acre.
- Ratio of time to come value to present value is Line 13 divided by Line three: $2,436/$i,800 = one.4 (rounding up). The rate of value increase can be determined by comparing the dollar value of its expected growth during a given time period (due east.thousand., x years) with the dollar value of the tree prior to that growth.
- Expected rate of render over the 5-year growth catamenia is obtained past taking the ratio in Line 14 to the root of the nth twelvemonth (growth catamenia) minus 1. Expected rate of return = (Line 14 ratio)1/north - i. In this case: ane.41/5 -1 = 7%. This equation is also known as the earnings charge per unit--the rate that equates the present and future value. Information technology is similar in concept to the internal rate of render.
In this scenario, the landowner ignored inflation but expected a real stumpage price increase of 3 percent per year over the adjacent 5 years. This gives an expected future stumpage price of $348/MBF in 5 years for a total stumpage value of $2,436/acre (7 MBF x $348). Dividing the expected futurity value ($2,436) from the nowadays value the landowner tin receive today ($i,800) results in a ratio of 1.4. This ratio allows yous to calculate the expected rate of re- turn from waiting (Line 15), which in this example is 7 percentage. In this case, the landowner should wait the 5 years to harvest if he or she cannot go ameliorate than 7 percentage from investing that harvest revenue (i.e., if the landowner'due south culling charge per unit of render is less than vii pct). Withal, if the landowner can detect an investment today that receives a charge per unit greater than 7 percent, then it would be financially wise to harvest now.
Some important assumptions were made in this example. First, we assume that the landowner wants to maximize income from the timber production on the land. Objectives such as recreation and wild animals besides have value but were not explicitly taken into account. A well-planned harvest may actually improve some values. For example, a harvest may create openings that provide early successional habitat and concenter wild fauna. Further, we are considering the value of the timber across merely one rotation. With multiple or infinite rotations, the formulas change.
In this case, nosotros used an average growth rate across all the species present. However, individual tree species grow at different rates. Individual tree analysis may be important for considering which trees in a stand to leave, peculiarly if they take opportunities to grow into college grade classes (come across "Individual Growth and Value for Black Cherry", below). To address this issue, y'all may desire to use multiple worksheets and analyze growth rates by species. It may also be important to consider other growth periods. The example used 5 years, but adjusting for shorter or longer periods will likely change the outcome. The longer you wait, the college the cost of waiting. Remember, timber growth comes with other costs and risks, such as loss associated with insects, diseases, wind, and water ice storms. Finally, the example does non include tax considerations, then income tax and perhaps some deductions for reforestation or other expenses may alter net returns.
The growth value of trees has three dimensions. Two dimensions shown in the example worksheet are growth and stumpage value increases. Growth value increases equally volume increases. Stumpage value increases take into business relationship changing market prices, which depend on market supply (e.thousand., affected past conditions, species availability) and need (e.thou., consumer preferences, international markets). The third dimension, grade-value increase associated with increasing tree size, was not specifically reflected in the instance; however, it is very relevant to the harvest decision and valuation procedure. You can use the expected real stumpage price increment (Line 10) equally the proxy for increased value associated with grade and increases in market place value. Or, the proxy for grade value increment tin exist included in the growth period (book adjustments) over which the trees are expected to shift into a college class value.
Individual Growth and Value for Blackness Cherry
To highlight the importance of form in determining value, nosotros examine the growth of a black cherry-red tree and guess its value at different diameters every bit it grows in volume over fourth dimension. This instance looks at iv diameter classes: 12, 14, 16, and 18 inches.
The following assumptions are fabricated about the tree's growth: the tree will increase in diameter, the tree will increment in superlative, and the tree volition become more valuable. If we assume there are approximately 7 rings to an inch of radius, the tree increases ii inches in bore every 7 years. Practically, prices are derived from the Timber Market place Study (2nd quarter 2007, northwest area). This is perhaps not the all-time way since for potential tree grades accept numerous stumpage values. The Timber Market place Report only provides a range of prices for each species per 1,000 board feet (MBF); a below-average price (which is one standard deviation* below the average); an boilerplate toll; and an above-average (mean) cost (one standard deviation above the average).
For the 12- and 14-inch diameters, the below-average price is used ($602/MBF), the average price is used for the 16-inch bore ($one,481/MBF), and the higher up-average cost is used for the 18-inch diameter ($2,360/MBF). Although these prices are conservative, we can assume that they gauge course jumps every bit size and quality increment. However, for veneer grades above eighteen inches, boosted cost premiums tin exist realized. As the tree grows in DBH--provided there are no forks on the bole--the bore of the future log's small cease will too increment. Therefore, the log length increases as minimum meridian diameter utilization sizes are met. Using the International 1⁄4 Inch Log Scale, Table 3 gives the board anxiety (BF) volume and corresponding value at each bore.
