Uniteqf States

Department of

Agriculture Southern Appalachian

Forest Service

0

Timber Study

iz45OT J. E. de Steiguer, L. W. Hayden, D. L. Halley, Jr.,

Southeastern Forest

Experiment Station W. G. Luppold, W. G. Martin, D. H. Newman, and

General Technical

R. M. Sheffield

Report SE-56
August 1989

Southeastern Forest Experiment Station

PO. Box 2680

Asheville, North Carolina 28802
Southern Appalachian Timber Study

J.E. de Steiguer, Project Leader W.G. Luppold, Project Leader

Southeastern Forest Experiment Station Northeastern Forest Experiment Station

Research Triangle Park, NC 27709 Princeton, WV 24740

L.W. Hayden, Forester W.G. Martin, Forester

National Forests in North Carolina Region 8, Southern Region

Asheville, NC 28802 Atlanta, GA 30367

D.L. Halley, Jr., Professor D.H. Newman, Assistant Professor

North Carolina State University University of Georgia

Raleigh. NC 27695 Athens, GA 30602

R.M. Sheffield, Resource Analyst

Southeastern Forest Experiment Station

Asheville, NC 28802

Preface

The team that conducted this study was comprised of the following USDA Forest Service and

university personnel. Edward de Steiguer,

USDA Forest Service, Southeastern Forest

Experiment Station; Larry Hayden, USDA Forest

Service, National Forests in North Carolina;

Lester Halley, North Carolina State University,

Department of Forestry; William Luppold, USDA

Forest Service, Northeastern Forest Experiment

Station; William Martin, USDA Forest Service,

Region 8; David Newman, University of Georgia.

School of Forest Resources and Raymond Sheffield, USDA Forest Service, Southeastern Forest

Experiment Station.

Halley and Martin prepared 111.8. -Stumpage

and Log Prices; Sheffield wrote 1II.C. -Harvest

Trends; Luppold was responsible for 1II.D. -

Factors Influencing Timber Demand; and Newman and Sheffield prepared 1II.E. -Factors

Influencing Timber Supply. Sections 1II.F. -Summary Findings and IV. -Forecast of Future

Market Conditions 1987-2000, were collaborative

efforts involving the entire team. The remaining

sections were written by de Steiguer.

The team wishes to thank the following for

their technical reviews of this document: Clark

Binkley, Yale University; Fred Cubbage, University of Georgia; William Hyde, Duke University;

David Jackson, University of Montana; Jan Laarman, North Carolina State University; and Roger

Sedjo, Resources for the Future, Inc. All errors

and omissions, however, are the responsibility of

the team.

J.E. de Steiguer, Team Leader

Research Triangle Park, NC

August 1989

III
Southern Appalachian Timber Study

EXECUTIVE SUMMARY

In May 1987, a team of USDA Forest Service and

university personnel was assembled to conduct a

study of the timber stumpage markets in the

Southern Appalachian region. The study area is

within a 1 OO-mile radius of Asheville, NC, encompassing portions of North Carolina, South Carolina,

Georgia, Tennessee, and Virginia.

The purpose of this investigation was to establish

recent stumpage market trends and to project

stumpage price trends to the year 2000. These

projections were to verify the assumption of constant

real stumpage prices used in the land management

plans for the Southern Appalachian National Forests

(i.e., the Nantahala, Pisgah, Cherokee, Chattahoochee, Jefferson, and Sumter).

Private timber harvests have increased rapidly

over the past 2 to 4 years. Private stumpage prices,

analyzed over the past 10 years, present a mixed picture. Real prices in North Carolina have been rising.

None of the other States show this general strength.

Hardwood veneer species, hardwood pulpwood,

and, in some instances, oak sawtimber have generally been on the rise in all States.

The resurgent private stumpage markets in North

Carolina seem to stem from expanded plywood,

oriented strand board, and saw- and paper-milling

capacity. The expansion in plant capacity, in turn,

seems to stem from a strong consumption-oriented

economy. Also, ownership fragmentation and increased nonfarm ownerships may be reducing the

economic supply of private stumpage. However,

this last point was difficult to verify.

Over the past 10 years, National Forest timber harvests have risen more rapidly than private harvests.

During the same period, National Forest stumpage

prices have, in most instances, decreased. This

decrease seems to suggest slack competition for

Federal timber, perhaps as a result of contractual difficulties and environmental constraints associated

with National Forest timber harvests.

To the year 2000, the team foresees continued

strong demand for hardwood veneer, hardwood

pulpwood, and oak sawtimber due to the construction and modernization of mills and plants in the

study area. Thus, the team expects private

stumpage prices to rise slightly.

The environmental protection measures associated with harvest of Federal timber will continue

in the future; therefore, it is difficult to envision a

surge in the demand for Federal stumpage.

However, increasing private prices should increase

the competition slightly for Federal timber. This,

coupled with only slight increases in harvesting on

the Southern Appalachian National Forests, should

moderate the declines in National Forest stumpage

prices seen in the past 10 years. To the year 2000,

the team predicts that Forest Service real stumpage

prices will trend downward slightly or, perhaps, level

off. These projections are quite similar to the ones

currently used for land management planning on the

Southern Appalachian National Forests.

KEYWORDS: Hardwood, stumpage markets,

stumpage prices, National Forests.
Contents

Page

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... III

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV

I. Introduction.. ............................ ..................................... .............................

A. Forest Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .._............................................ 1

C. Purpose and Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

II. FORPLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .._........ 1

A. Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

B. FORPLAN Timber Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

III. Analysis of Southern Appalachian Timber Markets . 4

A. Scope of the Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1 Study Area.. ........................................................................................................... 4

2. Data and Market Model.. ................................................ ....................................... 5

B. Stumpage and Log Prices.. ..................................................... ..................

1 Procedures.. ........................................................................................................... 5

2. TMS Data.. .......................... .................................................................................. 6

3. Southwide Timber Price Trends from TMS.. .................................. ............... ......... 7

4. Southern Appalachian Timber Prices from TMS.. ........................... .................. 8

5. Stumpage Prices from National Forest Timber Sales ............ ..... .................. 11

6. Summary.. .................... .... ............................................................................... 14

C. Harvest Levels.. ........................................................... ................ ..... ................... 14

1. Timber Removal Estimates from FIA 14

2. Timber Product Output 17

3. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .._...... 19

D. Factors Influencing Hardwood Product Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

1 Primary Hardwood Products Markets .................................... ........................... 19

2 Secondary Hardwood Products Markets.. ..................................................... 22

3. Concluding Comment.. .................. ............ ......................................... ............. 25

V
Page

E. Factors Influencing Southern Appalachian Timber Supply . . . .._..._.............._......... 26

1. Theory of Timber Supply ...................................................................................... 26

2. Determinants of Southern Appalachian Timber Supply.. ....................................... 26

3. Land Availability .................................................................................................... 29

4. Physical Accessibility Constraints.. ......................................................... .............. 30

5. Technical Change .................................................................................................. 30

6. Growing-Stock Inventories ..................................................................................... 32

7. Inventory Change.. ................................................................................................ 34

8. Inventory Utilization ............................................................................................... 34

9. &uTmWy ............................................................................................................... 38

F. Summary Findings ,,,,...,...,.,........,..,,,.,.,.._..,.,..,,.,,._...,,,,,,.,,_,..._.,,.,,,,.,.........,........... 39

I. Non-National Forest (NFS) Harvest and Price Trends.. .......................................... 39

2. National Forest Harvest and Price Trends ............................................................. 40

IV. Forecast of Future Market Conditions 1987-2000 . . . . . . . . .._.._.......................................41

vi
I. Introduction

LA. Forest Planning

In 1979, Region 8 of the National Forest Systems

(NFS) initiated the process for development of Land

and Resource Management Plans (forest plans) for

the National Forests in Southern Appalachia. The

National Forests there are the Pisgah and Nantahala

in North Carolina, the Cherokee in Tennessee, the

Chattahoochee in Georgia, the Jefferson in Virginia,

and a portion of the Sumter in South Carolina (fig. 1).

\/ GEORGIA

Figure 1. -Location map for the Pisgah, Nantahala,

Cherokee, Chattahoochee, Jefferson, and Sumter

National Forests.

Preparation of these forest plans was required by

the Forest and Rangeland Renewable Resources

Planning Act (RPA) as amended by the National

Forest Management Act (NFMA). Along with the

forest plans, an Environmental Impact Statement

(EIS) was prepared in accordance with the National

Environmental Policy Act (NEPA) and Council of

Environmental Quality (CEQ) regulations.

The purpose of the forest plans is to provide

management direction for the production of goods

and services from the National Forests in a manner

that maximizes long-term net public benefits. Once

a forest plan is adopted, it guides forest management for 10 to 15 years (until about the year 2000 for

the Southern Appalachian National Forests).

I.B. The Problem

The forest plans thus far released for the Southern

Appalachian National Forests generally call for only

slight increases in timber harvesting volumes to the

year 2000. For example, average annual harvest

volume for the Pisgah and Nantahala National

Forests was 10.6 million cubic feet for the period

1981-85. The new forest plan calls for an average annual volume of 11.2 million cubic feet, a g-percent

increase.

Forest industries that draw upon timber supplies

from these National Forests, and the surrounding

private ownerships have taken issue with the low increases in timber harvest volumes. The essential

criticism is that the forest plans were based on outdated timber market information. Forest industries

maintain that, since the planning process began 9

years ago, the demand for Southern Appalachian

timber has risen dramatically. Also, they fear that

private ownerships are becoming an expensive and

unreliable source of timber supplies. According to

the timber-based industries, the Forest Service

needs to reexamine the timber market information

used in the forest plans and consider the possibility

of plan revision to permit greater increases in timber

harvests from the Southern Appalachian National

Forests.

I.C. Purpose and Objectives

The purpose of this study is to estimate for forest

planning future trends in Southern Appalachian timber markets. The focus is on hardwood stumpage

markets because of their dominance in the regional

timber industry. However, some stumpage price,

harvest, and inventory information is presented for

softwood markets.

The specific objectives of the study are:

1. To examine recent stumpage and log price

trends for major hardwood species in the Southern

Appalachian Region.

2. To examine recent timber harvest quantities.

3. To examine factors, such as final product

prices, that have influenced the derived demand for

timber.

4. To examine factors, such as changing ownership patterns, that have influenced timber supply.

5. To make an informed judgment about market

trends through the year 2000, with emphasis on

stumpage prices.

Section II of this report provides background information on the forest planning linear programming

model (FORPLAN). An understanding of the manner in which FORPlAN uses market information is

crucial because of the role the model plays in land

management planning. Section III contains the

analyses related to objectives 1 through 4. Section

IV, the concluding section, describes our judgments

about future hardwood market trends.

II. FORPLAN

H.A. Description

The FORPIAN is a linear programming (LP)

model that assists forest planners in the evaluation

of management alternatives. The LP model contributes to both the efficiency and objectivity of

1
forest planning, yet its processes are obscure to

many people. This subsection explains the

FORPLAN LP methodology. The following section

describes the informational inputs to FORPLAN.

The combined goal of the two subsections is to identify the FORPLAN data that must be examined, and

perhaps modified, to address the concerns about

timber harvest levels on the Southern Appalachian

National Forests.

In the final EIS for the Nantahala and Pisgah

National Forests, the basic purpose of the FORPlAN

LP model is described: “. given an area of land,

and several alternative ways of managing that land

to produce goods and services, determine how

much land should be managed in various ways so

that public net benefits are maximized subject to certain biological, technical, and environmental

constraints ”

The workings of the LP model are best explained

by the example in figure 2. Here, the true situation

has been greatly simplified to consider the joint

production of only two goods-timber and recreation. The objective is to determine how much land

should be allocated to the production of each good

in a manner that will maximize net public benefits.

Acres of forest dedicated to timber production are

represented on the horizontal axis, while recreation

acreage is on the vertical axis.

The area under line segment AA defines all the

various combinations of timber and recreation that

can be produced from the forest for a fixed level of

expenditure. An-increased budget or land base for

forest management would cause the curve to shift

outward away from the origin. The downward slope

of AA is determined by the technical production

relationship between timber and recreation. In order

to produce more timber, recreation opportunities

must be foregone.

Constraints on the level of timber harvest are represented by the vertical line segments FF’ (harvest

floor) and CC’ (harvest ceiling). These constraints

ensure that harvest levels will not fall below F’ nor

above C’ on the horizontal axis. Constraints may be

imposed for such reasons as industry and community stability or to maintain recreation areas in the

forest.

The area bounded by AA , FF’, and CC’ is

referred to as the “feasible solution region.” In other

words, it would be possible to produce combinations of timber and recreation anywhere within the

bounded area on the graph and still satisfy the constraints imposed by budgets, harvest limits, and

technical production relationships. However, to maximize benefits, the optimal production solution will

be somewhere along the line segment AA at the

outer edge of the feasible solution region.

ACKC?S

Allocated to

Recreation

harvest floor harvest ceiling

F C

:' A' Allocated

to Timber

Production

Figure 2. -Diagram of a FORPLAN-like solution for

allocation of forest land to recreation and timber

production.

In order to derive an optimal production solution,

we also need information concerning the values of

timber and recreation. These values are the prices

that the user public is willing to pay for the resources. Timber prices can be derived from market information, while recreation values may be obtained

from studies of “willingness to pay.”

Line segment PP represents the summation of

total recreation output times the unit value of recreation plus the total output of timber times the unit

value of timber, or, otherwise stated, total dollar

benefits of production. The slope of the line is equal

to the negative ratio of timber price divided by

recreation price. Hence, the relative values of the

two resources determine the slope of this total

benefits line.

The optimal level of joint production is found

where PP is tangent to AA This point is said to

maximize net public benefits and will result in R

acres of recreation and T acres of timber. If,

however, timber values were to increase relative to

recreation values, the total benefits line will assume a

steeper slope as illustrated by line segment P’P’
This relative price increase for timber generates a

new point of tangency and, therefore, a new optimal

solution with R’ acres of recreation and T’ acres of

timber. The relative timber price increase results in

the allocation of more land to timber production and

less to recreation. The annual allowable sale quantity (AX?) is derived from the acres of land allocated

to timber production.

1l.B. FORPLAN Timber Data

The previous subsection discussed the workings

of a FORPLAN-like LP model and indicated three

critical types of information needed to execute the

model:

1. The technical production relationship between

timber and other competing forest outputs.

2. The upper and lower timber harvest constraints

3. The value of timber relative to the values of

other competing goods and services.

Appendix B, “Description of Analysis Process,” in

the final EIS (USDA Forest Service 1987a) discusses

the methods by which these data were developed for

the Nantahala/Pisgah plan. Here, we will discuss

only items 2 and 3 (above), the harvest constraints

and timber values, because they are related to the

present study of timber markets. The production

relationships, while important, are beyond the scope

of our study.

The timber harvest constraints used in the plan

were derived from the RPA planning process. At the

national level, RPA projects the aggregate annual

consumption of NFS timber. These estimates represent the best guess as to the amount of NFS timber

that will be purchased when offered at the prevailing

market price. These RPA estimates are referred to,

in RPA jargon, as “demand” estimates.

The national RPA consumption estimates are disaggregated to regions and, eventually, to individual

National Forests. The upper and lower bounds on

timber harvest are set at plus or minus 50 percent of

the disaggregated RPA consumption estimate. The

upper and lower bound estimates constitute the timber harvest constraints in the FORPLAN model.

These bounds are, conceptually, equivalent to F’

(harvest floor) and C’ (harvest ceiling) as shown in

figure 2. The LP model is allowed to “range” between these constraints in search of an optimal

solution.

It is important to remember that the RPA consumption estimates and the timber harvest constraints do not dictate the exact level of NFS timber

harvest, but only define the possible limits of the harvest. Increasing the upper bound of the timber harvest constraint will not necessarily increase the ASQ.

The possible exception to this would occur if the LP

solution were to “push against” and, thus, be limited

by the upper bound constraint. In the case of most

Southern Appalachian forest plans, this is, apparently, not a problem that has limited the ASQ.

Timber stumpage prices are the final data input to

FORPLAN. From the previous discussion of the LP

model, relative timber stumpage price, as reflected

in the slope of the total benefits line, was the crucial

variable in determining annual ASQ. An increase in

timber prices, other things being equal, will likely

generate an increased level of timber harvesting.

The exact change in ASQ will depend on the amount

of relative price change as well as the shape of the

production surface.

Timber stumpage prices within FORPLAN are

comprised of two components: (1) the beginningyear base prices that enter the model, and (2) the

relative rates of price increase over time. Base

prices for the FORPLAN analyses were developed

by averaging Forest Service sale prices ($/unit

volume), stated in constant 1978 dollars, from 1977

to 1980. This procedure yields a single price for

valuation of timber that does not vary with respect to

the quantity sold.

The rationale for computing a single, invarient timber price for FORPLAN stems from the assumption

that the Southern Appalachian National Forests face

a perfectly elastic (horizontal) demand curve within

their constrained levels of possible timber harvests.

The National Forests are assumed to have no

market power and, therefore, can exert no

measurable influence on aggregate supply or market

price with their offerings.

