Mon June 18, 2007, 11:17 am

Timber Marketing Strategy

Just as savvy investors in the stock market often go against the crowds; buying when others are selling and selling when others are buying, savvy timberland owners should look for similar opportunities. When everyone else is "waiting on the market to get better", may be the very best time to market your timber.

The quote above from Poor Richard's Almanac by Benjamin Franklin is well understood by all of us. This quote can also be applied to timber, but often, only the sawmills know what timber is truly worth. When there are few timber sales on the market, the mills will often pay prices far exceeding "normal market prices". They can afford to do this, because they can factor in other costs, such as shutting down a mill or laying off employees. Faced with tough decisions like that, they will frequently out bid all competitors by 30-50 percent or more for the right tract of timber. They often leave wood dealers and loggers shaking their heads in disbelief, because the mills never pay those kind of prices to them. The average landowner will not know when this situation is occurring and the sawmills will certainly not advertise their desperation.

The increased yield from the timber sale alone, increased the rate of return on this timberland investment from 9.5% to 11.5%.
How can you take advantage of this situation? Since you can never be absolutely sure when it will happen, you must prepare every sale to take advantage of these situations. First, you must know exactly what products you have to sell. Secondly, you must have first hand knowledge of the timber market, which can only be obtained by actively operating in it on a daily basis. Third, you must sell on a sealed-bid basis to capture these large premiums. Fourth, you must be willing to go against the crowd and offer your timber for sale when everyone else thinks the    market is low. You can always reject the bids if they are not acceptable, but you don't have the opportunity to even evaluate the bids if you are not in the market.

The results, shown below, of a timber sale we made   during one of those "slow periods" in the market, show what can happen. We received some of the highest timber prices we have ever received, while many landowners were following the crowd and postponing sales.

All of the comparable timber sales from the previous twelve months indicated that the sale would

Bidder A....$136,733.00
Bidder B....$123,107.00
Bidder C....$91,140.00
Bidder D....$78,510.00
Bidder E....$72,435.00
Bidder F....$71,230.00
produce $70,000 - $90,000.  We received an additional 50 percent above the top market price by being in the right place at the right time. This situation seems to be occurring more frequently in recent years, because mills are not holding large timber inventories like they once did and are working more on a hand-to-mouth basis.

Our standard timber sale procedure is designed to produce the maximum price for any tract of timber, under any market conditions. More importantly, it allows you to take advantage of these special situations, where a negotiated or auction type sale would not. Savvy timberland owners and investors recognize and take advantage of these opportunities. The increased yield from the timber sale alone, increased the rate of return on this timberland investment from 9.5% to 11.5% over a twelve year period. That is a substantial gain for any investment. Give us a call if you would like to develop a strategy for marketing your timber.

Reprinted from "Forest Management News" Fall 2002, Volume 22 Number 2, published by Timber Marketing & Management of the Carolinas, Inc.
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