This is the third in a series related to analyzing timber markets and wood baskets. The first included tips for evaluating timber forecasts. The second included questions to ask during the forest industry capital allocation process. Forisk will discuss timberland owner implications during “Timber Market Analysis” on October 13th in Atlanta, a one-day course that details how to track and analyze the price, demand, supply, and competitive dynamics of timber markets and wood baskets.
Forest ownership matters. When evaluating timber markets and wood baskets, we find that differences in forest management correspond to differences in landowner characteristics – as measured in corporate versus individual ownerships, and as measured by ownership size in acres. This, in turn, affects the availability of wood for procurement teams at sawmills and pulp mills and other manufacturing plants in the forest products and wood bioenergy industries.
What can we learn from previous research? How do forest landowners decide when to harvest? In summary, forest owners make tree harvest decisions for multiple reasons and not exclusively to maximize profits. Factors affecting harvest decisions by individual and family forest owners include their debt levels, savings rates, timber prices, silviculture costs, interest rates, physical land characteristics, and landowner demographics. Overall, harvest decisions made by these forest owners are less predictable than those made by industrial owners and institutional investors.
Specific findings from select studies, in case you seek bedtime reading, include:
- Debt levels affect decisions made by forest owners who may need to access cash or capital. In addition, absenteeism can change to forest management, as absentee forest owners are “less likely to harvest…”(Source: Conway, M.C., G. Amacher, J. Sullivan, D. Wear. 2003. Decisions nonindustrial landowners make: an empirical examination. Journal of Forest Economics, 9: 181-203).
- Non-industrial forest owners that engaged in other silvicultural (forest management) activities were (unsurprisingly) more likely to harvest trees than their peers. (Source: Joshi, S., K.G. Arano. 2008. Determinants of private forest management decisions: a study on West Virginia NIPF landowners. Forest Policy and Economics, 11: 118-125.)
- Non-industrial private forest owners do react to price changes when making decisions. (Source: Newman, D.H., D.N. Wear. 1993. Production economics of private forestry: a comparison of industrial and nonindustrial forest owners. American Journal of Agricultural Economics, 75:674-684.)
- A synthesis of previous research summarizes how multiple factors affect harvest decisions for these forest owners. (Source: Amacher, G., M.C. Conway, J. Sullivan. 2004. Nonindustrial forest landowner research: a synthesis and new directions in Gen. Tech. Rep. SRS–75. Asheville, NC: U.S. Department of Agriculture, Forest Service, Southern Research Station. Chapter 22. p. 241-252.)
- Note: another useful study in these area is: Arano, K.G., I. A Munn. 2006. Evaluating forest management intensity: a comparison among major forest landowner types. Forest Policy and Economics, 9: 237-248.