This method of modeling demand for NFS timber

is attractive because it avoids the complexities of

deriving a downward-sloping demand curve and,

thus, is easier to implement. Also, Connaughton

and Haynes (1983) indicated that the horizontal

demand approach may provide a reasonable approximation of the more conventional approach that

utilizes a downward-sloping demand curve. This approach is perhaps true for Southern Appalachian

National Forests because they account for a relatively small portion (about 10 percent) of the regional

timber harvest.

The second component of stumpage prices, the

relative rate of price increase over time, was obtained from RPA estimates via TAMM -the Timber

Assessment Market Model (Adams and Haynes

1980). The TAMM model predicted future annual

real (that is, net of inflation) price increases of about

4 percent for softwoods and 0 percent for

hardwoods between 1978 and the year 2000.

3
Ill. Analysis of Southern Appalachian

Timber Markets

1II.A. Scope of the Analysis

Area

The data for the analysis of timber markets were

collected for the Southern Appalachian region as

depicted in figure 3. The counties within the region

are:

North Carolina:

Alexander, Alleghany, Ashe, Avery, Buncombe,

Burke, Caldwell, Catawba, Cherokee, Clay,

Graham, Haywood, Henderson, Jackson, McDowell, Macon, Madison, Mitchell, Polk, Rutherford, Surry, Swain, Transylvania. Watauga,

Wilkes, Yadkin. and Yancey

Tennessee:

Blount, Bradley, Carter, Cocke, Greene,

Hamblen, Hamilton, Hawkins, Jefferson,

Johnson, Knox, Loudon, McMinn, Monroe, Polk,

Sevier, Sullivan, Unicoi, and Washington

Georgia :

Bartow, Catoosa. Chattooga, Cherokee, Dade,

Dawson, Fannin, Floyd, Gilmer, Gordon, Habersham, Lumpkin, Murray, Pickens. Rabun,

Stephens, Towns, Union, Walker, White, and

‘Whitfield

Bland, Buchanan, Carroll, Dickenson, Floyd,

Giles, Grayson. Lee, Montgomery, Patrick, Pulaski, Russell, Scott, Smyth, Tazewell,

Washington, Wise, and Wythe

South Carolina.

Greenville, Oconee, and Pickens

STATE 0 GA NC tzzm SC m TN

Figure 3. -The Southern Appalachian timber supply study area.
wand Market Model

Data for the analysis of recent stumpage- and Iogprice trends were obtained from Timber-Mart South

(TMS) and the National Forests from 1977 to the

present. Regional price data for both public and

private sales were available only for this period.

Data on harvesting levels, ownership patterns, and

factors influencing timber demand were available for

longer time periods than were the stumpage prices.

The remainder of Section III contains an analysis

of the Southern Appalachian timber markets. The following subsections contain analyses of stumpage

and log prices, harvesting levels, factors influencing

demand, and factors influencing supply The final

subsection summarizes recent timber market trends.

The logic behind our order of presentation (prices

and quantities followed by demand and supply factors) is derived from basic components of the following generally accepted stumpage market structural

model:

Qd = fl (P,D) (1)

Qs = f2 (PS) (2)

Qci = Qs = Q (3)

ln equation 1, the quantity of stumpage

demanded (Qd) is a function of stumpage price (P)

and other demand-influencing factors (D). Equation

2 states that the quantity of stumpage supplied (Q,)

is a function of price as well as other supply-influencing factors (S) Equation 3 presents the equilibrium

condition for the market-clearing quantity of

stumpage (Q)

The reduced form of the structural model,

developed by simultaneous solution, is:

P = gl (S,D) (4)

Q = g2 (S,D) (5)

Two variables P and Q are examined in the first

two subsections, while the two groups of variables D

and S are examined in the next two subsections.

1II.B. Stumpage and Log Prices

This section evaluates stumpage and log prices in

the Southern Appalachian timber market from 1977

to 1987. It is assumed that timber markets in the

region are reasonably competitive and that buyers

and sellers have access to relevant information and

are free to act. Under such conditions, prices actually paid and received reflect at least a momentary

equilibrium between supply and demand forces.

Many factors, however, affect the minimum price

that sellers will accept and the maximum price that

buyers are willing to pay, and these factors are constantly changing. Knowledge of movement in prices

over time is crucial in any attempt to reach an informed judgment on supply and demand shifts occurring in a market.

The focus of the analysis was on trends -- on price

changes from one period to the next - rather than on

an assessment of absolute values being paid. Only

two sources of timber price data were available for

analysis: (1) average monthly prices reported for

the study region by TMS, a prrvate price reporting

service operated by F.W. Norris, P 0. Box 1278,

Highlands, NC 28741, and (2) average quarterly

prices recerved for timber sold from Natronal Forests

in the study region Both of these data sets were

analyzed, and each is described in greater detail

when presented.

The procedures followed in the analysis were

simple and straightforward. The first step was to

convert the price data from a nominal basis (the dollars actually paid and reported) to a real basis (computed numbers that reflect changes in purchasing

power of dollars) Inflation was significant during

the period 1977-87 It is assumed that inflation has

driven up the price of timber along with the price of

other goods and services in the economy. These inflationary increases, however, are independent of

any underlying real shifts in the supply and demand

for timber products: and the effects of real shifts are

not apparent until the distortion of inflation is

removed. This was accomplished by dividing the observed timber price in each period by the Producer

Price Index for the period. The Producer Price

Index, customarily used by researchers to deflate

timber prices, increased at an average annual compound rate of 4.68 percent between January 1977

and August 1987 Only if nominal timber prices

have increased at a greater rate can one conclude

that there has been a real price increase caused by

backward shifts in supply and/or outward shifts in

demand.

The second step of the analysis was to plot real

prices, period by period, starting at the beginning of

1977. By simply observing the resulting picture, it

was possible to see direct evidence of underlying

shifts in timber markets and to assess fairly accurately, without further analysis, the overall real price

trends over the period.

A third step was carried out to assist in evaluating

the Forest Service’s planning assumption of constant real hardwood stumpage prices over time. The

step involved fitting a regression line through the

logarithm of the real price data points. Such a line

represents the smoothed, best-fit, trend line of real

prices. The line’s slope reveals the average compound rate of increase or decrease in real prices

over the period.
The mathematics of this third step can be

demonstrated by the following equation:

Pt = PO (1 + r)t

where: Pt = ending year price, constant dollars

PO = beginning year price, constant

dollars

t = number of intervening years

r = compound annual rate of change

This equation is the familiar exponential (compound) growth rate model that uses discrete, rather

than continuous, time intervals (Chiang 1974, p.

290). National Forest plans have assumed (from

RPA analyses) that “r” will equal zero for hardwoods,

which results in no real price increases (Pt = PO).

We wanted to calculate “r” for our various hardwood

stumpage price series to see whether the constant

real price assumption had been borne out over the

period from 1977 to 1988.

From our time series data, there were two ways of

calculating “r ” The simplest would have been to

take the beginning and ending year prices, along

with the number of intervening years, and algebraically solve the above equation for “r.” This method is

simple, but disregards useful information contained

in the stumpage prices of the intervening years. We

used the regression method, which considers all observations of price over the period. By taking the

logarithm of price, the above exponential growth

equation is converted to the following log-linear form

(Pindyck and Rubinfeld 1981, p. 475), which is estimated by means of least squares regression. The

equation is of the following form:

log Pt = log PO + (t) [log(i + r)]

The slope of the estimated regression line is the term

“log(1 + r),” and the compound annual rate, “r,” is

extracted as follows:

r = antilog [log(l + r)] - 1

Standard statistical procedures were used to test

whether or not the “r” produced by the above

method is significantly different from zero.

Figure 4 uses average prices for mixed oak

stumpage in the Southern Appalachian timber

region to illustrate the above procedures. To

simplify the exposition, monthly prices have been

averaged by years before plotting. Nominal prices

show an upward trend, averaging 2.7 percent per

year as computed from the slope of the regression

line plotted through the data points. With an inflation rate of 4.68 percent, however, it is evident that

the actual purchasing power (real price) of one

thousand board feet of oak timber decreased during

the period. The lower set of data points for real

prices shows this directly. The rate of real price

change has been -1.9 percent per year In the

analysis that follows, real prices were computed with

the Producer Price Index adjusted to a base year of

1977 = 100.

6

8 0

Real (1977=100)

7 6 7 8 8 0 8 2

YEAR

8 4 8 6 8 8

Figure 4. - Nominal vs. real stumpage price for oak

in the Southern Appalachian region, 1977-87.

Source: Timber Mart-South.

Figure 4 also illustrates the cyclic activity that has

occurred in timber markets during the study period.

Whereas oak prices fell drastically between 1978 and

1981, they have since been on an upward trend in

response to outward demand shifts and/or backward supply shifts. Even with the upturn now taking

place, real prices have not yet reached the levels of

10 years ago, and the trend line is negative for the

period as a whole.

TMS D&a

The TMS price reports have been issued monthly

since December 1976 when the series began. High,

low, and average prices are reported for 15

stumpage products (standing timber) and for 22

delivered timber products (log prices f.o.b. mill).

Each of the 13 Southern States is subdivided into

three regions, and prices are reported for all

products in each substate area. The Southern

Appalachian region under study corresponds closely

to TMS’s mountain areas in the States of Georgia,

Tennessee, North Carolina, South Carolina, and

Virginia.

The stumpage price data in TMS come primarily

from consulting foresters who act as agents for

private landowners in timber sales. Delivered prices

are collected by sampling wood dealers, sawmills,

and pulpmills. The TMS data collection and reporting procedures have been described in detail elsewhere (Gunter and Cubbage 1987).

The monthly average rather than the high or low

prices reported by TMS were used in this analysis.

Several of the products covered in the southwide

TMS reports are not found in the Appalachian

region, and other prices are reported intermittently

because of spotty or thin markets. All products
showing prices in at least 50 months over the 128

month period from January 1977 to August 1987

were included in the analysis.

Southwide Timber Price Trends from TMS

Although the Southern Appalachian region is the

focus of this study, one cannot ignore conditions in

the larger market beyond this relatively small region.

Conveniently, the southwide summary sheet that

comes with the monthly TMS State reports provides

timber prices averaged across all 13 Southern

States. As a backdrop for judging price trends in

the Southern Appalachian region, these southwide

prices were analyzed from 1977 to 1987.

Figure 5 displays the southwide real price data for

stumpage price represents the margin for logging

and transportation costs. As anticipated, this margin is reasonably constant within a product

category, and the two price lines tend to move up

and down in unison.

The major conclusion from figure 5 is that timber

markets have been in decline throughout the South

during the study period. Prices for every product

show a declining real price trend. A cycle is evident,

especially in the hardwood products. Whereas

prices fell sharply in 1979 and 1980, they turned upward after 1982, and they are still rising. Still, the

overall trend for all real product prices in the South

is negative for the 1977-87 period. Table 1 gives the

average annual rates of decline in real prices during

both stumpage and delivered products. The al- the period

gebraic difference between delivered price and

Southern Pine Sawtimber

601. I. I I. I. I 401 I I. I 1

7 6 70 8 0 8 2 8 4 8 6 8 8

YEAR

Poplar Sawtimber Oak Sawtimber Hardwood Pulpwood

76 78 8 0 8 2 8 4 8 6 88

YEAR

Rare Hardwood Sawtimber Pine Pulpwood

1001 1 , , ,

7 6 7 8 80 8 2 8 4 8 6 88

YEAR

White Pine Sawtimber

8 0

7 6 7 8 8 0 82 84 86 8 8

YEAR

7 6 7 8 8 0 8 2

YEAR

84 8 6

01.1 I I 1 1 I

76 78 8 0 8 2 8 4 8 6 86

YEAR

Mixed Hardwood Sawtimber

I-I-I/

7 6 7 8 8 0 8 2 8 4 8 6 8 8

YEAR

10 -

A_Slumpage

0-r , , , , ,

7 6 78 80 8 2 8 4 8 6 8 8

YEAR

Figure 5. - Real price trends for

stumpage and delivered logs in

the Southern United States, 1977-

87. [1977 = loo]. Source: Timber Mart-South.

7
Table l.--Annual percentage rate of change in real timber

prices averaged across the entire South, 1977-87

Product

StandIng

timber

prices

Del leered

t lmber

prices

Southern pine sawtimber -4.1 -2.6

White pine sawtimber -6.3 -3.5

Yellow-poplar sautimber -3.8 -2.1

Oak sawtimber -3.2 -1.2

Rare hardwood sawtimber -8.7 -6.4

Mixed hardwood sawtimber -4.0 -1.5

Pine pulpwood -1.3 -1.3

Hardwood pulpwood -2.9 -2.1

All rates are significantly different from zero at the

95-percent level.

Source : Timber Hart-South.

Southern Appalachian Timber Prices from TMS

TMS provides separate monthly reports for the

Southern Appalachian portions of Georgia, Tennessee, North Carolina, South Carolina, and Virginia. This breakdown presents an opportunity to

look separately at price trends in each State as well

as to average prices across States for the trends in

the Southern Appalachian timber region as a whole.

Since TMS does not report the volumes associated

with the prices reported, the average price for the entire region was computed as an unweighted arithmetic average of the subregions.

In figure 6, real prices are plotted for the Southern

Appalachian region as a whole. As with southwide

prices, the price trends are generally negative.

Declines can be observed most clearly from the

slopes of regression lines plotted through the data.

Two products, yellow-poplar veneer stumpage and

rare hardwood veneer logs, stand out as the only

products with overall positive price trends between

1977 and 1967. The contrast between the rising

prices for these products and negative trends for all

others in both the Southern Appalachian region and

the South as a whole are good evidence that atypical forces are at work on the demand and/or supply

side of the market. Later sections of the report will

analyze major factors on the demand and supply

side that are possible explanations for the price

movements observed here. Note that the down-andup cycle, evident in the southwide price data, also

appears in the Southern Appalachian price trends.

During the last 2 or 3 years, markets in the region appear to have been especially strong. In most cases,

real prices have risen above the regression lines

plotted through each data set.

Stumpage price trends in individual States in the

Southern Appalachian region are summarized in

table 2. As the regional average column shows,

price trends are predominately negative. Notable exceptions occur within several States. All pulpwood

items have a positive trend in Tennessee, and all

veneer items have a positive trend in South Carolina.

The most striking exception to the general negative

trend, however, is North Carolina. In North

Carolina, all hardwood stumpage products have a

positive price trend except rare hardwoods, which

have relatively small markets. It appears that

markets for hardwood stumpage have been atypically robust in North Carolina. Attempts to explain

this phenomenon will occur in later sections.

Table 2.--Annual percentage rate of change in real stumpage prices within

State areas that form the Southern Appalachian timber region, 1977-87

Product G A T N NC SC VA Aver.

Pine sawtimber -0.7’ -0.5s -2.6 -1.8 -3.1 -1.6

White pine -6.1 -5.6 -6.1 -5.2 7.4 -6.0

Yellow-poplar sawtimber -2.7 -3.3 1.6 -2.5 -3.1 -2.0

Oak sawtimber -2.2 -4.1 2.3 -3.8 -2.2 -1.9

Mixed hardwood sawtimber -4.5 -5.1 0.1* -4.3 -6.0 -3.9

Rare hardwood sawtimber -15.0 -10.5 -10.4 -7.9 -12.7 -11.7

Yellow-poplar veneer 2.1 -0.3* 3.2 3.6 0.7* 1.8

Hixed hardwood veneer -0.1’ -8.1 0.7’ 0.6’ -5.8 -3.2

Rare hardwood veneer 1.4* -4.8 -0.6* 2.5’ 0.3” -0.5s

Pine pulpwood -0.6 1.5’ -0.9 -1.6 -0.5* -0.3*

Soft hardwood pulpwood -1.7 1.0 2.9 -0.6” 0.5

Pulp hardwood pulpwood -2.2 2.3 1.7 -1.6

-Ki l

-0.9

*Not significantly different from zero at the 95-percent level.

Source: Timber Hart-South.
Southern Pine Sawtimber White Pine Sawtimber

76 78 60 82 64 86 68 76 76 80 62 84 86 68

YEAR YEAR

Oak Sawtimber Mixed Hardwood Saw-timber

120 100

IT

; ‘00 60

i

z

80

60

H 60

40

40

20 20

76 78 60 82 84 86 88 76 78 60 82 64 86 88

YEAR YEAR

Poplar Veneer Mixed Hardwood Veneer

3oo 1

601

76 78

,

80

,

62

, .

84

,

66

, .

68

01

76 76 60 82 64 86 88

YEAR YEAR

Pine Pulpwood Hardwood Pulpwood

_ _ti

Stumpage Prce

0 0 , , , , ,

76 78 80 82 84 86 68 76 78 80 62 64 86 88

YEAR YEAR

Poplar Sawtimber

1~~~~

201

76 78 80 82 84 86 88

YEAR

Rare Hardwood Sawtimber

600 I - DelIvered PIIce

400 5oo 300

200 Srumpage ;qPrice

100 , , , . , , .

