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Selling
The goal of selling timber is to market it where the highest bidder gets the sale if you choose to sell at the offered price. Selling timber requires that you know:
- What timber products you have,
- The amount of each product,
- Current product values and
- Product volume changes from expected timber growth.
What products do you have to sell?
Selling timber requires knowledge of the products you have for sale. These products can be softwoods or hardwoods. Softwoods are primarily used for construction framing and plywood, pulpwood, posts, poles and piling. Hardwoods are rarely used for construction framing. Rather, they are used for interior paneling, cabinets, furniture and other decorative purposes.
Softwoods
Industry demand for softwoods is mostly for southern yellow pines; loblolly, slash, shortleaf and longleaf pine. The value of these pines is directly related to size and quality. Small trees, 4 to 8 inches in diameter at breast height (DBH), are used for fence posts and pulpwood. Small diameter trees, 6 to 12 inches DBH, also are used to produce chips and construction lumber (Chip-n-Saw timber). These small logs are debarked and the outer core is used to make chips for the paper industry while producing a square cant from the inner core that is sawed into small dimensional lumber. Trees 14 inches and larger at DBH are considered sawlogs and peeler logs. Sawlogs are used to produce dimensional lumber while peeler logs are used to make veneer that is glued together to manufacture plywood. Sawlog and peeler log timber are valued by size and quality. Larger trees with fewer limbs and other defects produce higher-grade lumber and plywood and therefore bring the most value in a timber sale. Peeler logs require a DBH of at least 12 inches; 15 inches and up is preferred. Very few natural timber stands have only one product therefore it is important to know which products you have to maximize economic gains.
Hardwoods
Hardwood value is directly related to size, species and quality. Pulpwood, sawlog and peeler log sized trees are approximately the same in DBH as the softwoods. However, there is no Chip-n-Saw classification for hardwood. All pulpwood is used by the paper industry. Low-quality hardwood sawlogs are used mostly for railroad ties, lumber for pallet manufacturing and utility grade lumber for farm and ranch structures. Higher grade sawlogs are used to produce dimension lumber for the furniture industry. Highest quality hardwood trees are used to produce veneer for the furniture, paneling and cabinet industries with oak, ash, black walnut, black cherry and pecan in high demand. Trees that are in high consumer demand are worth more to the timberland owner and should be classified separately if enough volume is present to obtain maximum value.
Sampling of Commercial Trees
| Softwoods | Hard Hardwoods | Soft Hardwoods | Special Demand Species |
|---|---|---|---|
| Pines | Oaks | Sweetgum | Black Walnut |
| Spruce | Elms | Maple | Black Cherry |
| Fir | Hickories | Cottonwood | White Oak |
| Aspen | Pecan | Poplar | Ash |
| Basswood | Beech | Sycamore | Bald Cypress |
| Birch | Magnolia | Cedar |
Timber Products
What quantities of products do you have?
Selling timber requires that you know what products you have to sell and an estimate of the total quantity by species and size class. These estimates or appraisals are crucial when determining whether to sell, retain or selectively thin a stand. Timber appraisals are accomplished by tree counting or cruising. Tree counting is the more accurate method of appraising small or irregular shaped stands with high variability, while a cruise is a systematic inventory of a representative sample. Cruises are an effective way to appraise larger stands that have little variability. A timber cruise should determine the average sawlog, peeler log and pulpwood volumes within the sample area to estimate timber and pulpwood volumes for the entire tract. It is important to classify by DBH for assessing current value, and to estimate future value based on expected growth rate and stumpage price changes. The cruise is made on a predetermined number of plots on which every tree is measured and listed by product. From this sampling, the total quantity and value of products to be sold can be determined.
