What is Stumpage?
As a forest manager I am commonly asked about stumpage and current stumpage rates. Let me tell you, that is a loaded question. Oftentimes the expected reply is simply what a mill has been paying “at the gate.” In other words, what the mill is paying to purchase any wood, at the gate, on a 50-mile minimum haul. But this does not mean every tract in a minimum haul will receive what one would guess to be the corresponding number for stumpage for that tract. And why is this? Aren’t all trees the same? Aren’t all tracts the same?
Actually, there are quite a lot of variables that go into determining the purchase price. I hope the information provided here helps you, the landowner, understand how price is determined and how to realize the best price for your timber. I hope to help you identify what you have to sell that has some feathers in its cap so to speak. And likewise, identify the tracts you own that might be a “dog” in some eyes, and how you might have to change your marketing strategy or expectations.
If we are going to talk about stumpage then we must first talk in general about what a tract of timber is worth. The overall value of the tract will drive the price of the wood so it is important to understand the dynamics of tract value to wood price before we go forward.
The value of stumpage for a tract is dependent on a set of variables. Logability and access go hand in hand or else they stand to cancel each other out (I’ll explain this later). Likewise, a tract might have a good mix of products but not an operable volume of wood. In other areas a tract may have great logability, access, and volume, but no market for its product mix, so these variables must be addressed together as a plus or minus in each individual category, which ultimately determines the stumpage that may be paid.
Logability
High Ground/Great Access (12 months a year) The crown jewel of the procurement world is a flat tract that sits on top of a hill or high ground, has an existing interior road system, and direct access to a lightly-traveled black top county road. This allows a logging crew to get there when it’s wet, winter weather, and continue to work. Mills pay top dollar for this wood.
Medium Ground/Good Access (8 months a year) This is a tract that can be worked well in all but the wettest months of the year. You should be able to sell it most of the year and receive strong pricing on it.
Low Ground/Poor Access (4 months a year) – A lot of these tracts will be underwater or noticeably soggy in the wintertime. The hills and terrain on a tract can also make it a summertime-only tract. Tracts that are three miles plus from a blacktop road are another good example of this. These tracts do not typically receive preferential treatment on pricing. The mills typically have no wood flow issues in the summertime, so the wood is only worth what they expect to pay for it, at their gate, during summer months.
Swamp/Steep Terrain Logging (sporadic access) – This wood requires a skilled crew that can get the wood that nobody else can retrieve. To support this type of operation on both ends, a premium must be paid for the logging. But the landowner benefits because the wood would have no economic value otherwise. This is where the help of a manager comes into play. Some swamps dry out in the fall, or during an especially dry fall. Negotiating the high-cost logging and getting the work done with a conventional crew could double your money. Likewise, with tracts that are borderline and what I refer to as “track cutter ground,” some of these sites can be logged clean, conventionally, with the right crew, again negating the higher cost option and making considerably more money.
Access
Black Top Frontage – This is the other crown jewel of the procurement world and can really make up for shortcomings in other categories. As it indicates, this is a tract of timber that be logged from the woods to a main paved artery running to the mill. This means no road building and thus no road closeout, making it less costly to the dealer. And when you are logging right on the road it’s much easier to bail if the ground fails. It’s cheaper and there is less that can go wrong. Generally speaking, this is the optimal tract to have, all other variables being held equal, for wintertime logging.
1st Tier Interior Tract – This can be a close second to the black top tract depending on how far in you must travel to access the ramps and also the condition of the interior road that gets you there. This is typically a tract on a property that has road frontage. Rock and gravel are huge pluses here and can yield interior stand pricing like a black top tract.
2nd Tier Interior Tract – This is a tract that fits one of two conditions. Either it is more than a short jaunt from the blacktop (short will be relative to region and conditions), or it requires crossing an adjacent landowner’s property to get to the first ramp. Crossing another property not only adds to the cost of doing business for the dealership but it also involves another individual in the operation and closing the road out.
“Dog” – With an abundance of current work for harvesting firms, regardless of all the other variables, timber from tracts with this level of poor access is very difficult to sell. These are the tracts that require days of road building, major creek crossings, crossing of multiple landowners’ properties, and finally just being in a bad place for the product you have to sell.
A note about access and logability—they need to suit each other or they cancel out the advantages your tract has otherwise. For example, a tract with 12-month ground does little good if it has 2nd tier or worse access, thus being unable to log in the winter. You might have to wait years to work on a Black Top pine site that has four-month-or-less ground, thus you will be subjected to whatever summer pricing you are able to get. A tract that has great volume and product mix and eight-month-or-better ground might get docked because you must cross one landowner who is notoriously ornery about his roads. Thus, the access and the logability must suit each other to receive full benefit from the market.
Volume
The minimum volume per acre needed to support a logging operation has changed significantly over the years. Single tree selection and free thinning operations that removed few trees per acre are a thing of the past. Unless you have a company logger working for you, that’s not going to be an option for you as a landowner. Furthermore, second thinnings, because of the light removal volume, are not as easy to sell as in the past as there is so much opportunity for high volume harvesting.
What is high volume harvesting then? To make a clear-cut sale commercially viable, you need to have a standing stock of at least 50 merchantable tons per acre. Of course, it also matters what those 50 tons are. That is the bottom of the spectrum—I have cruised some pine stands that had 150 tons of wood per acre. End-of-rotation loblolly pine routinely runs 100 tons to the acre now. Most natural stands range in the 55-75 ton range depending on age, site, and history.
