Everyone is looking for ways to cut costs while maintaining quality. This concern is the same for the timber industry. And as timber sales continue to climb, buyers are looking for better ways to estimate and/or forecast pricing. Timber prices depend on a range of costs/valuations, from tree growth to the quality of the land.
Determine the type and quantity of timber you want to buy or sell. The period of time, from planting the tree to final harvest, is called rotation.
Request a professional forester to calculate the site index of your land from which you want to purchase or sell timber. Site quality determines tree growth. Another term for site quality is "site index," which is the height of the trees at a certain age, usually 25 years. He will need to record soil samples, aspect ratios, and slope. If you want to estimate the general direction of timber prices, skip this step; that is, this step is only for those that need an estimate for a specific timber site.
Determine the stumpage price. Stumpage price is the value of the standing timber. Research current stumpage prices from your local forestry products store or research report.
Calculate the growth in timber prices over the next 10 years. If the rate of growth were determined to be 1% per year by research analysts, then the new price would be "Current Price × (1 + g)^n" over the next 10 years, where "g" equals the rate of growth and "n" equals the number of years. Assuming the current price of stumpage is $30, this translates into $30 × (1 + 0.01)^10 = $33.13, which indicates that, assuming a growth rate of 1%, the price of stumpage (and therefore timber) will increase by $3.13 over the next 10 years.
Apply site index estimate to pricing changes. The site index is specific to your site while the growth rate is industry wide. A high site index translates into higher timber prices and a lower site index translates into lower timber prices (for your specific site).
Working as a full-time freelance writer/editor for the past two years, Bradley James Bryant has over 1500 publications on eHow, LIVESTRONG.com and other sites. She has worked for JPMorganChase, SunTrust Investment Bank, Intel Corporation and Harvard University. Bryant has a Master of Business Administration with a concentration in finance from Florida A&M University.