76 78 80 82 84 86 88

YEAR

Rare Hardwood Veneer

Deltvered Prca

6QO

400

200

76 78 60 82 84 I36 88

YEAR

Figure 6. - Real price trends for

stumpage and delivered logs in

the Southern Appalachian region,

1977-87. [ 1977 = 1001. Source:

Timber Mart-South.

9
Southern Pine Sawtimber White Pine Sawtimber

140 160

120 140

G

$ 1w 120

i 100

p’ 80

z

a0

60 6 0

4 0 4 0

7 6 76 60 a 2 6 4 86 8 8 76 78 80 82 84 86 88

YeOr Yeat

120 ,

Poplar Sawtimber

ZOI. 1 ., , . , , i

7 6 7 6 60 82 64 86 88

Ye&V

Oak Sawtimber Mixed Hardwood Sawtimber Rare Hardwood Sawtimber

120 120 700

100 100 600

G

i 80 500

a0

8 400

E 6 0 60

1 300

az

4 0 40 200

2 0 2 0 100

7 6 78 a0 a 2 8 4 a 6 88 7 6 78 a0 a2 a 4 a 6 88 16 78 80 a 2 8 4 a 6 a 6

YeFir Year Year

Poplar Veneer Mixed Hardwood Veneer Rare Hardwood Veneer

3M-3o01’400v

J

G9 2oo 200 -

;*

::

h

1 100 100 -

a

0 07 . , , , . , . ,

__ __

76 7 8 80 a 2 a 4 a 6 aa 7 6 7 a 80 a 2 a 4 a 6 a8

Year Year

/B /a 80 a 2 a4 a6 aa

Year

Pine Pulpwood Hardwood Pulpwood

Figure 7. - Real price trends for

stumpage and delivered logs in

western North Carolina, 1977-87.

[1977 = 1001. Source: Timber

Mart-South. o-i I , 1 I I I o-l I I I 1 , I

7 6 76 80 a2 a4 a6 88 76 78 a0 82 a4 86 a8

Year YefAr

10
Table 3.--Annual percentage rate of change in real delivered prices within

State areas that form the Southern Appalachian timber region, 1977-87

Product GA TN NC SC VA Aver.

Pine sawtimber -1.1 -0.6' -1.4 -1.0 -1.6 -1.1

White pine sawtimber -2.3 -4.7 -3.7 -2.6 -3.5 -3.4

Yellow-poplar sawtimber -1.8 -2.1 0.5' -1.0 -0.7 -1.0

Oak sawtimber -1.3 -2.5 0.2" -1.5 -2.0 -1.5

Mixed hardwood sautimber -2.0 -2.2 0.7 -1.2 -3.9 -1.7

Rare hardwood sawtimber 12.0 -10.7 -8.4 -9.0 -7.8 -9.4

Yellow-poplar veneer -1.2 -1.4 -4.0 -1.0 -1.7 -1.9

Mixed hardwood veneer -1.7 -11.4 -4.1 -3.3 -7.3 -6.6

Rare hardwood veneer 2.3 4.2 -2.1 -1.0' 1.7 1.8

Cross ties -2.4 -2.4 -2.7 -2.4 -2.6 -2.6

Pine pulpwood -1.2 -1.6 -1.4 -1.6 -3.0 -1.5

Mixed hardwood pulpwood -2.6 0.3' -0.4x -3.2 -1.4 -1.4

Pine chips, clean 1.0 1.9 1.9 1.5 0.4 1.4

Hardwood chips, clean 1.4 2.0 2.5 1.4 1.2 1.3

*Not significantly different from zero at the 95-percent level.

Source : Timber Mart-South.

Table 3 presents the trend rates for delivered log

prices in each State in the Southern Appalachian

region. Several products in this table are not displayed in figure 6 because they have no comparable

stumpage product. Two such products, clean pulp

chips of hardwood and pine, show an increasing

price trend in all States. North Carolina markets

again stand out as having a positive price trend for

yellow-poplar, oak, and mixed hardwood sawtimber - the three high-volume hardwood log

categories. Figure 7 shows the data on which the

North Carolina trends cited above are based.

Stumpage Prices from National Forest

Timber Sales

At least one National Forest is located in the

Appalachian portion of each State in the study area.

An analysis of National Forest stumpage prices was

carried out separately for the National Forest land in

each State and for National Forest land in the region

as a whole.

Most National Forest timber sales are formally advertised for 30 days and awarded to the highest bidder under a sealed bid procedure. The quality, size,

and volume of the offered timber are determined

from a detailed cruise and displayed in the advertisement. Volumes are shown as estimates only and in

no way guarantee the purchaser’s own volume

recovery. Prior to sale advertisement, the timber

volume is appraised to estimate fair market value.

Most sales are appraised by a transaction evidence

appraisal system that considers stumpage prices of

recent sales as well as conditions on the current sale

area. The appraised value is advertised as the minimum acceptable bid rate by species and product.

Perspective purchasers must bid at least this minimum value for each species and product offered,

and the sale is awarded to the highest total bid. Any

permanent road building costs associated with a

sale are appraised separately by the Forest Service.

The timber buyer builds the road and is reimbursed

at the appraised cost. Road building costs do not

necessarily affect the bid price for stumpage.

However, road building does impose risk and extra

administrative costs on the timber buyer.

Unlike practices on some National Forests in the

Western United States, there are no contract

provisions for adjusting the winning bid price up or

down based on market conditions at the time the timber is actually cut. Most timber sale contract terms

in the Southern Region cover a 3-year period, which

is shorter than contract periods in the West. Thus,

for the National Forest price data used in this study,

the original sale price is also the cut price.

The data for National Forest sales were available

on a quarterly basis over a full 1 O-year period, 1977-

86. Throughout a given quarter, each sale resulted

in an independent observation of the amount being

paid for each species in the sale. Since the species

sale volume was known, it was used to weight each

price in arriving at an average quarterly species

price within a given State. Likewise, the total volume

represented by each quarterly species price in a

State was used in arriving at a weighted quarterly

species price for the entire Southern Appalachian

region. Sales with less than $2,000 in total initial appraised value were excluded from the analysis.

Table 4 displays the real price trend by stumpage

product and State on National Forests in the study

area. The average column represents the trend of

weighted quarterly prices for all National Forest

sales in the study area. This aggregate column

reveals that National Forest stumpage prices have

experienced a negative trend. This finding is similar

to that obtained from the analysis of TMS data,

which reports on stumpage prices received for timber sold from private land. In general, however,

prices on National Forest land have been decreasing

at a much higher rate than stumpage sold from

private land.

11
Table 4.--Ar:r,o~l perceztage rate of change in real stumpage price paid for

National Forest tlmbe!‘ within the Southern Appalach:dc regior,, 1977-86

GA NC SC VA Aver.

it~!Aow olile -_I (7’1 3.27" _f 7,3* -1.';5* t.$3* -1.80

d)?!te p;nc -t,Eit !I"

lj.0:

-:3.:q -10 s* -5.'O" -7.01

Ye!low-pqplar -7.80 -9.89 __ 0.3:;* -8.59

M1xeil nab. -6.'!bX -2. jJ* -5.30 -5.60' I.22 -5.35

Wh,te oak -8.',4 -Y.'Pl -E.65 4.24' -8.12

Nortrierr. rpli Odk _5.'i -8.72 -2.89* -- -3.84 -4.1i*

k'lxed hardwad -6.0;' -5.5fi+ -b.42' -11.97 -7.73 -7.11*

lJ1ne pu!p"'od -6.70" 14.35 - :'..43' -15 67 3.14' -0.67"

Yardkood pu:pwood -6.32" 8.2Yf -:7.24 -1.339 -2.21x -4.31'

"hate not sign;ficantly different frr,m :-ei~r, at the 95-percent level.

The Nattonal Forest stumpage sales data

provided an opportuntty to look srmultaneously at

both price and volume over time These data are

plotted by product in figure 8 for the aggregate of all

National Forest sales in the study region From

1977 to 1986, the National Forests progressively increased the harvest volume of all stumpage

products except softwood pulpwood. Real prices fell

during the same perrod In fact, the price lines are

practically a mirror image of the volume lines

Regarding price trends for National Forest sales

from individual States, only the Cherokee (Tennessee) and Jefferson (Virginia) National Forests

show any positive real price trends. It is somewhat

puzzling that the National Forests in North Carolina

do not show the same positive price trends for the

major hardwood stumpage products that the TMS

data show for private land. One possible explanation is that the spatial dimensions of stumpage

markets are restricted by mountainous terrain so

that the progressive harvests from National Forest

land have driven prices down in close proximity to

the forests but not in the larger Southern

Appalachian region. Certain factors, however, suggest that stumpage prices on private land are really

not directly comparable with National Forest prices.

In somewhat overiy simplified form, private sales

have the following characteristics: (a) the land is

generally accessible, so road building costs are low;

(b) most harvesting involves partial cuts of valuable

trees only; and (c) loggers have free rein to minimize

extraction costs, These conditions give the private

landowner what he wants most-the highest price

for his timber. The Forest Service also seeks top

prices but is willing to sacrifice income to meet certain administrative, silvicultural, and environmental

constraints. Some of the conditions that may have

contributed to falling National Forest timber prices

during the study period are discussed below.

For silvicultural reasons. most Forest Service timber sale contracts require that timber operators perform clearcuts to remove all trees, including those

with little or no value. In western North Carolina,

small roundwood comprises approximately 50 percent of the volume on an average timber sale.

Markets for such low-value products can fluctuate

considerably in the short term. After timber

operators log and deck the small roundwood, they

may be unable to sell it. Since the appraised value

of this small roundwood must be met in the bid,

buyers probably compensate for uncertainty by bidding less than market value for the highly valued timber such as red oak sawtimber

Stumpage prices on National Forests may also be

depressed, compared to those on private land, by

Forest Service site protection standards. Conventional logging techniques involving tractors or skidders are being prohibited on land with prevailing

steep slopes. Instead, cable logging must be used,

which involves a higher capital investment and

higher operating costs than conventional logging.

This extra cost results in a lower bid price for

stumpage. It is significant that from 1962 to 1972,

25 percent of National Forest hardwood removals in

western North Caroiina took place on 50 percent or

steeper slopes. From 1972 to 1982, 56 percent of

removals came from 50 percent or steeper slopes.

Other examples of provisions that lower the residual

value of National Forest stumpage are placement of

erosion control structures, maintaining roads, and

seeding and fertilizing roadbeds and skid trails.

In a market with few bidders, it is also conceivable

that Forest Service procedures for establishing minimum bids could result in a downward price trend.

The Forest Service utilizes a stumpage appraisal

method called “Transaction Evidence Appraisal for

computing the advertised minimum bid price for

stumpage. This appraisal method smooths market

fluctuations and keeps prices relatively stable. In arriving at the minimum bid price for a sale, the

12
Southern Pine Sawtimber

6 2 r 22000

46: I , , . , . !10000

7 6 7 8 8 0 8 2 64 66 8 8

YEAR

Oak Saw-timber

50

/ I

20000

10000

5000

2oko 7 6 7 8 60 8 2 8 4 8 6 8 8 7 6 7 6 8 0 8 2 8 4 66 8 8

YEAR YEAR

Mixed Hardwood Sawtimber

6n 5000

c9 c

;i 50 4000 9

T 5

9

P 4 0 3000 5

-

5 9

(L:

3 0 2000

2 0 ,000

76 76 8 0 6 2 8 4 8 6 66

YEAR

Softwood Pulpwood

IY Y 10000

PWS

9000

White Pine Sawtimber

90 , 1 14000

7 6 7 8 8 0 8 2 64 8 6 66

YEAR

White Oak Sawtimber

Hardwood Pulpwood

4 1 , 70000

Poplar Saw-timber

80 - r 20000

e Price

‘O!X, _

15000

60 Volume G

9

50- 10000 E

4 0

5000

3 0

2 0 0

7 6 7 8 8 0 6 2 84 86 86

YEAR

Northern Red Oak Sawtimber

110 10000

6000

G

6000 g

5

4000 :

2

2000

501. I. I. I, 1.1. IO

7 6 7 8 8 0 6 2 84 86 66

YEAR

Figure 8. -Trends in real

stumpage price and sale volume

for National Forest land within the

Southern Appalachian region,

1977-86. [[ 1977 = 1001. Source:

USDA Forest Service, Region 8.

76 78 60 82 64 86 86 76 76 80 82 04 86 88

YEAR YEAR

13
weighted average of high bids from the previous

quarter are reduced by 10 percent. When there is a

lack of competition, timber is often sold for the minimum advertised rate. The advertised price would

then decrease by 10 percent the following quarter.

The appraisal system would allow this 1 O-percent

decrease to compound through time, resulting in a

downward stumpage price trend. During the past

10 years, the average number of bidders per

National Forest sale in the Southern Appalachian

study area was 2.3 bidders. Since 1982, however,

that number has steadily decreased to an average of

1.8 bidders per sale.

Finally, prices for National Forest timber were altered from 1983 to 1985 by the introduction of new

volume tables for sale volume determination. The

new tables gave good estimates of volume; however,

there was some misapplication of merchantability

standards when tallying individual trees. This

caused the advertised volume of sawtimber to be

overstated. To compensate, bidders were known to

lower their bid rates on sawtimber. The merchantability standards were revised in 1985 to give more

accurate volume estimates. This problem with merchantability standards contributed to a decline in

“computed” stumpage prices from 1983 to 1985.

Total revenue to the Forest Service, however, was

not necessarily affected.

Summary

For the period since 1977, real timber prices show

an overall decline within the Southern Appalachian

region and within the larger southern market

beyond. Generally, real prices fell sharply from their

levels at the beginning of the period and have been

on an upward surge for the past several years.

However, most prices have not yet reached the

levels obtained early in the period.

The most notable exception to this overall trend is

hardwood stumpage sold from private land in North

Carolina (measured by TMS data). Private

hardwood stumpage prices in North Carolina have

moved upward since 1977. This suggests that some

extraordinary market forces are at work in North

Carolina, creating either a backward shift in

stumpage supply, an outward shift in stumpage

demand, or possibly a combination of both.

Finally, the contradiction between negative price

trends for National Forest stumpage sales and positive price trends for private stumpage sales in a

small geographic market such as western North

Carolina is surprising. This result suggests tight spatial markets for National Forest timber. More importantly, it appears likely that “red tape” and numerous

constraints on government timber sales significantly

limit competition and lower the residual value of

government stumpage.

1II.C. Harvest Levels

This section examines changes in timber harvesting in the study area for two decades. Two independent sources of data were examined to establish

trends in harvesting levels from timberland in the

study area: (1) Forest Inventory and Analysis (FIA)

estimates of total removals, and (2) industrial

roundwood production data obtained from canvasses of primary wood products plants. Recent

National Forest timber sale volumes are used to supplement the FIA data. FIA data provide estimates of

total annual removals averaged across two broad

periods of 8 to 10 years. The industrial roundwood

production data are annual or for 2- to 3-year

periods.

Timber Removal Estimates from FIA

FIA provides the only estimate of total volume of

timber removed annually from forests in the study

area. These estimates are based on the periodic

remeasurement of nearly 3,000 permanent sample

plots in the study area. These samples are distributed across all forest conditions and ownerships.

FIA estimates of timber removals include volume

removed and utilized for industrial timber products

(sawlogs, veneer logs, pulpwood, etc.) and fuelwood. Merchantable volume removed but not actually utilized for timber products (logging residue and

other removals) is also included. The unutilized portion typically accounts for about 15 percent of total

softwood removals and about 25 percent of total

hardwood removals.

A problem common to any multistate analysis that

uses FIA data is that the inventories are usually conducted on different dates in each State. One has the

option of updating statistics to a common date or accepting the resource statistics as reported and pooling the respective States to obtain a best estimate of

statistics for the entire area at a specific point in

time. In this document, all FIA data have been assembled without updating. Totals for the latest survey (inventory) in each State were summed to obtain

study area totals for the most recent period.

Likewise, data for the next most recent survey in

each State were totaled to provide change information. Inventory dates for the latest surveys were

from 1980 to 1986; those for the previous surveys

were from 1971 to 1978 (fig. 9).

It should be emphasized that FIA timber

removals are not point-in-time estimates for the year

the inventory was conducted. Removal statistics

from FIA data are average annual values developed

from removals since the previous inventory in each

State. Thus, annual removal values reflect rates of

timber harvesting for a longer period than might be

implied from the inventory dates alone. For instance, in figure 9, note that timber removals occurring as early as 1961 in Georgia and Tennessee can

influence the average removal level for the previous

14
GA I”“““‘:‘- 0

NC I//////////m 0

SC r/////////m 0

TN t///////‘/m r)

VA 11 I I/ 1 / I / 1 /m 0

I

1960 1965 1970 1975 1980 1985

YEAR

INVENTORY DATE FOR LATEST SURVEY

INVENTORY DATE FOR PREVIOUS SURVEY

REMOVAL PERIOD FOR LATEST SURVEY

REMOVAL PERIOD FOR PREVIOUS SURVEY

Figure 9. -Date of inventory and corresponding timber removal period for the two most recent inventories in the Southern Appalachian timber supply

region, by State.

survey period. When separate State removal values timber removals dropped from 315 million cubic feet

are summed to obtain study area totals, these an- to 291 million cubic feet, or by 8 percent. Trends for

nual removals are not directly related to a fixed softwoods and hardwoods differ. Softwood

range of years because the remeasurement periods removals increased by 6 percent, whereas

in each State are different. In general, annual hardwood removals declined by 18 percent during

removals for the previous survey period are charac- these two periods. Trends for sawtimber or boardteristic of the mid-l 960’s to mid-l 970’s whereas the foot volume are essentially the same as those for

latest period represents the level of removals for the growing stock and, therefore, have been omitted

period between the mid-l 970’s and the mid-l 980’s. from further discussion. Reductions in hardwood

Regardless of the years involved, the reader should removals occurred for all timber-size categories

recognize that year-by-year fluctuations and very (poletimber and sawtimber), whereas most of the inrecent changes in removals are effectively masked crease in softwood removals was in the larger size

by the periodic nature of the data. categories.

