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Wayne County Ag News

What is Stumpage?

man cutting a tree with chainsaw

With 78 percent of West Virginia covered in forests, small and large landowners across the state have a valuable, renewable resource that can be managed for many different goals.  Many landowners choose to own forestlands because they provide habitat for animals, recreation, clean air and water, scenic beauty, timber investments, or a combination of many of these and other reasons. Regardless of the specific values of the landowner, a properly managed stand of timber will typically increase in financial value over time.  At a certain point in the development of the timber stand or in the personal needs of the landowner, it may be time to consider harvesting some timber in order to convert the timber value into real money that can be reinvested in the timberlands or used for personal needs, investments or other items like educational or medical expenses.

When talking about the value of your timber, one of the terms you’ll hear is “stumpage” or “stumpage price.”  Stumpage refers to the price a timber buyer will offer a landowner for their trees standing “on the stump.” In most cases, landowners typically like to see high stumpage values, and the timber buyers try to minimize what they pay for stumpage. 

In order for a timber buyer to figure out what stumpage value they can pay a landowner, they must first know what the mill will pay for the log and what investment will be required to get the log to the mill.  Of course, the mill can only pay prices that allow for them to make a profit based on the general supply and demand for forest products, the mill’s current inventory, the season and the number of orders they have for the variety of products they produce.  The timber buyer and/or logger then has to make sure that they can get the timber delivered to the mill at a price that allows them to also earn a fair profit for their efforts.
   
These efforts and the associated investment can be significant as they include all the costs associated with cutting, moving the logs to the roadside or landing (a term called skidding), loading the logs on trucks, trucking to the mill, reclamation of the logging site to control soil erosion and other external costs.  Of course every logging operation is different, with different costs and types of equipment ranging from horses, to skidders, and even helicopters.  The site conditions can also vary, with logging costs typically going up when the harvest area is on steeper ground, away from existing roads, with fewer trees per acre and where equipment and trucks must cross streams or other sensitive sites.

To simplify stumpage into a mathematical equation: 

stumpage = “mill delivered price” - cutting - skidding - loading - hauling - other fixed costs - variable costs

How do you know if a landowner is being offered a fair stumpage price for their timber?  Unfortunately, this is very difficult to assess because of all the influencing factors.  The best way to have confidence in the prices being offered is to advertise your timber and solicit multiple sealed bids.  The landowner will almost always achieve a more accurate market value price when many groups are pursuing the timber with binding offers. 

Experienced and successful timber buyers and loggers must be capable of finding value in the timber and bidding or negotiating stumpage rates with skill to ensure that they are profitable.  Landowners are typically disadvantaged in this process as they only get the opportunity to harvest their timber once or twice in a lifetime. While many still attempt to manage the timber transaction process on their own, working with an experienced forester can help level the playing field. A forester can help landowners better understand their existing timber resource, develop a forest management plan that will help achieve their goals, and especially market and manage the sale and harvesting of the timber. 

The Appalachian Hardwood Center at West Virginia University surveys timber buyers, loggers, sawmills, landowners and others about the average stumpage prices paid or received in the previous quarter.  Current and archived results are published in the West Virginia Timber Market Report at http://ahc.wvu.edu.  The report provides basic insight in to market prices and relative value, however, the anonymous nature of the survey, small number of returned forms, wide range of natural variation in quality, and the constantly changing markets add significant uncertainty, and therefore these prices should only be used as a very rough approximation of potential value.