How to Cruise
Weight Measurements
Weight is often used in purchasing pine sawlogs, pine peeler logs and pulpwood. Since the value of most hardwoods depend on their quality, weight is seldom used to determine volume/price. Owners need to know conversion factors to receive fair value for their timber. Weight-to-volume relationships, tons per thousand board feet or cord, vary by area, time of the year, and timber size and species. Most mills that purchase timber by weight use average conversion factors for a particular tree species. To eliminate the confusion, you can request that all bidders provide their offers in terms of either weight or MBF. Here are some common conversion factors for pulpwood:
Weight Conversion Table
| Pine | 5,200 pounds or 2.6 tons |
| Soft hardwood | 5,400 pounds or 2.7 tons |
| Mixed hardwood | 5,600 pounds or 2.8 tons |
| Hard hardwood | 5,800 pounds or 2.9 tons |
How To Volume to Weight Conversion
Harvesting Methods The importance of conducting a timber cruise is obvious. It provides necessary data to make sound economic decisions about selling timber and whether to sell part or all of it. Once the timber cruise is completed and you have decided what will be harvested, the next step will be to determine the harvest method and develop a harvest plan. Remember that harvesting and regeneration should not be considered as separate practices. The method used to harvest the final crop plays an important part in starting a new crop. The harvest is not the end of a growth cycle; it's actually the beginning!
- Seed-tree Harvest - Mature trees are harvested in one operation to leave 5 to 15 seed-producing trees per acre left in the stand to provide natural regeneration of the next crop.
- Shelterwood Harvest - The shelterwood system is similar to the seed tree harvest, except that more trees per acre (18 to 40) are left. The extra trees provide both a seed source for a new crop and protection for the seedlings as they develop. Once a new crop is established, the mature trees are removed in a second harvest.
- Single Tree and Group Selection Harvest - Individual trees or small groups of trees are harvested to create small openings with sufficient sunlight to allow seed germination or root sprout development to produce new growth.
- Clearcutting Harvest -- Complete removal of trees at one time from large portions of the tract or the entire tract. Regeneration can happen naturally if enough sprouts or seedlings are present after the harvest. If this is not the case, the tract should be planted with nursery grown seedlings.
Harvest Plan A harvest plan is a detailed method that outlines how the desired timber will be marked and harvested and in what manner.
The harvesting plan should detail your management objectives, a map of the area, property boundaries, the placement of haul roads, skid trails, log landings and stream crossings, slash disposal methods, penalties for damages and other requirements. The plan should describe all stipulations that could effect any portion of the logging operation.
In creating the harvest plan, you should also verify your ownership, acquire road access to the property if none exists, and clearly mark the property boundaries. While you know you are the rightful owner, no buyer will actually purchase the timber until all ownership records have been thoroughly checked. Make certain that you have a clear title, that property taxes are current, and have a "release of lien" from your mortgage institution (if required). If there are problems with road access to the property, you should secure written rights-of-way or easements from surrounding owners to allow access for logging vehicles. If the sale area does not have easily defined boundaries such as roads or fence lines, then use paint or plastic flagging to mark them. Poorly marked boundary lines lead to problems for the buyer and the seller and can discourage prospective buyers. Since these activities could take some time to complete, it is best to start them prior to marketing your timber.
Harvest Plan
Sale & Payment Methods
Once the harvesting details are complete, the next step is to determine the sale and payment methods you desire to use. There are three methods generally used to sell timber.
- Negotiation--A negotiated sale occurs when the seller seeks to establish the final sales price through face-to-face negotiations with prospective buyers.
- Sealed Bid--A sealed bid sale requires prospective buyers to review a sales prospectus and submit confidential written offers that will be opened and reviewed at a specified time and place.
- Auction-Prospective buyers continuously bid on the timber until no one offers a higher bid. The timber is sold to the highest bidder.
There are basically two ways to receive payment from your timber sale. A Lump-sum payment can be received whereby the buyer pays the total amount for the timber prior to the harvest. The second method, "Pay as cut", allows you to receive periodic payments on each load delivered to the mill. Payments can be made on a daily or weekly basis. Both methods have their advantages, however, most timberland owners prefer the lump-sum method.
Sale & Payment Methods
Marketing
As with selling any product, the best way to attract interest in your timber is good advertising. Attracting the most interest in your timber is vital to increasing the competition and getting the best sale price possible. The details obtained from estimating the timber products, volumes, and completed harvesting plan can be used to compile a sales prospectus.