FIA data reveal a downward trend in annual tim- Softwood species accounted for more than oneber removals in the study area from the removal half of the growing-stock removals in the study area

periods of the previous surveys to the most recent but comprised only 27 percent of the standing invenperiods (table 5). For all species combined, annual tory. This imbalance is apparent in the statistics for

Table S.--Average annual removals of softwood and hardwood growing stock in the

Southern Appalachian timber supply region For the two most recent survey

periods,a by ownership class

All species Softwoods Hardwoods

Ownership class Previous Latest Previous Latest Previous Latest

surveys surveys surveys surveys surveys surveys

Thousand cubic feet

National forest 36,296 29,159 13,696 15,520 22,600 13,639

Other public 10,615 5,586 4,770 3,276 5,845 2,310

Forest industry 23,321 28,495 15,266 19,692 8,055 8,803

Farmer 107,433 74,197 43,495 36,553 63,938 37,644

Misc. private 137,341 153,438 63,709 73,685 73,632 79,753

All ownerships 315,006 290,875 140,936 148,726 174,070 142,149

%ee figure 9 for survey dates.

15
the earlier period; the gap widened with the recent

increases in the level of softwood removal.

The reduction in annual hardwood removals

across the two periods occurred on farm woodlots,

National Forests, and other public land. On

National Forests, hardwood removals for the latest

period averaged 40 percent lower than for the earlier

period. The reduction was even more severe on

other public land - 60 percent. These drops occurred on a relatively stable land base. A 41 -percent

drop in hardwood removals on farmer-owned timberland was accompanied by a 35percent drop in

acreage of timberland they owned. Increases in

hardwood removals occurred on miscellaneous

private and forest industry land, but the magnitude

of these increases was not sufficient to offset the

declines elsewhere.

Softwood removals increased on miscellaneous

private, forest industry, and National Forest land.

Declines in softwood removals on farms and on

other public land were less severe than those for

hardwood removals.

1 0

5

n

1977 1978 1979 1980 1991 1982 1903 1904 1986 1986

YEAR

Figure 10. -Volume of timber sold on National forest

timber sales in the Southern Appalachian timber

supply region, 1977-W

Volume of timber sold in large National Forest timber sales in the study area provides evidence of a

recent upturn in harvest levels from National Forests

(fig. IO). Volume sold on National Forests in the

study area has increased from 11.7 million cubic feet

in 1977 to 23.6 million cubic feet in 1986. This upward trend does not necessarily conflict with the

declining levels of timber removals from National

Forests as shown in the FIA data. FIA estimates of

annual removals represent period averages that extend back into the early 1960’s; the timber sales

data are only from 1977 to 1986. National Forest

removal levels were apparently at a low point during

the mid-1970’s. Figure 10 depicts a recovery of harvest levels from this period.

During the latest survey period, average timber

sale volumes were lower for National Forests than

FIA average annual removals. The FIA removal

estimates represent the total volume removed from

timberland on National Forests. They include

volume removed from major timber sales (fig. 10);

minor sales, such as fuelwood harvests road construction; and other miscellaneous cutting. Part of

the gap is also due to different merchantability standards and volume computation procedures used in

FIA sampling versus timber sale volume computation

The downward trend in hardwood removals

across the two survey periods was evident in every

State in the study area except North Carolina (fig.

11). In the North Carolina study counties, annual

hardwood removals rose by 9 percent in the latest

remeasurement period compared to the previous

one. This increase in cut came entirely from private

timberland and was mostly due to increased

removals of soft-textured hardwood species such as

yellow-poplar. Increases in softwood removals occurred in the study portions of Georgia, North

Carolina, and Tennessee. Slight drops in softwood

removals occurred in the mountain counties of

South Carolina and Virginia. These two States make

up a relatively minor component of all softwood

removals in the study area.

FIA resource statistics for the study area have

been separated into three species groups for

softwoods and six for hardwoods. Softwood groups

are yellow pine, eastern white pine, other softwoods;

hardwood groups are select white oaks, select red

oaks, other white oaks, other red oaks, yellowpoplar, and other hardwoods. Section lll.E.2, Growing Stock Inventories, gives a description of the

major species within each group. Removal trends

for each of these species groups are presented in

table 6. For softwoods, the most significant change

occurred for eastern white pine. Annual removals of

this species rose from 16 to 24 million cubic feet.

Removals of yellow pine species were up slightly,

and currently account for 82 percent of all softwood

removals.

16
HIL.CU.FT.

'r------

II12 PERIOD

I6A P SC 11 + NC ---j E TM -_I t_ VA ---j STATE

Period 1 - Previous Surveys; Period 2 - Latest Surveys

Figure 11. -Changes in annual hardwood removals

for the past two survey periods in the Southern

Appalachian timber supply region, by State.

Table 6.--Average annual removals of growing stock I" the Southern

Appalachian timber supply region for the two most recent survey

periods,a by species

Species Previous surveys Latest surveys

Softuood

Yellow pine

Eastern white pine

Other softwood

Total softwoods

Hardwoods

Select white oak

Select red oak

Other white oak

Other red oak

Yellow-poplar

Other hardwoods

Totai hardwoods

Thousand cubic feet (percent)

121,339 (86) 122,454 (82)

16,234 (12) 24,259 (16)

3,363 (2) 2,013 (2)

140,936 (100) 148,726 (100)

25,070 (14) 15,684 (11)

1'1,816 (9) 10,652 (7)

18,027 (10) 13,748 (10)

41,988 (24) 33,888 (24)

24,013 (14) 26,565 (19)

50,156 (29) 41,612 (29)

174,070 (100) 142,149 (100)

Annual removals across the two periods for five of

the six hardwood species groups followed the downward trend for hardwoods as a whole. Yellow-poplar

was the only major hardwood species to sustain an

increase in annual removals, either in actual volume

or in relative terms. An 1 l-percent increase in

removals of yellow-poplar occurred between the two

latest periods The largest percentage reductions occurred were 37 percent for select white oak and 28

percent for select red oak. Together, these two

species accounted for 18 percent of hardwood harvest, an amount proportionate to their makeup of

the standing hardwood inventory

The documented changes indicate that hardwood

removals in the study area have gone down over the

last two to three decades. Such findings are not inconsistent with those in many areas in the Eastern

United States. Hardwood removals are either down

or only modestly up according to the latest FIA surveys in Alabama (Rudis and others 1984), Kentucky

(Kingsley and Powell 1978), Mississippi (Donner and

Hines 1987), North Carolina (Sheffield and Knight

1986), Tennessee (Birdsey 1983), Virginia (Bechtold

and others l987), and West Virginia (Bones 1978).

Again, these changes are long term and do not

necessarily reflect annual fluctuations or very recent

changes.

Increased demand for timber products can be

met in ways other than increasing the quantity of timber removed from timberland. Improved utilization

at the mill and in the woods help to stretch timber

supplies. Because there have been improvements in

utilization over time, the documented changes in

removal levels may not reflect actual change in

demand. In other words, annual removals may not

indicate an equal relationship with actual consumption of timber products.

Timber Product Outout

The second source of data revealing change in

harvesting levels is the output of roundwood timber

products from the forests in the study area. These

data are much more sensitive to annual fluctuations

in timber harvest levels than are the average annual

FIA removals. All primary wood-using plants in the

States of Georgia, North Carolina, South Carolina,

Tennessee, and Virginia are canvassed periodically

to determine levels of industrial timber products

produced by county. In cooperation with FIA

Research Work Units, State forestry agencies, and

extension personnel conduct most of these canvasses, The Tennessee Valley Authority conducts

similar canvasses in much of the study area and

provided portions of the data that follow. Production

aSee figure 9 for survey dates.

17
of major roundwood products harvested in the study

area were summarized for each State and canvass

year for softwoods and hardwoods (table 7). Canvass years are often different for each State and are

available for a limited number of years in some.

Roundwood production data vary a great deal by

State, species, and product. For softwoods, the

trend is generally upward, with the output in the

latest canvass years representing the highest values

for the periods represented in most cases. Increases in the output of softwood sawlogs and

pulpwood have occurred during the last 3 to 4

years.

Softwood sawlog and pulpwood output in the

study counties in Georgia have increased consistently since the early 1970’s. Softwood output in the

North Carolina portion of the study area has

changed more erratically; softwood output has increased in each of the four canvass years from 1976

through 1986. Except for 1973, output in 1983 and

1986 exceeded that for any of the industry canvasses conducted from 1964 through 1986. Significant

increases have occurred in softwood-sawlog output

in Virginia and in both sawlog and pulpwood output

in Tennessee.

The greatest hardwood output for each of the

States has occurred in the last 3 to 4 years. These

recent increases have occurred for both sawlogs

and pulpwood. Hardwood sawlog output has increased the most in North Carolina (1983 and 1986),

Tennessee (1985) and Virginia (1984)) and the least

in Georgia. Hardwood pulpwood output was at its

highest level in the most recent canvass year for

each of the States, except for Georgia.

Table 7 shows changes in industrial roundwood

output for the study area counties. Not included is

an unknown but significant amount of roundwood

harvested for domestic fuel. For the entire State of

North Carolina, hardwood fuelwood use was estimated at 21 percent of annual hardwood growingstock removals (Sheffield and Knight 1986). There is

little doubt that the volume of wood used for fuel has

increased during the last 10 to 15 years in the study

area.

Table 7.--Industrial roundwood production in the Southern Appalachian timber supply

region, by State, year, species group, and prodbct

Softwood Hardwood

Ali Saw Veneer A!1 Saw Veneer

Year products logs logs Pulpwood Other products logs logs Pulpwood Other

Thousand cubic feet

GEORGIA AND SOUTH CAROLINA

_- 23,510 487 17,517 12,394 349

_- 27,163 283 18,593 10,601 416

__ 2a.ll: 212 16.242 9.119 672

1971 48,846 24,849

1974 49,106 21,660

1977 55,272 26,949

I 980 65,356 32,697

1983 72,434 32,857

1986 82,277 34,660

4,670

7,486

6,451

4,883

5,929

7,081

104

90

- -

a71 31,709 8:: 17,448 121047

584 38,167 17,550 10,784

1,546 45,557 514 20,105 12,610

518

a37

414 --

NOWH CAROLINA

1964 29,229

1967 31,468

1969 27,793

1973 36,763

1976 28,193

1979 28,937

1983 33,937

1986 35,682

19,425

18,196

15,483

23,059

19,257

116 13,037 9,496

__ 11,658

_- 13,617

30; 8,839 9,402

116 10,653

10 14,818

308 37,209 21,482

189 35,487 19,128

652 33,082 la, 147

a7 41,271 25, a68

97 28,941 20,989

146 37,523 25,953

- - 46,840 35,010

486 46,651 29,024

1,851 12,397

2,279 13,718

474 13,791

3,167 12,099

1,004

993

6,867

10,577

3,366 a,454

3,247 14,244

1,479

362

670

137

a l

- -

10

136

l9;oaa

23,168

20,368

TENNESSEE

1970 13,468 6,360 9 6,946 153 14,736 5,576 316 5,536 3,308

1979 13,522 5,985 _- 7,357 la0 14,248 8,845 - - 5,200 208

I 985 23,259 7,836 __ 15,404 19 16,615 10,517 112 5,780 206

VIRGINIA

2 343 25 22,732 18,200 683 3,720 129

_- 722 147 18,496 14,953 622 2,921 - -

2 322 21,011 17,264 100 3,600 47

24 330 fz 29,575 24,018 371 5,180 6

1976 5,414

1978 5,839

I 980 6,355

1984 8,460

5.044

4;970

6,018

8,046

18
Summary

The determination of harvest trends in the study

area is difficult because annual measures of timber

harvest quantity are not uniformly available. Nevertheless, when FIA removal estimates and industrial

timber product output data are examined, the following composite picture emerges:

FIA data indicate that the average annual harvest

of all species declined by 8 percent between the previous decade (mid-l 960’s to mid-l 970’s) and the

present decade (mid-l 970’s to mid-l 980’s). Between those periods, hardwood harvests fell 18 percent, while softwood harvests rose 6 percent. North

Carolina was an exception, however. There,

hardwood harvests rose by 9 percent.

Timber product output data are reported at more

frequent intervals and provide additional resolution

for recent harvest trends. These data clearly indicate a recent upturn in harvests of both hardwoods

and softwoods in every State within the study area.

Indeed, the harvests from 1983 to 1985 are higher

than for any of the last 15 to 20 years. Recent data

indicate that present markets are as strong as in any

recent decade.

1II.D. Factors Influencing Hardwood

Product Demand

Products that are constructed wholly or partly

from hardwood materials range from inexpensive

paper products to highly expensive furniture. Diversity rather than similarities rules the hardwood timber and subsequent product markets. Hardwood

forests tend to be mixed-species stands of unevenaged timber. Hardwood sawmills produce

numerous grade/species combinations and distribute lumber to a variety of secondary processors.

Individual hardwood mills often produce unique

plywood, pulp, or composite products. Furthermore, secondary hardwood processors tend to

produce differentiated products, with each producer

tending to exploit a market niche rather than producing generic commodities.

This section describes major primary and secondary hardwood product markets in the Southern

Appalachian region of western North Carolina, southwestern Virginia, eastern Tennessee, northern Georgia, and northwestern South Carolina. Major

economic and technical factors will be examined

that affect demand and supply of primary and secondary hardwood products, with implication on

hardwood roundwood demand. Before hardwood

markets are described, a basic primer is presented

on the economic theory periodically used in the

discussion.

Primary Hardwod Products Markets

The major hardwood products of the Southern

Appalachian study area are hardwood lumber,

hardwood plywood, oriented strand board (OSB),

hardboard, and paper. Hardwood lumber is normally produced from sawlogs, while hardwood

plywood is produced from high grade sawlogs

and/or veneer logs. Hardwood pulp (for paper

making) and composite hardwood products (OSB

and hardboard) are normally produced from lowgrade sawlogs, small diameter roundwood (pulp

logs), and sawmill residue. Low-grade saw and pulp

logs tend to be low-value but high-volume

byproducts of sawlog and veneer log harvesting activities. The hardwood lumber and veneer markets

will be discussed in separate sections; the composite panel product and paper markets will be discussed together.

Hardwood Lumber. The hardwood industry is

mainly composed of small, family-run operations,

primarily located in the Eastern United States. Only

a small amount (under 10 percent) of hardwood lumber being produced is by large publicly owned timber products corporations. There is no clear

information on the size of firms in this industry because the U.S. Department of Commerce (1985a)

lumps it with the softwood lumber industry in its

Standard Industrial Classification category (SIC)

2421. However, average employment per establishment for SIC 2421 in the predominantly

hardwood States of Kentucky, Ohio, Pennsylvania,

Tennessee, and West Virginia range from 8.8 to 10.5

employees per firm.

Capacity of hardwood sawmills in the study

region is hard to determine because of inconsistent

reporting among States. Perhaps, the best source

of capacity information is the TVA statistics for 1979

and 1985 (Tennessee Valley Authority 1979-86).

However, these statistics exclude all South Carolina

counties and 12 of the 27 counties of northeastern

North Carolina in the study region. These statistics

still provide some insight into changes in hardwood

sawmilling capacity for the study area and are

presented below in terms of thousand board feet.

Actual hardwood lumber production for 1979 and

1985 for South Carolina counties was obtained from

timber product output studies and is included below:

Year GA VA TN NC SC

1979 40.6 110 7 74.0 136.2 45

1985 39.4 107 5 70.4 176.2 28

19
Although the statistics for South Carolina probably overstate a capacity drop, they do indicate that

sawmill capacity decreased in the study region, except in North Carolina However, the 30-percent increase in North Carolina more than made up for the

decrease in the other States. The North Carolina

counties not included in the TVA region had an add:-

tional production capacity of 66.5 million board feet

when estimated from North Carolina sawmill

directories.

As with employment and capacity statistics, accurate statistics on national hardwood lumber

production are not available. Recent hardwood

production statistics released by the U.S. Department of Commerce were much lower than estimates

developed by Cardellichio and Binkley (1984),

whose findings were confirmed by Luppold (1987)

using different procedures and data bases. These

two studies and periodic timber product output

studies completed by the Forest Service for individual States indicate that production of hardwood

lumber is 8 to 10 billion board feet annually in the

United States. Hardwood lumber prices range from

$0.12 to $1.85 per board foot (Barrett 1987), with a

conservative average for all grades and species of

$0.30. Using this conservative number, hardwood

lumber is a $2.4 billion industry.

