For a number of years, timber has been South Carolina's most important cash crop. The yearly income to landowners from timber sales ($566 million in 1997) exceeds that from soybeans, tobacco, corn, peaches, or any of the lesser crops. In many counties, timber income exceeds that of all other crops combined.
Although timber marketing is a year-round activity in all areas of the state, it is still a rare activity for most individual landowners. And, for most of them it is a complicated, confusing transaction. It requires a special combination of skills and knowledge to be successful, and the landowner who does not possess them must take the time to acquire them, or employ someone who does.
Planning the Timber Sale
Ideally, a timber sale should be part of an overall plan of management for the property. Regardless of the objectives for which the property is being managed, some cutting will sooner or later be necessary to maintain the forest in a healthy, growing condition. The need for such cuttings should be identified in the management plan, and their timing scheduled accordingly for maximum returns.
Once the need for cutting has been objectively determined, based on good forest management principles and the owner's objectives, the planning or presale activities begin. This phase should not be rushed. Even when timber is ready for harvest, it can normally be held on the stump for one, two, or more years, and then placed on the market when demand and prices are high. During this time, barring catastrophe, it will continue to grow and increase in value. Taking time in the beginning to develop the sale in a logical, methodical manner can significantly increase the financial returns in the end.
Using Professional Assistance
Professional assistance is readily available to forest landowners from a number of sources, government and private. They include South Carolina Forestry Commission Project Foresters, landowner assistance foresters (industry-employed), or consulting foresters (self-employed). County Extension offices also arrange tours, demonstrations, workshops, and other educational programs on forestry topics, which can be extremely worthwhile for a small investment of time.
One of the most important presale activities is to measure, or "cruise," the timber to be cut, determining which forest products it is suited for, and what volumes of each are available to sell. This information is absolutely essential to assure the highest returns from the sale. The measurement of forest products is a rather technical operation, and it is at this point that most landowners will need professional assistance. The purpose of the cruise is to determine products and volumes with sufficient accuracy to evaluate bids or price offerings. If the timber is to be sold lump sum, this measurement would become the basis for payment, so a high level of accuracy is required.
Other presale activities include locating timber buyers and evaluating current market conditions. The first of these is not difficult. A list of local timber buyers can be picked up at the county Extension office or the project forester's office.
Also, many timber buyers are well-known local business people and advertise in the yellow pages and other local outlets. in locating buyers, it is important to remember that price is greatly influenced by who the buyer is and what the buyer's products are. For example, high-grade hardwood logs may not bring their true value if they are sold for crossties, nor pine sawlogs if they are sold for pulpwood. The product potential of the timber should be determined during the cruise.
Evaluating current timber market conditions is a little harder. Prices can rise or fall with dramatic suddenness at times. Also, the number of timber buyers who are active in the market changes from time to time. Depending on price trends and market activity, it could be a wise decision to postpone the sale until market conditions improve.
A thorough examination of the timber market situation will include talks with timber buyers, loggers, consulting foresters, industry foresters, other landowners who have had recent timber sales, the local project forester of the South Carolina Forestry Commission, and the county Extension leader.
Other Important Considerations
Another presale planning consideration that should not be overlooked is the impact of income taxes. Timber sales usually result in substantially higher income for the owner in the year payment is received. This income usually qualifies for capital gains tax treatment, but there are certain unique and complex procedures applicable to timber income. Careful planning in advance is necessary to avoid overpayment of taxes. Refer to USDA Forest Service Agriculture Handbook No. 708, Forest Owner’s Guide to the Federal Income Tax for information on timber taxes.
When the sale under consideration will involve the removal of all the timber in a stand, some provisions for regeneration must be made in order to keep the land productive. When harvested stands ¾ pine stands in particular ¾ are allowed to regenerate in an unplanned way, they usually revert to undesirable species and less valuable hardwoods. The way timber is sold, and the method of harvest employed, can have a great influence on the ease and the cost of establishing the new stand. It is appropriate, therefore, to plan the establishment of the new stand along with the removal of the old one. A professional forester from one of the sources already mentioned can assist with regeneration planning.
Types of Sales
Sales of standing timber fall into one of two basic types: gross sales or unit sales. In gross sales, all the timber being offered for sale is sold for a fixed price. For this reason they are often called lump-sum sales. Such sales are relatively easy to administer and they minimize risk to the seller, but only if the seller has an accurate estimate of the volume of timber in the sale, the products it is suited for, and their relative value.
Unit sales are those in which payment is based on the amount of timber cut, as measured by cords, tons, thousand board feet, or other suitable units. Unit sales sometimes increase the seller's risk in such areas as volume measurement, payment arrangements, and conduct of harvesting operations. The advantages of such sales are that capital gains tax treatment is more easily available to landowners with uncertain tax status, and that they are often better suited to timber, which is difficult to sell because of size or access problems.
Timber is often sold by the "sealed bid" method. Sealed bid selling involves sending invitations to bid to prospective buyers and taking bids from them. The invitation to bid should give the tract location, the estimated volume, size and quality of the timber, and key contract provisions. The buyer's integrity, experience, and reputation are factors to consider in selecting the winning bid.
Negotiation is another commonly used selling method in which face-to-face bargaining takes place between seller and buyer. It can be useful when demand for timber is weak or when size, quality or access problems are likely to make the timber difficult to sell. To be successful, it is necessary for the seller to be as well informed on current market conditions and timber values as the buyer.
No one type of sale or method of selling is the best for every landowner in every situation. However, the kind of sale and selling method that has become most popular with informed sellers is the gross basis/sealed bid combination. If the sale has been properly prepared and presented, this combination will usually enable the seller to receive the full market value for the timber. At the same time, it avoids many of the risks and complexities of the other methods.
Contracts and Timber Deeds
Regardless of the selling methods chosen, no sale agreement should be concluded without a written contract or timber deed. A written agreement helps protect both buyer and seller from misunderstandings. This is another phase of the timber sale process in which professional assistance, possibly involving both a lawyer and a forester, is highly desirable.
Not even the best-written contract or deed can in itself assure that misunderstandings will not arise. However, problems can be minimized and usually corrected before they become serious if the landowner or the landowner's agents make frequent inspections of the work in progress. Also it is important to maintain good communications with the buyer's representatives so that they understand the seller's wish to see the terms of the agreement fulfilled.
Selling timber is a critical decision in terms of its effect on the future management and profitability of the woodland, and therefore one that should be approached cautiously and objectively. In summary,
Guy E. Sabin, Extension Forester and Professor