The sales prospectus should outline as many details of the timber as possible. Have you ever seen an add in the newspaper that said "Car for sale. Call 555-XXXX"? Doesn't spur much interest does it. Some items that should be included in your sales prospectus:
- Identification of Seller and contact information
- Location and Size of Sale Area
- Type of Sale
- Volume data if available
- Duration of the Sales Agreement
- Harvesting Restrictions/Conditions
- Provisions for Payment
- Supporting Attachments
Now that all the preparation work is complete, you are ready to find prospective buyers. So, where do you look? You can start with the online TimberQuote database. Just fill out the TQ form to search our online database for timber buyers who are interested in your timber! Only the very basic information is needed (acreage size and tract location) to effectively search for prospective buyers. If the above preparation work is too big a task for you to handle, you can search for a forester to handle the selling process for you!
After contacting as many prospective buyers as possible, schedule time with each to review your timber and your harvesting goals. Give each buyer a deadline for submitting their offer and let them know when and how you'll contact them regarding your decision. You should allow at least 1 week for every prospective buyer that you contact and an additional 2 weeks for follow-up.
Once you have shown your timber to the prospective buyers and received several offers, do you automatically sell to the highest bidder? Maybe or Maybe not.
Sales Prospectus
Evaluating bids and bidders Unless you plan to sell your timber using the auction method, YOU have the choice as to which, if any, buyer will get the sale. If you have done a good job marketing the timber you should have a range of offers to review. Review all offers and narrow your selection down to the top 2 or 3. You will want to notify these buyers that you have selected them as finalists and request references. You should also ask to see some tracts that have been harvested in a similar manner or request they show you a tract that they are currently logging. Choose the one you are most comfortable with. If money is the only factor, this is easy. If you are using the negotiation method to sell your timber and the buyer you would like to use did not offer the best price, give them a chance to match the best offer. Be happy with your final decision and move forward.
Bids & Bidders
Sales Agreement
Finally, a timber sales agreement or contract that incorporates the essential elements of the harvesting plan should be developed. It must be comprehensible, performable, and enforceable by both the timberland owner and buyer. For example, if site preparation is to be the responsibility of the logging contractor, this should be included and stipulate the stocking level expected at the end of the contract. You should realize that each additional requirement may be an expense to the buyer and could result in a reduction of the sales proceeds.
Sales Agreement
Harvest & Follow-up
The timberland owner or responsible forester should be on site to monitor the actual harvest operation. An on site presence can be beneficial to make sure the harvest plan is followed and all contract issues are being completed satisfactory. Should a question or conflict arise, a quick solution can be implemented if all parties are on site or remain in close contact. After the harvest is complete, take a walking tour of the area with the logger to inspect the site. Once all contractual obligations have been fulfilled be sure and let the logging crew know how you feel about their work. Follow up with any regeneration actions needed (based on the harvest method used) to establish the next crop of trees.
Harvesting Steps
Taxes
Unfortunately, Uncle Sam wants his share of your harvest proceeds. By keeping good records of any planting, management, or timber related costs, you should be able to keep as much of the sale proceeds as possible. Consult your tax advisor for the best way you should account for the sale. In many cases, claiming the income as long-term capital gains is better than counting it as ordinary income. The capital gain is reduced by the basis you have in the timber. Your basis is the amount originally paid for the timber or the fair market value at the time you acquired the timber. Thus, long-term capital gains can greatly reduce the amount of taxable income you have to report regarding the timber sale. For many, these long-term gains are also taxed at a lower rate than ordinary income. Once again, you should not construe this as tax advice from TimberQuote LLC, but check with your accountant as to what method is best for your particular situation.
How To Determine Basis
Summary
Whether hiring a professional or doing it yourself, know what you have for sale by quantity and quality before selling. Without such information, it is impossible to know if you are getting a fair price. Seeking professional services and learning as much as you can should allow you to receive full value for your timber. Get as many bids on your timber as possible and choose a logger you feel comfortable doing business with. Mark the timber to be cut and plan ahead for regenerating the stand after the harvest. Following the above guidelines should help you have a successful timber sale. Happy Harvesting!