Although hardwood sawmills tend to be unique

operations, most can be divided into three

categories: grade mills, industrial product mills, and

part-time mills Grade lumber mills usually produce

a minimum of 2 million board feet of lumber per

year. The primary product of grade mills is relatively

high quality 4/4 (1 inch) and 5/4 (l-1/4 inch) lumber

that is usually graded either at the sawmill or by the

purchaser. Industrial products mills may be small or

large and may be found in combination with a grade

lumber mill or as a separate operation. The primary

products of industrial mills are railroad ties, mine timbers, or ungraded pallet lumber. A secondary

product of these mills is ungraded, higher quality

lumber. Part-time mills are small operations with lowcapital investments. These mills start up whenever

the market picks up and augment the supply of both

high-grade and industrial lumber.

The major markets for hardwood lumber in 1982

are shown in Table 8. About 38 percent of hardwood lumber went into pallets and containers. The

second largest user on a volume basis, and the

most important user on a value basis, was the

domestic furniture industry with 23 percent of the

market. In addition, if dimension stock used in furniture is added, the proportion increases, probably to

about 34 percent.

The lumber of each species has several different

markets, depending primarily on grade. High-grade

lumber [grade Firsts-and-Seconds (FAS) oak and

ash] has been in increasing demand by European

Table 8.--U.S. hardwood lumber demand for 1982a and changes in

employmentb in these industries between 1982 and 1986

Industry

1982 Changes in

lumber usage employment

(million fbm) (1982-86)

Pallets and containers 3,254 6.6

Furniture and cabinets 1,987 17.7

Dimension and

Millworkd flooringC

1,149 23.6

580 49.4

Railroad ties 834 4.8

Exports 357 40.1

Others 440 17.6

aAdapted from Luppold (1987).

bU.S. Department of Labor (1974-86).

‘Dimension or rough furniture parts accounted for about 949

board feet.

dHillwork figures revised downward because of inconsistencies

between values and volumes.

and Japanese furniture manufacturers. High-grade

lumber of other species and medium-grade (grade

1C) of most species are demanded by domestic furniture, cabinet, and millwork manufacturers.

Medium-grade red oak also is being demanded by

Taiwanese furniture manufacturers.

The railroad tie industry uses low- to mediumgrade log centers of dense species, such as oak,

hickory, hard maple, and sweetgum. The primary

market for lower grade hardwood lumber is the pallet industry. One exception is low grade red oak,

which is being utilized by the re-emerging oak stripflooring industry.

Although nearly every species has been used by

domestic furniture manufacturers at one time or

another, red oak has been highly utilized as an appearance lumber for over a decade. U.S. red oak

has been in greatest demand by European,

Canadian, and Taiwanese furniture manufacturers

(Luppold and Araman 1988). Oak also is preferred

for the production of pallets and flooring. The impact of these demands for oak has been reflected in

the price movement of oak over the last several

years as shown in figure 12.

In figure 12, the movement of relative (inflationadjusted) IC red oak price is contrasted with the

price movement of 1 C yellow-poplar, No. 2 southern

pine 2 by 4’s, and overall hardwood lumber price.

Although the price for southern pine increased in

relative terms during the 1970’s, the price for red

oak remained high, showing only a cyclical movement due to economic expansion and contraction.

The increase in overall hardwood lumber price is

due mainly to increases in oak prices counteracting

decreasing prices of most other hardwood species.

In fact, the only hardwood species that have shown

20
lB75=100

175

i GRADE 1 RfZO OAK LOGS I

IC RED OAK

s

: ’ :

150.

: ‘, :

’ \

’ ,

’ ,

’ , 8’

’ , , : ‘, :

, ’

, ’

’ .-’ 1. -

75'. . . * * *. . . . . . *

'75 '77 '79 '81 '03 '85 '87

YEAR

Figure 12. - Relative price movement of No. 1 common Appalachian red oak and yellow-poplar,

southern pine construction 2 by 4, and all hardwood

lumber, 197587. Source: Lemsky (1972-87),

Richards and Wilcox (198587).

relative increases are red oak, ash, and black

cherry. Of these, only red oak is found in abundance in the Southern Appalachian area.

The change in prices for hardwood lumber is

reflected in the sawlog market. Figure 13 indicates

that as the price of red oak lumber increased, so did

the price of higher grade red oak logs. Similarly, as

the price for yellow-poplar lumber decreased, so did

the price of higher grade yellow-poplar logs. Ohio

log prices were used in this figure because they are

the only historic price series for hardwood logs that

divide species and grade. The grade distinction is

vital for oak because the price for grade 1 red oak

logs has increased by 66 percent over the last 13

years, while the price for grade 3 white oak logs has

decreased by 7 percent. Since hardwood sawmills

over broad areas receive similar prices for lumber

and incur similar production costs, the use of Ohio

prices to demonstrate the relationship between log

and lumber prices is appropriate.

Exports of high-grade hardwood lumber in

general and oak lumber in particular have become a

major force in the domestic hardwood lumber

market. The growth of U.S. exports is affected by

rising prices for tropical, European, and Japanese

150.

125.

100.

‘&_,

\

.. \

_---*

'1C POPLAR

--___ . ,

‘-.\ , ’ LUMBER

..;_---._,+--_.

.-._

,

-__- -- POE%ELks

75......'.""'

'75 '77 '79 '81 '83 '85 '87

YEAR

Figure 13. - Relative price movement of Appalachian

No. 1 common red oak and yellow-poplar lumber

and USFS grade 1 red oak and yellow-poplar logs in

Ohio, 1975-87. Source: Lemsky (1972-87), Ohio

Agricultural Statistics Service (1987).

hardwoods; increased consumer demand in Europe

and Japan; and the development of the Asian furniture industry. The decline in the value of the dollar

has stimulated European and Japanese demands;

1987 exports of U.S. oak surpassed 725 million

board feet. Exports of red oak surpassed 330 million board feet, while exports of white oak surpassed

125 million board feet.

The increasing price of red oak lumber is caused

by increased domestic and foreign demands for red

oak lumber. This price increase has caused an increase in both red oak lumber supply and red oak

log demand. Since other hardwood species

decreased in relative value, stands with large

amounts of red oak are likely to be in greater

demand than stands with lesser amounts of red oak.

Hardwood Plywood and Veneer. Hardwood

veneer and plywood operations, which average 58

employees per firm, tend to be larger than

hardwood sawmills. In 1982, the industry was composed of 306 establishments in the United States

that were manufacturing hardwood veneer and

plywood - 65 were in North Carolina and 125 were

in the five study area States. (U.S. Department of

Commerce 1985a).

21
Although the hardwood veneer and plywood industry consumes far less timber volume than the

hardwood lumber industry, value of veneer and

plywood shipments was over $1.3 billion in 1982

(U.S. Department of Commerce 1985a) and has

risen substantially since then. Part of the reason for

the high value of shipments is that plywood is a

finished or semifinished product, while rough lumber

is a raw material. Double counting is also a problem

in this industry. Over $277 million of hardwood

veneer was used by firms classified in SIC 2435

(U.S. Department of Commerce 1985a). However,

manufacturers of hardwood veneer were also placed

in this group.

Although there may be double counting of this industry by the Bureau of the Census, it is clear that

hardwood veneer and plywood are high-value

products and that hardwood veneer logs are more

valuable than sawlogs. For instance, the average

cost of red oak sawtimber stumpage in Ohio in May

1987 was $205 per thousand board feet (Doyle

scale), while the average cost of high-grade red oak

veneer stumpage ranged from $463 for a 15-inch log

to $645 for a 24-inch log. (Ohio Agricultural Statistics

Service 1987).

Domestically produced hardwood veneer and

plywood are used by producers of furniture, architectural products, cabinet-grade plywood, and wirebound boxes. Also, substantial volumes of veneer

(nearly 1 billion square feet valued at $81 million in

1986) are exported to Europe, Taiwan, and Japan

(U.S. Department of Commerce 1986a). Most of the

inexpensive wall paneling sold for home construction is produced from imported lauan plywood or

particleboard products.

The two main types of veneer are face veneer and

core material. Face veneer is produced from

species with attractive appearance, such as oak, walnut, and cherry, and is usually sliced to give the look

of lumber. Core material is normally produced from

less dense and less expensive species, such as

yellow-poplar, sweetgum, or basswood, and is

usually rotary cut to gain the most yield from the log.

Face-grade veneer logs are rare but are found in

combination with high-grade sawlogs. Such logs

normally travel distances more than 100 miles from

forest to mill and sometimes thousands of miles.

Core-material logs are not as rare as face-grade

material logs but still can travel longer distances

from forest to mill than sawlogs.

Veneer demand is difficult to determine since no

information is published on the veneer market other

than international trade statistics. Veneer is not as

standardized as hardwood lumber and veneer

sellers and purchasers tend to negotiate price on a

flitch-by-flitch basis (sliced log). However, exports of

veneer have increased 24 percent since 1982, and

the demand for red oak veneer by domestic furniture

manufacturers appears strong. According to industry sources, domestic veneer slicers are operating at maximum production. Demand for

yellow-poplar core stock is strong in the Southern

Appalachian area because of the plywood mills,

which consume around 20 million board feet of logs

a year.

Pulp and Composite Products. Unlike the

hardwood lumber industry, which is composed of

mostly small family-run firms, the pulp and paper

and composite products industries are controlled by

large diversified forest products companies. In the

study region, there are two pulpmills, two OSB

plants, and one hardboard siding plant. Laws

prohibit disclosure of sales and employment information on these individual plants, but the corporations

involved employed over 134,000 people and had

sales in excess of $16 billion in 1986 (Standard and

Poor’s Register 1986).

Although high-grade hardwood sawlogs tend to

be higher priced than high-grade softwood sawlogs,

hardwood pulpwood is less expensive than softwood

pulpwood. Traditionally, the majority of paper and

composite products were manufactured from either

softwood roundwood or residue from softwood lumber and plywood manufacturing. Softwood continues to be the major fiber source for these

industries, but hardwood usage has continued to increase as new technologies and markets have allowed manufacturers to use increased amounts of

low-cost hardwood material.

Examples of such changes in the study area include increased demand for hardwood roundwood

by one of the pulpmills and the recent construction

of the two OSB plants. As a result of these changes,

demand for hardwood by these industries has increased from 400,000 cords in 1984 to a projected

1987 usage of 562,000 cords.’ Current expansion

plans by these firms will result in a demand of

652,000 cords a year by 1990 and over 780,000

cords a year by 2000.

Although hardwood pulp is made from both

dense and soft hardwood species, current technology dictates that OSB must be made from soft

hardwoods. The major increase in hardwood

demand since 1984 has been from the addition of

OSB plants. Since the major growth in future

demand will be made by these plants, the majority

of the increased demand will be for soft hardwoods,

such as yellow-poplar.

Secondarv Hardwood Products Markets

The demand for hardwood lumber, veneer, and

plywood and the resulting demand for hardwood timber are mainly a function of secondary hardwood

product demand. These demands occur in four distinct markets: (1) consumer goods, (2) office

‘Figures obtained from telephone survey of the five firms

in the study region.

22
furniture and fixtures, (3) construction materials, and

(4) industrial. Each of these markets will be discussed separately.

Consumer Goods. The main consumer goods

produced from hardwood lumber, plywood, and

veneer are wood household furniture, upholstered

household furniture, and kitchen cabinets. Minor

products include craftsmen supplies, sports equipment, and toys. The major consumer product made

from hardwood pulp is magazine and bookpaper.

Wood household furniture includes case goods

(dining and bedroom furniture and occasional

tables), while upholstered furniture includes seating

other than dining room and kitchen chairs. The

wood household furniture industry was the single

most important user of hardwood material, consuming $380 million* of hardwood lumber, $186 million

of hardwood dimension, $100 million of hardwood

veneer, and $63 million of hardwood plywood in

1982 (U.S. Department of Commerce 1985a). Since

employment in this industry has increased over 7

percent since 1982, material uses have probably increased around 7 percent (U.S. Department of

Labor, Bureau of Labor Statistics 1974-86). This industry is especially important to the Southern

Appalachian area and North Carolina since 50 percent of the firms are in the five-State area and nearly

30 percent are in North Carolina (U.S. Department

of Commerce 1985a).

The upholstered furniture industry used $80 million of hardwood lumber and an additional $180 million of hardwood dimension and frames (U.S.

Department of Commerce 1985a), Since much of

the lumber used in upholstered furniture is hidden

from view, the vast majority of the lumber used is

low grade but structurally sound or of a species not

generally used in case-goods production. Wood use

in this industry has probably increased since 1982

since employment by the industry increased nearly

11 percent (U.S. Department of Labor, BLS 1974-86).

In 1982, the kitchen cabinet industry consumed

nearly $150 million of hardwood lumber, $37 million

of hardwood plywood, and $15 million of hardwood

veneer (U.S. Department of Commerce 1985a). This

has been one of the most rapidly growing hardwoodusing industries, growing 34 percent in relative value

(inflation adjusted) of shipments between 1976 and

1982 (U.S. Department of Commerce 1985a). Since

1982, employment in this industry has increased 54

percent, indicating rapid growth in both production

and hardwood material usage (U.S. Department of

Labor, BLS 1974-86).

Household furniture and cabinet demand is affected by population, income, housing starts, family

formation, lifestyle, and fashion. Figures 14 and 15

show the two main factors - population in the peak

furniture buying age (24-45) and disposable family

income (U.S. Department of Commerce 1985b). Although housing starts are often used to track wood

product demands, housing starts are more a proxy

for the combined effects of income and population

growth.

i%oNSI

60 .

6 0

0’ . - . . . . 1960 1970 1960 1990 2000

YEAR

Figure 14. - Level of population between 25-45 years

of age (actual and projected), 1960-2000.

M$

30r

2 8

2 6

20’ ’ . ’ ’ . ’ . ’ . m ’

‘60 ‘65 ‘70 ‘75 ‘80 ‘84

YEAR

‘All dollar values reported in this sectlon were developed

from the 1982 Census of Manufactures by taking reported

values and adjusting to account for firms not giving

detalled breakdowns of material use

Figure 15. - Median family income, 1960-84, in constant 1984 dollars, Source: U.S. Department of

Commerce (1986).

23
In recent years, the population of people of peak

buying age has increased sharply (fig. 14). This

figure indicates that this segment of the population

will increase over the next few years, level off, and

start to decrease at the turn of the century. Figure

15 indicates that inflation-adjusted family income is

also increasing, even though its growth has slowed

considerably during the 1980’s. These concurrent

trends suggest that demand for hardwood products

will increase in the 1980’s but start to decrease in

the early part of the next century. Current trends discussed below do indicate an increase in demand for

hardwood-based products.

Currently, wood furniture sales are at an all time

high,3 but domestic production is still below the level

of the late 1970’s because of the surge in furniture

imports (Luppold 1988). However, the high level of

imports has not necessarily decreased the use of

U. S. produced lumber in furniture manufacturing.

Nearly 40 percent of the imports originate from Asia,

and a high proportion of these imports contain lumber produced in the United States (Luppold 1988).

Furthermore, the amount of hardwood lumber used

per piece of domestically produced furniture also

has increased (Luppold 1988).

The surge in kitchen cabinet demand is influenced by increased population and per capita income and also by style and fashion. Large kitchens

with wood, many times oak, cabinets are in style.

Demand for wood kitchen cabinets not only

originated from new home construction but also

from a strong remodeling market. The large upsurge in kitchen cabinet demand has probably influenced the oak market the most.

The demand for paper produced from hardwood

pulp seems to be increasing as limited circulation

magazines and the shop-at-home catalog market expands Future demands for paper products

manufactured from hardwood pulp are difficult to

forecast because of changing technology and

markets. However, it is safe to assume that these

demands will increase nationally and may increase

in the study region.

Office Furniture and Fixtures. The office furniture and fixtures industry consumed $166.2 million

in hardwood lumber, $76.5 million in hardwood

plywood, and $65.1 million in hardwood veneer in

1982 (U.S. Department of Commerce 1985a). Since

much of the material consumed by this industry has

high value, the dollar figures are not directly comparable to the household industry dollar figures. For

instance, Luppold (1988) estimated that while the

3Determined by adding domestic production as reported

by the National Furniture Association plus exports as

reported by the U.S. Department of Commerce, Bureau of

the Census, in Report FT-246 and less exports as

reported by the U.S. Department of Commerce, Bureau of

the Census, in Report FT-410.

wood household furniture and related dimension industry consumed 1,376 million board feet of

hardwood lumber in 1982, the commercial industry

only consumed 275 million board feet.

Although demands by commercial furniture

manufacturers may be relatively small compared to

the household industry, the commercial sector has

seen tremendous growth over the last 15 years (Luppold 1988). This growth, coupled with the tendency

of wood commercial furniture to require high-grade

wood, has put added pressure on markets for

premium-grade hardwood products. These

manufacturers appear to be competing with

European and possibly Japanese lumber and

veneer buyers.