How this affects stumpage is very intuitive mechanics. The cost of harvesting is largely dependent on the efficiency of the machines, especially their fuel efficiency. If one tract has 150 tons to the acre, and another tract has 50 tons to the acre, then the harvesting outfit must cover three times the number of acres to log the same amount of wood. The harvesting firm can afford to charge less on the tract with the higher volume because it costs them less time and fuel to log it. This is how volume factors into the stumpage pricing. It also matters, of course, what those tons are. From a marketing standpoint this is where you try to match dealerships, harvesting firms, and the tracts you have to sell. The high production firms can pay for the big pine tracts; the hardwood people are always going to pay for the hardwood tracts, and so on.
The other aspect of volume is total volume. Small sales used to be common. A story one mentors offers from time to time is about having 20 bids on a dinky tract in Jefferson County. Those days are over. Now the market routinely makes deals in big volume blocks so it is harder for the little fella.
The typical crew today is a three-piece harvesting unit that averages 60 loads per week. If a 30-acre tract has two loads to the acre then it will provide one uninterrupted week of logging for a crew (60 loads). Then they will have to move. Why does this matter? Well, moving costs money. You basically lose a whole day moving as a logger. This must be considered against the amount of time a crew will be there. If a crew is only there for a week, the wood is relatively expensive to log. If they are there a month it is only a quarter as expensive, and so on and so forth. This is also where having a manager comes into play. Matching sale volume with a suitable logger can be critical at the smaller end of the total volume scale.
Product Mix
Product mix is important for one very important reason: quota. The best tract of timber that you can sell almost anywhere in my working area is a tract of mixed natural timber with average to better volume. The reason this is the top dog is simple. Quota is the enemy of the logger and of the dealership alike. And all things being considered equal, it is the evil they try to avoid more than any other. Quota is hard to predict sometimes. Quota means that you could have hauled 30 loads but only got to haul 15. The landowner doesn’t typically care that much because for him the money eventually comes in. But for the logger who has bills to pay and needs to haul that 30 loads every week to survive, it is quite a big deal. For the dealer who gets paid a commission per ton, it hurts some, but he is much more concerned about his logger, who, if he experiences enough 15-load weeks, will just find another dealer. Natural tracts of timber that have a nice even distribution of products are a hedge against this and people pay for it. If I have an even amount of five products to haul, they can cut off two markets and I am still working. Conversely, if my tract only has two products (most typical on pine tracts) and those two outlets go down, I am sitting at home. Having multiple products also helps the dealership in giving them more marketing options to create profit with.
Distance to Market
This is one of the trickier factors in some ways and it is still confusing to me at times, but I will give it a go:
Short Hauls – These are the extremely short jaunts to the mill (20 miles or less) and they get docked for two reasons. Firstly, tracts under the stack oftentimes have nowhere else to go, thus the market is willing to pay less money for it. A caveat is that this can also have the opposite effect. If a mill is desperate and they see your wood available next door, you can oftentimes name your price. This is not, however, typically the case.
The second reason is more complex. Take the 60-loads-a-week logger—cutting and skidding and loading are the bottlenecks of his system, not trucking. So being right next to the mill puts the truckers at a disadvantage. Let’s say they had been getting three loads a day on a 50-mile haul; that means that they are doing 300 miles a day, thus their production function is: 150 loaded miles X 28 tons per load X $0.16/ton. When they go to the short haul, they could haul 4 or 5 loads per day, but the logger they work for cannot meet that capacity, thus on a 20-mile haul their production function becomes 60 loaded miles X 28 tons per load X $0.16/ton.
The way that the logistics system is set up now, loggers are tied to independent truckers. In order to make the truckers’ efforts worth their while in such a scenario, lest they leave for greener pastures, is to pay them the difference in their mileage rate. This money then comes out of the stumpage number, and this is how tracts under the stacks often get docked.
Medium Hauls – This is the 40- to 70-mile haul. This allows the logger to get his magic number of weekly loads with his standard trucking force and it allows the truckers to get their three loads a day and max out the number of loaded miles they can be paid for. Everyone is happy.
Long Hauls – This I would only like to talk about these hauls in terms of turn times. Earlier this year I had a tract, it was a dog in disguise, and I learned about how this affects stumpage the hard way. On long hauls or tracts with terrible ingress and egress, resulting in intolerable turn times, both the logger and the truckers are left worse off. The trucker may only be able to make two turns a day on this tract thus he suffers in the same way he does on the short hauls, from a lack of billable mileage. But now the logger, who again is tied to his trucking force, is down the number of loads that his truckers lost that week. This results in the tract being docked the equivalent of the opportunity cost of the logger plus the opportunity cost of the truckers. The opportunity cost being what their revenue would have been on a medium haul tract where everything is optimized and the revenue from the long haul where everything is not optimized.
In conclusion, it is the symphony of all these variables, acting together, that determines what buyers pay for any one product on a tract. Knowing this information about your timberland is critical to doing a good job marketing the timber and managing the harvesting operations. Acquiring this information during the selling process would be wise due diligence at the very least. Finally, if pricing still leaves you scratching your head just remember the wise words of an old preaching timber man I know: “It’s only worth what someone is willing to pay for it!”