| DBH (inches) | Max merchantable height (logs) | Volume (BF) | Value ($) |
|---|---|---|---|
| 12 | 1.0 | 59 | 35.52 |
| 14 | 1.5 | 112 | 67.xl |
| 16 | 2.five | 223 | 330.26 |
| 18 | three.0 | 336 | 792.96 |
Table four shows the rate of return for waiting (growth value rate) seven, 14, or 21 years to harvest the tree. In this example, waiting 7 years provides a return of five percentage; waiting 14 years provides a rate of 13 per centum; and waiting 21 years to cutting the tree provides a rate of xviii percent.
| Year | Value ($) | Preset Value at 4% ($) | Charge per unit of render (%) | |
|---|---|---|---|---|
| 0 | 36.00 | 36.00 | ||
| vii | 67.00 | 50.91 | Year 0-7 | 5 |
| 14 | 330.00 | 190.57 | Year 0-xiv | 13 |
| 21 | 792.00 | 347.56 | Year 0-21 | 18 |
For this individual tree, it pays to wait at to the lowest degree 7 years to cutting the tree if your alternative rate of return is five percent or less. If, as the Timber Market Report trends show, stumpage prices for black ruby averaged almost a seven percent annual value increase over the final 10 years, rates of return volition substantially increase by that (i.eastward., for waiting 7 years, the growth value would be 12 percent).
It is interesting to annotation that it takes a tree about 50 years to reach 12 inches DBH. During the first 50 years, the tree is worth, at best, about a dollar or ii for pulpwood. In the side by side 21 years, the value goes upwards at a very adept rate. Blackness cherry is the almost valuable species in Pennsylvania's wood, so when doing such analysis, the species is important. In many cases, not all big-diameter copse take the same or fifty-fifty comparable growth values of black cherry. Finally, this example illustrates the importance of timing in marketing timber. Although the tree may be merchantable for a number of reasons, including financial proceeds, it may exist best to wait before cutting.
*The standard deviation is a statistical measure of variability computed from all reported data. 1 standard deviation on either side of the average theoretically contains 90 percent of the reported data. Information technology is probable that some prices will be outside this range (i.e., in that location may exist prices above or below the price reported in the Timber Market Report. The decision to utilize the standard departure was made and so that price outliers (i.e., either really loftier or depression toll data) would not skew the report.
Summary
Good forest direction requires a landowner to behave a financial analysis--an area that many landowners feel inadequately prepared to consider and would prefer to ignore. About Pennsylvania woods landowners may only behave one or ii harvests during their ownership tenure. Given its significance, when selling timber (ane) gather information about your property; (2) larn about timber markets, laws and regulations, and people and agencies that can help (or hinder) your progress; and (3) ascertain whatever needs and expectations. Landowners should too think about revenue from the harvest and the implications of regeneration costs, income taxes, and other conveying costs associated with managing the land. Other publications and Web sites provide details about conducting a successful timber sale.
Landowners conspicuously demand to consider multiple factors earlier making forest direction decisions; financial return is but one of these. When the expected rate of return drops below what the landowner considers acceptable, in that location nonetheless may be expert ecological or silvicultural reasons for delaying a harvest. Earlier making whatsoever forest management decisions, consider all factors that influence a stand of timber or wood.
Understanding the multiple ways by which tree and forest values increase is important. Too frequently, landowners dismiss the importance of grade value and growing quality timber. Even if y'all could accurately predict which species will get more than valuable over time, not all species are suited for growing on a particular piece of land. In the finish, the best strategy is probably to grow the best species suited for the land and to manage for quality. It is a pretty condom bet that higher quality will always bring a college price.
| 1. | Today's volume per acre (MBF/acre) | _________________ |
| 2. | Today'due south stumpage cost ($/MBF) | _________________ |
| 3. | Today's stumpage value (MBF/acre) [Line ane x Line two] | _________________ |
| 4. | Growth menses (years) | _________________ |
| five. | Annual book growth (MBF/year) | _________________ |
| half dozen. | Total volume growth over growth menses (MBF/acre) [Line iv x Line 5] | _________________ |
| 7. | Expected future volume (MBF/acre) [Line 1 + Line 6] | _________________ |
| 8. | Rate of inflation (percent/yr) | _________________ |
| 9. | Charge per unit of existent price increment (percent/yr) | _________________ |
| 10. | Add Lines viii and ix | _________________ |
| 11. | Price adjustment factor [using data from Lines 4 and ten above] | _________________ |
| 12. | Expected time to come stumpage toll ($/MBF) [Line two 10 Line 11] | _________________ |
| 13. | Expected future stumpage value (MBF/acre) [Line seven x Line 12] | _________________ |
| 14. | Ratio of future value to present value [Line 13 ÷ Line 3] | _________________ |
| 15. | Expected rate of return earned over growth period using data from Lines 4 and 14 (percent/year) | _________________ |
Prepared by Michael Jacobson, associate professor of woods resources.
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Source: https://extension.psu.edu/forest-finance-8-to-cut-or-not-cut-deciding-when-to-harvest-timber
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