Construction Material. The main hardwood construction materials are hardwood millwork,

hardwood flooring, OSB, and hardboard siding.

While the millwork industry supplies products mainly

for the construction of restaurants and offices, the

hardwood flooring industry supplies products mainly

for residential construction. OSB is a low-cost substitute for softwood plywood. Hardboard siding is a

popular product for both home and commercial construction, but sales of this product have been slowed

by increased use of vinyl products.

Assuming that the revised figures in Table 8 representing hardwood lumber use in millwork are correct, hardwood lumber use in this industry remained

steady between 1972 and 1982. However, the 50-

percent increase in millwork employment since 1982

nationwide and the 42-percent increase in employment in the predominantly hardwood States of the

Midwest and Appalachia indicate that hardwood consumption by this industry was considerably higher

in 1986 (U.S. Department of Labor, BLS 1974-86).

There is no way to determine species mix from the

available data; however, because of the appearance

and nature of millwork and the predominance of oak

in recently built restaurants and offices, it is likely

that much of the increase in millwork demand has

impacted the oak market.

The hardwood flooring industry went through a

large decline between 1958, when lumber consumption was near 2 billion board feet, and 1982, when

lumber consumption was around 200 million board

feet (Martens, in press). Since 1982, the demand for

oak strip floors has increased by 93 percent, and the

demand for plank and parquet flooring has increased moderately, raising wood usage by the flooring industry to around 325 million board feet in 1986

(Martens, in press). Almost all the flooring produced

in the United States today is oak, with 2C red oak

being the primary material.

The increased demand for hardwood flooring and

the apparent increased demand for hardwood

millwork seem to be heavily influenced by style and

fashion. Oak flooring demand declined during a

24
period of unprecedented housing starts in the 1960’s

and 1970’s but increased during the moderate

market of the mid-l 980’s. Hardwood millwork was

seldom seen outside of boardrooms and bank lobbies until the early 1980’s. Wood floors in at least

one room are in vogue in custom-built houses, and

new fast-food restaurants have large quantities of

oak millwork. Since flooring and millwork demands

are style related, it is difficult to know when demand

for hardwood flooring and millwork will rise or fall.

Future sales of both OSB and hardboard siding

will be affected by the same factors that influence

the sales of residential and commercial furniture. If

construction increases because of increased population in certain age groups, demand for these

products will increase. As the population levels off,

demand for these products will either stay constant

or fall.

industrial Demand. The main industrial

hardwood products are pallets and railroad ties.

Approximately one-third of the pallets are produced

by firms associated with hardwood sawmills. These

operations can utilize 100 percent of a sawmill’s

production if the sawmill is cutting low-grade timber

(pulp quality), or just use the lower quality lumber

produced from a mill cutting higher quality timber.

Normally, the sawmill and pallet operations are in

separate buildings and run as separate profit

centers.

The pallet industry has doubled in size over the

last 12 years (National Wooden Pallet and Container

Association 1987). This growth is due to the substitution of capital-intensive materials handling systems,

which substitute pallets for labor, and to increased

yearly levels of domestic industrial production (Luppold and Anderson 1986). Although pallet markets

are highly regionalized, with pallets normally traveling under 50 miles to the demanding customer, pallet lumber can travel distances of several hundred

miles. Pallet-quality lumber produced in the

Southern Appalachian area (other than red oak,

which goes primarily to flooring plants in Tennessee)

is ordinarily shipped to pallet firms located near

major industrial plants or major metropolitan areas.

Timber usually is not purchased and cut for pallet

material, and higher grade sawlogs usually are not

bought for the pallet-quality lumber that the logs will

produce. However, the pallet market is important because it provides an outlet for low-quality lumber

and logs that otherwise would not be profitably

utilized.

Railroad ties are cut into final form at hardwood

sawmills and shipped to treating plants for final

processing. The majority of ties are produced by

small sawmills that tend to go in and out of business,

depending on demand. Large sawmills can produce

railroad ties, but the cyclical nature of the tie market,

which is dependent not only on the economy but on

railroad management, cannot be seen as a steady

source of sales. The timber used to manufacture

ties is low to medium quality. At small mills, which

are the primary producers of ties, timber purchases

are partly influenced by the tie market.

ConcludQ Comment

The demand for hardwood products appears to

be strong, even after the stock market crash of 1987.

“Hardwood Market Report and “Weekly Hardwood

Review” consistently report a strong and apparently

growing demand for hardwood lumber. Discussions

with manufacturers of hardwood veneer, plywood,

furniture, pallets, and flooring indicate possibly the

strongest market ever for their products. However, if

a recession occurs, the current hot market will cool

quickly.

A recession within the next few years will reduce

hardwood product demand temporarily but will not

reduce the potential long-term demand. Demand for

hardwood products is a function of population level

and age distribution. The population subgroup that

consumes the major proportion of furniture,

cabinets, and homes will remain high until the year

2000 (fig. 14).

Much of the strength of the current market is

based on red oak. Since the beginning of 1986, red

oak prices have increased 10 percent for FAS and

41 percent for 2C. However, an increase in the price

of red oak is not new. Red oak prices have been

above the level of overall inflation since 1973 (fig.

12).

Domestic furniture and kitchen cabinet manufacturers and European and Asian furniture manufacturers have increased demands for oak. The strong

market for oak over the last 1.5 years has caused

some sawmillers and processors of oak lumber to

become concerned about long-term supplies. Currently, however, there is no easy way to validate

these concerns.

Demand for yellow-poplar sawlogs and smalldiameter roundwood will probably increase in the

study region for many reasons. If continued strong

demand keeps pushing oak prices higher, yellowpoplar will be one of the alternative species used to

satisfy the ever-increasing demand for furniture. Although yellow-poplar is not perceived by manufacturers and the furniture-using public as oak is, oak

was in a similar position 20 years ago. Since yellowpoplar is the second most abundant hardwood

species, furniture manufacturers will probably learn

to process and sell yellow-poplar as they learned to

process and sell oak. Small-diameter roundwood

demand will increase because of increased production of OSB by existing, and possibly additional,

plants.

25
1II.E. Factors Influencing Southern

Appalachian Timber Supply

ry of Te

The basic definition of timber supply is simply the

aggregate quantity of timber that producers are willing to offer on the market during a specified time

period for a given price. This market relationship

derives from the influence prices have to induce individuals and firms to harvest timber and, implicitly,

to grow timber. In harvesting timber, rising prices

encourage more producers to enter the market and

cause younger trees to be harvested as those

producers already in the market increase their output. In growing timber, rising prices make timber

growing a more profitable enterprise, motivating

landowners to manage their land for timber as opposed to other land uses, such as agriculture or

recreation.

This pure economic perspective of timber supply

must be tempered by several constraints. A physical constraint on supply is the length of time necessary to grow timber of a desired size. Owners may

be unable to respond to price changes promptly because the timber is either physically not available

(e.g., incorrect species) or is too small (e.g., underage). In addition, timber production must compete

for land with other productive uses that also respond

to changing market conditions. Therefore, while

rising prices may make timber production increasingly profitable, timber growing may still give lower

returns than other land uses.

A social constraint on supply is the heterogeneous mix of forest ownership types. The

presence of public ownerships - Federal, State, and

county- imposes management constraints on potential supply. Managers of Federal land, and often

State and county land, use allowable cut criteria to

determine their annual harvests. Thus, their annual

sales are not very responsive to short-term changes

in price (Adams 1983; Buongiorno and others 1985).

In addition, social and environmental concerns can

raise the costs of production, and changing prices

can alter the potential revenues derived from timber

production. Thus, in the long run, public supply

responds to changing market conditions by increasing or reducing the number of acres available for timber production, influencing the allowable cut and

ultimate timber supply.

Private forest is held by forest industry and nonindustrial private forest (NIPF) owners. Forest industry can be expected to closely follow an

economic supply specification in determining

production levels (Hyde 1980; Jackson 1980). Thus,

in the long run, industry should respond to rising

prices with increased timber production and

management inputs. However, in the short term, it

is sometimes limited by the physical location of its

timber relative to active timber markets or by the

physical condition of its timber stands, In such a

situation, industry may be unable to increase internally produced supplies in the face of rising demand.

The NIPF landowners are a diverse group with a

variety of reasons for owning forested land. This

diversity of behavior has been studied extensively

(e.g., Binkley 1981; Boyd 1984; Clawson 1979;

Hyberg 1986; Royer and Risbrudt 1983). Published

studies show that, in addition to a response to changes in economic factors such as price, other factors

such as size of landholding, outside income of the

owner, and management objectives are directly related to the harvest decision, and separately related

to the reforestation decision. Thus it is expected that

actions which change the mix of NIPF ownerhsip

types change the availability of timber.

As a result of these physical and social constraints, short-term timber supply responds slowly to

changes in price (Adams and Haynes 1980b; Newman 1987). When changes in market conditions

cause timber buyers to increase their demand, increases in the amount of timber available on the

market are relatively small. In the longer term, this

slight response may change as landowners respond

to perceived changes in market conditions.

However, these short-term effects cause apparent

shortages in the timber market, and prices can rise

substantially.

The rest of this section examines the supply factors distinct to the Southern Appalachian timber

region. The initial focus is on changes in regional

land use and the distribution of land between ownership types and the effect that these changes have

had on timber supply. The discussion then examines changes in the forest inventory in the region

and their significance for aggregate timber supply.

The section closes with a summary of the analysis

and a general discussion of future supply expectations for the region.

Determinants of Southern Appalachian

Timber Supply

Inquiry and research into the forestry problems

and potential of the Southern Appalachians have a

long history. At the turn of the century, President

Roosevelt called national attention to the depressed

state of the region’s environment and called for the

creation of Federal reserves to help the area (U.S.

Department of Agriculture 1902). Also at the turn of

the century, the first organized forest management

and education program began in the United States

on the Biltmore Forest, which makes up the bulk of

the present-day Pisgah National Forest (Schenck

1974). Later, a landmark study in the development

of forest economics by William Duerr (1949) detailed

the region’s problems in forest production and

marketing. Since that time, numerous other

26
researchers have surveyed and examined the characteristics of the area in general and its NIPF landowners in particular regarding the timber supply

potential from them and the region or similar areas

(Birch and Powell 1978a and 1978b; Boland and

others 1979; Forrester 1980; Meredith 1976; Royer

1987; Wells 1977; Wells 1978; Wiggins 1977). These

studies show common problems of rural areas

across the country: changes in land ownership,

changes in land management, and the consequences of these changes on timber production.

The intent of some of these studies (Boland and

others 1979; Forrester 1980; Wells 1977) was to

delineate the distinguishing characteristics of NIPF

landowners in parts of the region, either to assess

their potential to harvest timber, or relatedly, their

potential to invest money for active management for

timber production. These studies show NIPF landowners to be substantially older than the general

population (70 to 80 percent are age 50 or older),

but they have approximately the same education

level as the surrounding population (28 to 38 percent

have gone beyond a high school diploma) and the

same income levels. Approximately 30 percent consider farming to be their primary occupation and 70

percent live on or within 10 miles of their forest land.

The primary factors related to timber availability,

all other things being equal, for forest landowners in

the region are: (1) residency of the owner, (2) size of

the forest tract, (3) landowner objectives, and (4)

landowner occupation (Wells 1977). Timberland

owned by rural inhabitants is nearly twice as likely to

receive harvest treatments as timberland owned by

urban inhabitants. The size of the landholding also

has a direct effect on the likelihood of timber

availability; larger tracts are more likely to be harvested. Finally, farmers are more likely to sell timber

than other owners.

Comparing the characteristics that increase the

likelihood of timber harvesting with recent changes

in the composition of forest landholdings in the

region can give a better understanding of timber

supply potential for the region (table 9). Over the

past 25 years, total NIPF land decreased 2.2 percent

from 10.9 million acres to 10.6 million acres. The

percentage of acreage owned by farmers-the NIPF

group thought to be the most likely to harvest timber - decreased nearly 43 percent from 5.46 million

acres to 3.13 million acres. This decrease reflects

changes in the farm economy that have forced many

people to abandon farming as a career. Thus, much

of the land that changed category may still be held

by the same individuals, who now have different occupations Much of the land dropped from the farm

category is now held by owners in the miscellaneous

category. This group includes corporations not

engaged in farm products manufacture and individuals who do not farm. Holdings in this miscellaneous category increased 38.5 percent from 5.43

million acres to 7.53 million acres. Although these

owners are somewhat more reluctant to sell timber

than are farmers, this change in landholding alone

may not signal a significant decrease in the

availability of timber.

Table 9.--Area of timberland in the Southern Appalachian timber supply

region, by ownership class and survey perioda

Ownership class 1961-68 1971-78 1980-86

Thousand acres (percent)

National forest 2,517.g (17) 2,631.2 (18) 2,620.O (18)

Other public 266.0 (2) 283.0 (2) 322.6 (2)

Forest industry 1,067.6 (7) 630.5 (4) 624.3 (4)

Total 3.851.5 (26) 3.544.7 (24) 3.566.9 (24)

Nonindustrial private (NIPF):

Farmer 5,468.0 (37) 4,828.g (33) 3,132.z (22)

Misc. private 5,434.6 (37) 6,235.3 (43) 7,525.5 (53)

Total 10.902.6 (74) 11.064.1 (76) 10.657.7 (751

All ownerships 14,754.l (100) 14,608.8 (100) 14,234.6 (loo)

aThe survey periods represent the three most recent FIA surveys for the

respective States in the study area.

27
This conclusion may be illustrated by the changes

in the distribution of timber removals from the region

in the 1970’s and 1980’s (fig. 16). In the 1970’s

farmers owned 33 percent of the timberland and accounted for 34 percent of the timber removals. The

miscellaneous owners held almost 43 percent of the

timberland and accounted for almost 44 percent of

the removals. In the 1980’s, farmers’ share of timberland reduced to 22 percent and their removals

dropped to 26 percent of the total cut. The miscellaneous owners’ share of timberland increased to 53

percent and their share of total removals increased

to over 50 percent. Thus, the relative shares of timber removals from all NIPF land stayed almost constant between the periods. In absolute terms

though, NIPF removals declined by more than 30

million cubic feet as total removals dropped by almost 40 million cubic feet.

These changes in relative ownership and production levels reflect statements made by Clawson

(1979) regarding the reliability of using surveys

based on past management behavior alone in

predicting the likelihood of timber production:

“Such surveys will often show a considerable number of forest owners who have sold no timber in the

recent past and who say they have no intention of

PERIOD - 1971-76

FARMER

34.liX

OTH PUB

3.37%

NAT FOR

ii.sw

selling timber in the future. Their replies to questions may be completely honest and yet the reality

may be different, either because they change their

minds or because the property is bought by a new

owner with different objectives.” Although the group

that has been found to be the most likely to harvest

timber, farmers, has declined in relative importance

in the region, this change alone is not sufficient to

predict that total timber supplies will decline.

Forest industry land also decreased substantially,

from 1.07 million acres in the 1970’s to 0.62 million

acres in the 1980’s. The rate of decrease slowed

over the past survey period. North Carolina, South

Carolina, and Virginia’s forest industry acreage actually increased, but overall industry-owned forest

land still decreased 1 percent. The tightening of timber supplies due to landowner changes seems to indicate that forest production may become more

profitable in the future. That forest industry has not

responded to this potential by increasing its

landholdings suggests that it does not anticipate timber prices rising relative to the price and availability

of suitable forest land.

Even as its land base has decreased, forest

industry’s production has increased and now

provides 10 percent of the total timber removals in

PERIOD - 1980-66

FOR IN0

9.60%

FARMER

51%

OTH PUB

1.92%

NAT FOR

10.02%

MIS

52.

Figure 16. -Distribution of annual timber removals in the Southern Appalachian

timber supply region for the two latest survey periods, by ownership class.

28
the region. It is the only group other than the miscellaneous individual group to show an absolute increase in total removals. Its removal level is also the

closest to an even-flow situation as annual growth is

only 1.5 times higher than removals (fig. 17). No

other ownership category approaches this level of

harvesting intensity. Even this level of removal

leaves a substantial cushion for increased harvests.

Farmers are the next closest with a growth/removals

ratio near two Thus, while forest industry could

potentially increase its production, 50 percent from

its existing timber base, physical or strategic reasons

may prohibit it from doing so. In that case, unless it

increases its landholdings or increases the productivity of its forest-land base, it is unlikely to increase

its level of timber production. If total removals from

all sources continue to decline, however, its share of

total production will likely rise.

bati Availability

The availability of land for timber production is an

extremely important key to this analysis. Since

forestry is often seen as a residual land use, increases in land prices drive down the potential for

advantageous timber production. In an assessment

of forest-land market values, de Steiguer (1982)

found real price rises greater than 5 percent

throughout the 1970’s in the Appalachian region.

Some of the rise in price was attributed to rises in

stumpage prices, but strong demand for recreational

land and rural residences and rising interest rates in

the region added to the upward pressure on forest

land prices. These high prices for land deter longterm active forest management due to the long forest

production cycle and ultimately reduce the future

availability of timber.

