Nov. 1998
Forester Advise on Selling Timber
Tony Pranger

So you have decided you want to harvest some timber. How should you go about doing this? For the majority of non-industrial private forest landowners there are basically three options when deciding to harvest their timber. One, sell the standing timber to an independent third party for a lump sum of cash. Two, hire a logger to harvest the timber. Or three, hire a forest consultant to manage the timber harvest on your behalf. This article discusses some of the factors you should consider regarding these three options for harvesting your timber.

First of all, let’s consider some of the factors involved with selling your timber for a lump sum of cash. This occurs when any private party offers you a lump sum for the right to harvest your timber. This can sound awfully enticing when someone knocks on your door and says they will give you $180,000 for the trees on the back forty. The first thing to consider is: do I know how much the timber is really worth? We have all heard stories of individuals selling their timber for a fraction of what it is worth, because they simply did not make the effort to find out the value before selling. At the very least, if you decide to sell you timber for a lump sum, have a qualified forester cruise and appraise the timber. The small cost of the cruise and appraisal may reveal that the timber on the back forty is actually worth $250,000, or more, for example.

The other important thing to consider when selling timber for a lump sum is the profit & risk factor. The profit & risk factor is the amount that an investor discounts the value of a commodity they are buying to ensure that they don’t lose money, and hopefully make some money. The risk investors incur when buying timber is the potential for the value of the logs to drop between when they are bought and sold. And obviously, profit is the amount they hope to make to pay for their time and effort. A common profit & risk factor used when appraising timber is 10%. What this means to you, if you are the one selling timber, is this. First, the investor estimates that there is a certain amount and type of timber on your property, but to be sure that they do not over estimate, the 10% profit & risk factor gives them room for error.

Second, let’s assume the investor is confident that the timber has a net value of $200,000. Since they need to make a profit for their work, they discount the value by 10% or $20,000. The end result is they pay you $180,000 for your timber and you have just given away $20,000 that could be in your pocket. If someone has ever approached you to buy your timber you can be absolutely certain that they are discounting the value of your timber to account for profit & risk, even if they say they are not. If you were in business of buying and selling goods, and always sold your goods for the same amount that you paid for them, your profit would be $0, and you would be out of business. To ensure that you are not giving away money needlessly in the form of profit & risk, you need to hire someone to harvest the timber for you, either a logger or a forester. When deciding whether to hire a logger or a forester to harvest your timber there are also many important factors to consider. While not always the case, the majority of loggers I know charge landowners on a percentage basis when they are not working for me. The most common fee that I hear is 40% for the logger and 60% for the owner, for logging average quality Douglas-fir. In contrast to this, the fee most foresters charge for marketing the timber, managing the harvest, supervising reforestation and preparing taxes, averages out to about 10% on the typical small harvest. And then they hire the logger on a $/MBF (thousand board feet) or $/Ton basis. In my experience, the latter method always results in greater profits to the timber owner.

Take for example a recent timber harvest I managed, in which I was bidding against a logger for the job. The logger bid the job at 40%, while I agreed to manage the harvest for 10% and hire a logger on a $/MBF basis. The actual cost of logging the 200 MBF of Douglas-fir timber averaged out to approximately $210/MBF which included the logging cost and 10% management fee. If the landowners had chosen to hire the logger at 40% they would have given away approximately $70/MBF or $14,000! The advantage of hiring a forester and then paying the logger on a $/MBF basis is that the cost of logging and delivering different types of logs to various locations is just that, variable. For example, the cost of delivering large Douglas-fir logs to X mill may only cost $120/MBF, while it costs $200/MBF to deliver alder logs to Y mill. With a flat fee of 40% for example, a landowner may be paying far too much for delivering the Douglas-fir logs. In the previous example I described, some of the Douglas-fir logs were being sold to an exporter for $1000/MBF. If the landowners had decided to hire the logger for $40%, they would have been paying the logger $400/MBF for harvesting those logs, when it actually cost $210/MBF.

There are many factors to consider when harvesting timber besides the net revenue from the harvest. One thing that you should be concerned about is, who will be responsible for site preparation and reforestation, and will it be done properly? Do you want the minimum done to meet the contract and state laws, or do you want the property reforested so that the trees will flourish? Who will ensure that the brush is controlled so that the newly planted trees will flourish? Who will prepare my timber taxes? Many foresters includes tax preparation, reforestation and herbicide application supervision as part of the service they will provide when managing a timber harvest.

When hiring a forester, timber owners also receive the benefit of the foresters experience in matching the right logger and equipment to their particular harvest. This can be critically important to minimizing logging costs and site damage. Foresters’ vast knowledge of the log markets throughout the region, not just in a local area, can also yield increased revenues to timber owners. It can often pay to haul logs a long way. For example, several years ago while managing a particular timber harvest in northwest Oregon, it was more profitable to the landowner to haul logs to Roseburg, rather than haul them to the nearby local mill. The following outline illustrates the results of the timber harvest which I have used as an example, and shows some of the common differences which occur when choosing between hiring a logger or a forester to harvest your timber.

Comparison of Logging Costs and Net Revenue

This is an illustration of the benefits of hiring a consulting forester to professionally manage your logging operation. In this illustration of a recent harvest, the timber owners had the choice of hiring a logger on their own, or hiring a forester to harvest their timber. Illustrated below is the difference in the results the owners realized as a result of hiring a forester.