Along with these general rises in land prices, de

Steiguer found much higher sale prices for smaller

tracts of land than for large tracts. Therefore, there

is an incentive for land sellers to subdivide large

tracts. The economic effects of this land fragmentation have been discussed extensively in the literature

(Row 1978; Schallau 1975). The major impact of

fragmentation is the creation of smaller timber

production areas. This fragmentation causes cost inefficiencies from decreased timber accessibility and

the inability to take advantage of scale economics in

production. As a result, costs of timber management and harvesting practices are raised when the

tract size falls below 5 to 30 acres (Cubbage 1982;

Cubbage and Harris 1986). The impact of fragmentation tends to be greater for pine management than

for hardwood management. When high-quality

hardwood is desired, individual tree harvests are

often performed, making parcel size less of an issue.

Meredith (1976) followed deed changes on 48

tracts of land, 500 acres and larger, in one Tennessee county over a 30-year period and found substantial land sales and fragmentation. Although no

RAT

5

4

3

2

1

specific studies of this type have been done within

the study area, the relatively short average land

tenure found in past NIPF owner surveys (1 l-30

years) seems to verify that fragmentation is occurring. Conversely, holdings of farmland in the region

and in the rest of the country have been consolidated extensively.

As a result of these changes in land value and

tenure, the potential for active timber production has

declined substantially over the past 30 years. Fragmented ownership drives up the cost of timber

removals, making active management for timber

production less likely. At the same time, increasing

land prices make consolidation of forest holdings

more difficult. Thus, potential profitability from timber production of much NIPF land has become

‘10

0

ALL OWN OTH PUEi NAT FOH FOR IN0 FAR)I(ER MIS PHI

OWNER

Figure 17. - Ratio of net annual growth to annual timber removals in the Southern Appalachian timber

supply region, by ownership class.

29
marginal. Only with sharply rising stumpage prices

will this land become available for active forest

management.

Phvsical Accessibility Constraints

In addition to landowner attitudes and objectives,

physical attributes of the resource significantly affect

the supply of timber at a given time. Steep terrain

and remote timberland are major supply problems

in the area. These conditions drive up costs for

roads to access the timber, and they create a need

for specialized equipment to log the sites.

The potential impact of steep slopes and poor access on potential timber supply can be examined

using FIA survey data collected in the North

Carolina, South Carolina, and Virginia portions of

the study area. Slope percentage and classes are

presented in table 10. The measure of accessibility

is the distance to an access road. Distances are

grouped into three arbitrary classes to easily allow

comparisons by ownership. Since the vast majority

of the softwood inventory is on relatively gentle terrain and/or near roads the remaining discussion

focuses only on the hardwood inventory.

Slope and accessibility are important factors affecting the potential supply of hardwood timber.

Across all ownerships, 54 percent of the hardwood

inventory is more than 500 feet from an access road

and more than two-thirds is on slopes of 31 percent

or steeper. In order to assess possible impacts of

terrain and accessibility factors, the extreme classes

of slope (61 percent and steeper) and distance to access road (1,500 feet and greater) are assumed to

be less likely to contribute to short-term timber supplies than the less extreme categories. The

hardwood inventory existing on these timberlands

was examined and compared for the major ownership classes.

For all ownerships, almost one-third of the

hardwood inventory is on slopes of 61 percent or

steeper or more than 1,500 feet from a road. Wide

differences in this proportion were found for the

major ownership classes. Less than 17 percent of

the hardwood inventory on farmer-owned timberland

exists on these more extreme conditions. In general,

farm timberland is more gently sloping and much

closer to a road than either miscellaneous private or

National Forest land. About 30 percent of the

hardwoods on miscellaneous private land are on

slopes of 61 percent or greater or on sites more than

1,500 feet from a road. In contrast to these major

sources of private hardwood supply, a much higher

proportion of the hardwoods on National Forest land

is found on these sites. More than 46 percent of the

hardwood inventory on National Forest land is

characterized by these extreme conditions.

Select red oak is highly concentrated in remote

areas or on sites that pose operability problems.

The proportion of red oak on slopes of 61 percent

and steeper and/or more than 1,500 feet from a road

averages 43 percent and ranges from 22 percent on

farm ownerships to 54 percent on National Forests.

These data indicate strong physical constraints on

hardwood timber inventories. As a result, less

hardwood timber is economically available in the

region than might be expected after looking at the

current inventory figures alone. Changes in other

factors will have to occur to bring these marginal

sites into active production.

Technical Chanae

A final factor affecting timber supply in the region

is technical change in the production of timber.

Since most of the hardwood growth in the region is

in natural stands, the way that timber is produced

has changed little. In fact, there is some evidence

that productivity in the region for all types of forest

production, from all sources, has decreased during

the most recent survey period (Sheffield and others

1985; Wallace and Newman 1986).

Cable logging systems have been introduced to

harvest steep slopes In many cases, these systems

raise the cost of harvesting, but they reduce site

damage and other external effects caused by tractor

logging, In addition, they may make logging practical

on some slopes that were once inaccessible. The

overall effect of this type of change on total supply is

uncertain because direct accounting costs of production are raised, while total economic costs may well

be lowered. The extent to which NIPF landowners

respond to the potential of less damaging harvesting

operations, or to the potential to operate on previously unusable sites, will determine the ultimate

supply effect. Generally, the effect of technical changes in production such as this is to increase and extend total available supply.

30
Table 10 .--Percentage distributiona of hardwood growing stock, by

slope class and distance to access road, for three ownership classes

and all owners

Distance to access road (ft)

Slope class

(percent) Total O-500 501-1500 1500+

O-30 29.0 8.7 10.1 10.2

31-60 55.2 16.5 17.3 21.4

61+ 15.8 1.0 6.0 8.8

Total 100.0 26.2 33.4 40.4

O-30

31-60

61+

Total

O-30 29.5 18.7 8.1 2.7

31-60 54.4 24.3 18.6 11.5

61+ 16.1 6.7 5.7 3.7

Total 100.0 49.7 32.4 17.9

O-30

F”+

Total 100.0 45.7 32.9 21.4

NATIONAL FOREST

FARMER

38.2 25.5 11.7

53.1 25.9 20.3

8.7 2.9 3.0 2.8

100.0 54.3 35.0 10.7

MISCELLANEOUS PRIVATE

ALL OWNERS

31.6 18.1 9.5 4.0

54.4 23.1 18.3 13.0

14.0 4.5 5.1 4.4

aBased on latest FIA survey data for North Carolina, South Carolina, and

Virginia counties in study area.

31
Growing-Stock Inventories

Physical factors that affect potential timber supply

are the volume of standing inventory, the direction of

change in that inventory (expanding or shrinking),

and the extent to which the inventory is already

being utilized. These factors can also be examined

within the framework of the previously defined ownership categories.

Growing-stock inventory in the study area currently totals 21.6 billion cubic feet, the equivalent of

1,519 cubic feet per acre of timberland (table 11).

Hardwoods make up nearly three-fourths of the inventory of growing stock. Yellow pine species, eastern white pine, and hemlock comprise the bulk of

the softwood total. Virginia pine, shortleaf pine, and

loblolly pine are the major yellow pine species. The

hardwood resource is divided among a much larger

number of species. Collectively, oak species account for almost one-half of the hardwood inventory.

Because of important differences in suitability for

high-value wood products, statistics for the oak

resource are divided into four categories: select

white oak, select red oak, other white oak, and other

red oak. The select white oak group is predominantly white oak, whereas the select red oak group

is almost entirely northern red oak. Chestnut oak

makes up the major portion of the other white oak

group. Scarlet oak and black oak are the most

abundant oaks in the other red oak group. The

select white and red oak categories total 1.5 and 1.4

billion cubic feet of growing stock volume, respectively, or about 9 percent of the hardwood total for

each.

Most hardwood species occurring in the study

area are lumped into the category of “other

hardwoods.” Major hardwoods included in this

category are the maples, hickories, birches, beech,

black locust, and basswood. The inventory volume

of these and many other less abundant species totals nearly 5.3 billion cubic feet, or one-third of all

hardwood growing stock. Yellow-poplar is the most

abundant single species in this mountainous area,

making up 17 percent of the hardwood resource

with 2.7 billion cubic feet of inventory.

Other public and forest industry holdings account for less than 10 percent of the softwood growing stock inventory and for only 6 percent of the

hardwoods. They contain 7 percent of the timberland acreage in the area.

Table Il.--Volume of growing stock in the Southern Appalachian timber supply region

based on the latest forest surveys,a by species and ownership class

Species

All National Other Forest Misc.

ownerships Forest public industry Farmer private

Yellow pine (YPI)

Eastern white pine (EWP)

Other softwood (0%)

All softwoods

Hardwood

Select white oak (SUO)

Select red oak (SRO)

Other white oak (OWO)

Other red oak (ORO)

Yellow-poplar (YPO)

Other hardwood (OHW)

All hardwoods

Million cubic feet

4,195.1 609.3 134.3 326.8 916.9 2,208.4

1,268.9 29a.3 23.0 10.1 280.0 596.9

410.3 125.0 0.7 5.8 14.0 204.8

m.9 1.012.6158.0 40~1.270.9 3. 010.1

1,464.2 291.3 45.3 54.0 327.9 745.7

1,400.o 471.2 49.1 38.1 221.0 608.0

2,456.9 689.9 16.9 91.1 415.1 1,111.9

2,436.9 639.3 64.3 14.1 489.1 1,110.l

2,141.5 311.2 34.1 95.6 630.2 1,609.8

5,251.0 1,055.l 168.8 143.3 1,241.l 2,636.1

17.524. 1

All Totals 21,625.4 4,556.6 591.1 906.1 4,601.3 w958.3

aFIA surveys completed in the period 1980 to 1986.

32
PERCENT

4~~.~~_-__~__~_~

: National Forest

,

4

PERCENT

4 0 r-

!

1

Farmer

YPI EWP OSW SW0 SRO owo OR0 YPO OHW YPI EWP osw SW0 SRO own OR0 YPO OHW

SPECIES SPECIES

The bulk of the inventory of every major species

group is found on miscellaneous private, farmer,

and National Forest land. There are noticeable differences in the proportion of each species group

found on each of these three ownerships (fig. 18).

National Forests control 18 percent of the timberland

in the study area (the horizontal reference line in

each of the charts in figure 18 represents the timberland proportion for that ownership group). In comparison, the proportion of the inventory of each

species group found on National Forest land varies

widely. Inventory proportions for yellow pine and

yellow-poplar fall below the timberland proportion,

whereas the proportion of growing stock inventory

for white pine, other softwood (mostly hemlock),

select red oaks, and the other oak group is well

above the timberland proportion. The highest concentration on the National Forests is for select red

oaks-about 34 percent of the high quality material

of this species is on National Forest land.

PERCENT

60 I----~mmm---.--

-f Miscellaneous Private

5 0

Farmers control 22 percent of the timberland in

the study area, with the inventory of many of the

species groups similarly distributed. Except for

select white oak, farmers control a disproportionately small quantity of the oak inventory. Only

16 percent of the select red oak inventory is on timberland owned by farmers.

3 0

YPI EWP OSW SW0 SRO owo OR0 YPO OHW

SPECIES

Miscellaneous private owners hold 53 percent of

the timberland. Proportionally, they control lesser

amounts of growing-stock inventory for every

species except yellow-poplar. Again, the greatest

deviation from the area proportion is for select red

oak.

Figure 18. -Inventory distributions for major species

groups and three major ownerships in the Southern

Appalachian timber supply region. (Horizontal

reference lines represent the timberland proportion.)

See Table 11 for species acronymns.

33
Geographically, there are many differences in the

distribution of the species across the study area (fig.

19). Yellow pine, for instance, is not common in the

heart of the Southern Appalachians but is heavily

concentrated in study area counties in Georgia,

southeastern Tennessee, and South Carolina, and in

the easternmost North Carolina counties in the study

area. In fact, most of the species show noticeable

concentrations in some portion of the study area.

Species such as eastern white pine, select red oak,

and yellow-poplar are clustered along the heart of

the Appalachian chain. Other species, such as

other white and red oak, are more uniformly dlstributed across the entire study area.

I nvenm

The inventory of growing stock in the study area

has expanded over the past several decades. The

average change in inventory from the 1970’s to the

1980’s is displayed in figure 20. Increases occurred

for all species groups during this period and in each

of the States in the area. The most significant gains

were for yellow-poplar, eastern white pine, and the

group of miscellaneous hardwoods. Yellow pine inventory rose the least - 12 percent. The inventories

of select white oaks and select red oaks went up by

18 and 29 percent, respectively.

lnventary Utili7ation

Net increases in growing stock inventory over the

past one to two decades show that net growth exceeds removals for each of the species. Net annual

growth during the latest remeasurement cycle for the

Chattanooga I

Knoxville1

study area exceeded the level of average annual timber removals by 62 percent for softwoods and by

more than 250 percent for hardwoods. Growth surpassed removals for virtually all combinations of

species and ownership classes.

Another index of relative timber resource use is an

annual removal/inventory ratio. This ratio is simply

the percentage of the standing inventory of a species

that is removed each year. These values are

presented to compare intensities of utilization by

species and ownership. The removal/inventory

values for the three major ownership groups are

shown in figure 21.

For softwoods, this index averages 2.5 percent

and ranges from 1.5 percent on National Forests to

2.9 percent on farmer-owned timberland. Yellow

pines have the highest removal rate relative to inventory; eastern white pine values are intermediate, and

those for other softwoods are low.

Less than 1 percent (0.90) of the standing

hardwood inventory is removed each year in the

study area. By ownership, this percentage ranges

from 0.39 percent for National Forests to 1 .13 percent for farmers. Removal/inventory percentages for

each of the hardwood species groups are consistently lower on National Forests than on farms and

miscellaneous private land. The rate of hardwood

timber removal for farm timberland is somewhat

higher than for miscellaneous private land. However,

the removal/inventory relationship shown here

suggests no major differences between the two groups

in relative contributions to hardwood timber supplies.

(4

Bristol 7

Greenville ,d Ash&ii I e \

Hickory

Figure 19. -Oblique views of the Southern

Appalachian timber supply region showing the distribution of inventory volume for each species group.

A spike rises from each county having volume for

that species. For each species the height of a spike

is proportionate to that county’s volume relative to

other counties. The map is for geographic orientation only.

34
Yellow Pine Inventory

Eastern White Pine Inventory

Other Softwood Inventory

35
Select White Oak Inventory

Select Red Oak Inventory

Other White Oak Inventory

36
Other Red Oak Inventory

Yellow-Poplar Inventory

Other Hardwood Inventory

37
-ioj

YPI EUP osn sno SRO owo OR0 YPO OHM

SPECIES

Figure 20. -Average change in growing-stock inven- Figure 21, -Annual removal/inventory percentages

tory in the Southern Appalachian timber supply for softwoods (SW) and hardwoods (HW) and major

region during the latest survey period by species ownership classes in the Southern Appalachian timgroup. See Table 11 for species acronymns. ber supply region.

The ultimate supply effect from all the changes

that have occurred in the study area over the past

25 years is difficult to ascertain. Among social constraints, the biggest threat to overall timber supply

from NIPF sources is the fragmentation of landholdings. Specific research is needed to identify the degree to which fragmentation is occurring and how

much of the available timber supply will be

withdrawn because of it. The decline of the

farmer/timber producer may be less of a problem

than previous survey analyses have indicated. Only

if this land is subdivided and sold will there likely be

permanent declines in timber production. The other

economic factors affecting timber supply from NIPF

sources are important determinants but should

remain fairly constant in the future.

PERCENT

‘I

3n Hw sn tin sn Hm sn MI

i4LL OWN 1 k FARMER 4 1 YIS PRJ 1 ] NAT FOR 1

SPECIES

OWNER

Physical inventories in the region are abundant

and growing. They are controlled primarily by NIPF

owners but variations in relative proportions are important for some key species, such as select red

oak. Overall, the hardwood resource is underutilized. That is, the proportions of total inventories

harvested each year are low for all species groupownership combinations. Utilization is especially

low on National Forests.

During the next 10 to 15 years, no serious depletion of the timber inventory is foreseen. On the other

hand, the combined effects of slower growth, increased mortality, and removals will reduce inventory increases.

38
1II.F. Summary Findings

This subsection summarizes recent stumpage

price and harvest trends in the study area and explains some of these trends. We rely primarily on

the data and analyses presented in the previous four

subsections of this report but occasionally introduce

some new information to explain market trends. We

begin with a summary of non-Forest Service trends

and follow it with a summary of Forest Service

trends.

Non-National Forest (NFS) Harvest ti

Price Trends

Trends in timber harvesting in the study area vary

by time and species. Softwood harvests have risen

fairly steadily in the long and short terms.

Hardwood harvests have declined over the last two

to three decades. Average annual removals for the

latter half of this period are about 18 percent lower

than for the first half of the period. Yet, within the

last 2 to 4 years, hardwood timber removals have increased at a rapid pace. According to industrial timber product output data, harvests are at their

highest levels of the past 15 to 20 years.

Within the study area, the TMS real stumpage

price trends, representing non-NFS sales, are mixed.

For some product categories, such as yellow pine,

white pine, and rare hardwood sawtimber, real price

trends are downward. For others, such as yellowpoplar veneer, rare hardwood veneer, and

hardwood pulpwood, real prices have increased

over the past 10 years. Among the States that comprise the study area, North Carolina exhibits the

strongest recent stumpage markets, with 7 of the 12

product markets showing increases. Notably strong

product categories for North Carolina are oak sawtimber, yellow-poplar veneer, and soft hardwood

pulpwood. Tennessee shows increases for

pulpwood stumpage, while Georgia, South Carolina,

and Virginia show rises for veneer stumpage.

Examination of certain demand-influencing factors is helpful in explaining these recent harvest and

price trends. The percentage of change in gross national product (GNP) shown in figure 22 in constant

1982 dollars characterizes the recent overall health

of the American economy. The year 1974 was a

recession year with a 1.3 percent contraction in

GNP. The subsequent economic recovery was well

underway by 1976, when GNP expanded by 4.7 percent. An economic downturn began in 1979 and led

to the 1981-82 recession when GNP growth declined

2.5 percent. A period of rapid recovery and expansion in GNP growth began in 1983 and continued

through the present. Changes in personal consumption expenditures, also presented in figure 22, move

with GNP changes, although some dampened effect

is evident.

peroent ohenge from prevloue yeer

01

-41

‘71 ‘72 ‘73 ‘74 ‘76 ‘70 ‘77 ‘79 ‘70 ‘00 ‘01 ‘02 ‘03 ‘04 ‘06

- total GNP -+ pereonal ooneumptlon

Figure 22. -Percentage of changes in gross national

product (GNP) and personal consumption expenditures from 1971 to 1985, in constant 1982 dollars.

7l

bllllons of oublo feet, roundwood equlv.

4

I

#2% WW

- -

---*---

3

2 I

‘70 ‘76 ‘70 ‘78 ‘00 ‘01 ‘02 ‘03 ‘04

year

- lumber * pulp produots .a. plywood a wmaer

Figure 23. -Total annual U.S. production of forest

products, 1970-84.

Forest products manufacturing, evidently, has

simply responded to these changes in the national

economy. Figure 23 presents total recent United

States production of lumber, plywood and veneer,

and pulp products in billions of cubic feet,

roundwood equivalents. The general pattern of

wood products production tracks closely the business cycle data presented in figure 22. Production

39
was down in 1974-75, rebounded in the late 1970’s

took a severe downturn in 1981-82, but began a very

strong recovery after 1982. National demand for

forest products continued upward through the

present. The excellent recent health of the forest

products industry was noted in the November 9,

1987, issue of the Wall Street Journal (p. 22). Thirdquarter 1987 earnings were up 54 percent over thirdquarter 1986 earnings, making forest products one

of the star performers among all U.S. industries.

The strong economic upturn of the past 5 years

has, of course, affected the Southern Appalachian

timber industry. Rising from the trough of the 1981-

82 recession, forest products firms in the study area

expanded output and, in some instances, production facilities as well. The following paragraphs trace

this increase in production activity through the mills

to the forest in an attempt to explain stumpage price

movements.

Consumer demand has increased for furniture

and wood flooring, both of which require sawn wood

as a production input. Nearly 50 percent of the

Nation’s furniture manufacturers are located within

the five States of the study area. Sawmill capacity in

North Carolina has undergone recent expansion and

modernization. Red oak’s current popularity as a

furniture and flooring wood explains rising oak sawtimber prices seen in North Carolina.

Demand has also increased for hardwood

plywood products. Since nearly one-half of all the

U.S. hardwood plywood and veneer operations are

in the States that comprise the study area, a heavy

demand has been placed on forests to supply the

yellow-poplar veneer core stock and appearance

veneers used to manufacture plywood. Too, there

has been some recent capital expansion in the

hardwood plywood industry in North Carolina.

These factors seem to explain rising wood veneer

prices.

The increases in prices for hard-hardwood

pulpwood seem to result from an increased demand

for slick paper used for magazines, catalogs, and

mail brochures. One large paper mill located in

western North Carolina currently meets 40 percent

of its wood needs from hardwood forests.

The increases in prices for soft-hardwood

pulpwood are a result of the increased demand for

OSB, which has become a well-accepted, low-cost

substitute for softwood plywood. Two OSB plants

were constructed recently in the study area, one in

Virginia and the other in North Carolina.

Thus, the rising stumpage prices observed for certain hardwood species in certain States are traceable to final consumer preferences through capital

expansion of manufacturing facilities.

Stumpage price trends also seem to be influenced

by supply factors. Recent trends in the study area

show an increase in growing stock inventory that

would suggest a negative impact on prices.

However, there has been a strong offsetting trend on

the supply side resulting from two factors. First,

there has been a large decline in farmer-owned

timberland. The new owners in the miscellaneous

private category appear to have a lower propensity

to sell timber than do farmers. Second, there seems

to be a trend toward tract subdivision, which, due to

economies of scale, also serves to decrease

economic supply. The net impact of these factors

on economic timber supply is not firmly established,

but, the current thinking is that economic supply has

contracted, placing some upward pressure on

prices.

In summary, the analyses of non-Forest Service

timber markets suggest an increasing economic

scarcity of certain hardwood tree species whose real

stumpage prices have risen. These rising prices

have been triggered, in all likelihood, by strong

demand for final products and the accompanying expansion of manufacturing facilities. Timber harvesting has increased in response to rising prices;

however, it appears that demand for certain species

is outpacing supply, especially in western North

Carolina.

National Forest Harvest and Price Trends

Within the study area, National Forest timber harvest volumes have increased significantly in recent

years. Indeed, the annual harvest volume for 1986

was 162 percent higher than the annual volume cut

in 1978. The trend from 1978 to 1982 was one of accelerated annual increases in the volume harvested.

From 1982 to 1986, the pattern was one of small yet

steadily increasing NFS harvesting levels.

The NFS real stumpage prices in the study area

have, generally, shown a rather strong downward

trend between 1977 and 1986. The pulpwood

markets in Tennessee and some of the sawtimber

and pulpwood markets in Virginia show upward

price trends, but these are exceptions. The overall

picture is one of rather stark price declines. Particularly noteworthy are the stumpage price trends

for the North Carolina National Forests (the Nantahala and Pisgah). Real prices there have declined

precipitously even for the product-species markets

that appeared strong in the TMS price analyses. For

example, North Carolina NFS hardwood pulpwood

prices fell 17 percent annually over the past 10

years, yellow-poplar prices declined 10 percent per

year, and oak prices fell by more than 8 percent

each year.

40
These declining real stumpage price trends, when

examined in conjunction with the rising harvest

levels, lead to the conclusion that the demand (willingness to pay) for NFS stumpage has not kept

pace with the rate at which timber has been supplied. Whether demand has, in fact, remained

static, decreased or even increased somewhat is unknown. All that can be said with certainty is that

demand has not kept pace with supply. In light of

the available evidence, this is an inescapable conclusion Bear in mind, however, that the term

“demand” as used here does not refer to such notions as the need or desire for some good. Instead,

it is used in a strict economic sense to mean the willingness to pay for the commodity in question.

This apparent lagging demand for NFS stumpage

is curious when the economic upswing of the past 5

years and its strengthening effect on certain segments of the study area private stumpage markets

are considered. At this time, the study team can

only offer the following hypothesis: The Forest Service has, over the past IO years, added logging

restrictions and contractual requirements that have

raised the true cost of obtaining timber (stumpage

bid price plus other contract compliance costs),

making NFS purchases relatively unattractive. For

industry, the apparent rising total cost of obtaining

NFS timber has had the likely effect of stifling

vigorous competition for NFS timber.

In conclusion, the study team has observed

recent increases in harvesting levels and some nonNational Forest stumpage prices in the study area,

particularly in North Carolina. Also, the team

believes that the rising real prices for non-NFS timber are due to a vibrant forest products market and

the construction of new forest product production

facilities. The rising prices have brought more wood

on the market, but, in some instances, not at a pace

commensurate with the increases in demand. The

increases in Forest Service timber harvests, coupled

with strong declines in Forest Service stumpage

prices, lead us to conclude that the demand for

Forest Service timber is not keeping pace with the increases in Forest Service supply.

IV. Forecast of Future Market

Conditions 1987-2000

This final section forecasts future timber markets

in the Southern Appalachian region. Our forecast

focus is on stumpage price trends through the year

2000. As indicated in Section II of this report these

price trends play a key role in Forest Service land

management planning via the FORPLAN LP model.

Our forecasts are based on recent price trends (from

Section Ill) and our judgment about future market

conditions.

The analysis of stumpage price trends presented

in Subsection 111.8. was facilitated by fitting a least

squares regression line through approximately 10

years of observed stumpage price data adjusted for

inflation (1977 through mid-l 987 for the TMS prices

and 1977 through 1986 for the Forest Service price

data). These regression results yielded, in effect, the

average annual rate of change in real prices for the

1 O-year period. These rates of change were computed for the various product-species groups in the

portions of the five States in the study area.

It is important to realize that the lo-year period

used in these analyses apparently spans the major

part of one complete business cycle. Thus, in computing the regression results, we have not looked

just at a market upturn or downturn. Rather, we

analyzed prices across one entire business cyclepeak to trough to peak.

Because the regression analyses span a complete

business cycle, the team is willing to say, with

reasonable confidence, that the price changes computed in Subsection 111.8. provide an appropriate

baseline of current conditions in timber markets. In

the remainder of this section, we discuss future

economic and market conditions that might cause future markets to deviate from current stumpage price

trends.

First, a word about anticipated aggregate

economic conditions between now and the year

2000. Because of the mounting Federal budget and

trade deficits, the United States must look at its

economic future with an understandable degree of

uncertainty. However, since World War II, the

United States has experienced seven business

cycles with an average duration of 5 years and a

range of 3 to 9 years (Glahe 1977). Following this

pattern, we should see two or three complete business cycles by the year 2000, with anticipated longterm economic growth.

Regarding timber supplies from private ownerships, the recently published “South’s Fourth Forest”

(USDA Forest Service 1988), predicts a 9 percent increase in hardwood growing stock inventory for

North Carolina, Virginia, and Tennessee by the

year 2000. A larger inventory should lead to the

41
increasing economic availability of timber. However,

we believe that this increase will be offset by the continued subdivision of forested tracts and the shift

from farm to nonfarm ownerships. Thus, we anticipate a slight tightening of private timber supplies

over the next 12 years in the study area.

The demand for private hardwood stumpage

should remain strong for yellow-poplar and appearance veneers, soft-hardwood pulpwood, and,

perhaps, oak sawtimber. Each of these separate

product-species will be discussed in the next few

paragraphs.

The yellow-poplar and appearance veneers are in

demand for the manufacture of hardwood plywood.

This has been a growing industry, particularly in

North Carolina where plywood manufacturing

facilities have been constructed within recent years.

Since these plywood mills represent substantial capital investments, we anticipate continued pressure on

the region’s forests to supply yellow-poplar and fine

veneers to keep these mills operating.

OSB has proved to be a well-accepted, low-cost

substitute for softwood plywood. This product already has taken market shares from softwood

plywood, and this trend is projected to increase in

the future. Two OSB plants were constructed in the

study area (one in Virginia, one in North Carolina)

within the past 5 years. Also, the study team is

aware that other companies are examining the

region for new OSB plant locations. Because softhardwood pulpwood is used for the manufacture of

OSB, we anticipate its demand will remain strong.

Oak sawtimber has been in demand in North

Carolina for the manufacture of furniture, millwork,

and flooring. Traditionally, the hardwood sawmilling

industry has been viewed as somewhat more flexible

than, say, the paper, structural board, or plywood industries. Because sawmills were often smaller and

less capital intensive, they were able to shutdown

during adverse economic times. However, in recent

years in western North Carolina. there has been a

rapid expansion of more permanent and sophisticated sawmills with innovations like computerized

headrigs. Thus, we anticipate the demand, especially for oak sawtimber, to remain reasonably

strong over the next 12 years, especially in North

Carolina.

The demand for hard-hardwood pulp has been

strong in recent years due mainly to one large paper

mill located in Canton, NC. This paper mill, the

single largest consumer of pulpwood in the region,

uses hard-hardwood pulp to manufacture slick

paper stock. Very recently, however, the paper

mill’s owners have announced that the facility’s

production will have to be reduced to meet the

Environmental Protection Agency water quality

standards. The fate of the mill is currently uncertain,

but its closing would substantially reduce the

demand for hard-hardwood pulp.

To summarize, we foresee some tightening in

private timber supplies over the next 12 years, with

increased demand for yellow-poplar and appearance veneers, softwood pulpwood, and oak sawtimber. Thus, we anticipate slight increases in the

annual rate of price changes presented in Subsection 111.8. for these stumpage product species.

Regarding the National Forest situation, it should

be recalled that harvesting levels for the Southern

Appalachian National Forests have increased over

the past 10 years, while stumpage prices have fallen

dramatically. This price decline is due, we feel, to

weak competition for Forest Service timber stemming from the added costs associated with the complexities and complications inherent in Forest

Service timber purchasing procedures. Because

these complexities and complications are unlikely to

be alleviated in the near future, it is difficult to envision a sudden surge in the price for Forest Service

timber. However, because we are predicting a slight

rise in non-Forest Service stumpage prices, it is possible to foresee a marginal increase in the demand

for Federal stumpage. Therefore, the team predicts

a slight increase in the demand for Forest Service

stumpage over the next 12 years.

Timber harvest volumes from Southern

Appalachian National Forests will increase only

slightly between now and the year 2000. The Nantahalaipisgah plan, for example, calls for a 6 percent

increase in harvest volume These slight harvest increases, coupled with what we see as slight increases in demand, should lead to some moderation

of the rapid declines recently witnessed in Forest Service stumpage prices. Thus, the team predicts real

stumpage prices for Forest Service timber in the

Southern Appalachians will decline only slightly and

may level off over the next 12 years.

In Section II, we discussed the timber price projections used in the National Forest land management

planning process. Price projections, obtained from

the RPA process, suggested that hardwood timber

prices would increase at a zero real rate over the

next several decades. The present study, although

conducted independently from the RPA effort, essentially supports those findings. Between now and the

year 2000, we foresee no real increases in hardwood

stumpage prices on National Forests in the Southern

Appalachians.

42
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45

i-

_-__-__--__--______-____-___

I

1 de Sleiguer, J.E.; Hayden, L.W.; Holly, D.L., Jr.; Luppold, W.G.; Martin, W.G.; NewI

man, D.H.; Sheffield, R.M.

1

I

1989. Southern Appalachian Timber Study. Gen. Tech. Rep. SE-56. Asheville,

I

1

NC: U.S. Department of Agriculture, Forest Service, Southeastern Forest

Experiment Station. 45 pp.

I

i

I

This study investigated recent hardwood stumpage market trends in Southern

Appalachia and projected National Forest stumpage prices to the year 2000. Over

I

the past 10 years, hardwood timber harvest volumes from private lands have in- I

creased 38 percent with much of this increase coming in the last 2 to 4 years. I

I

Private hardwood stumpage prices have decreased across much of Southern

Appalachia except for western North Carolina where prices have increased. During I

f

the same period, National Forest hardwood timber harvest volumes have in- I

creased about 162 percent. National Forest stumpage prices have declined within 1

I

the region over the past 10 years. A judgmental forecast predicts no increase in

I

National Forest real hardwood stumpage prices until the year 2000.

KEYWORDS: Hardwood, stumpage markets, stumpage prices, National Forests.

I

I

1

i I --a-----_A----------v-----B-.

---------- -----------------_ I

de Steiguer. J.E.; Hayden, L.W.; Holly, D.L., Jr.;‘Luppold, W.G.; Martin, W.G.; Newman, D.H.; Sheffield, R.M.

1989. Southern Appalachian Timber Study. Gen. Tech. Rep. SE-56. Asheville,

NC: U.S. Department of Agriculture, Forest Service, Southeastern Forest I

Experiment Station. 45 pp. I

This study investigated recent hardwood stumpage market trends in Southern I

Appalachia and projected National Forest stumpage prices to the year 2000. Over

the past 10 years, hardwood timber harvest volumes from private lands have inI

creased 38 percent with much of this increase coming in the last 2 to 4 years. I

Private hardwood stumpage prices have decreased across much of Southern

Appalachia except for western North Carolina where prices have increased. During

I

the same period, National Forest hardwood timber harvest volumes have in- I

creased about 162 percent. National Forest stumpage prices have declined within I

the region over the past 10 years. A judgmental forecast predicts no increase in

National Forest real hardwood stumpage prices until the year 2000. I

KEYWORDS: Hardwood, stumpage markets, stumpage prices, National Forests. I

I

---------____-_-__-- ____ ---l
The Forest Service, U.S. Department of

Agriculture, is dedicated to the principle of

multiple use management of the Nation’s forest resources

for sustained yields of wood, water, forage, wildlife, and

recreation. Through forestry research, cooperation with the

States and private forest owners, and management of the

National Forests and National Grasslands, it strives-as

directed by Congress-to provide increasingly greater

service to a growing Nation.

USDA policy prohibits discrimination because of race,

color, national origin, sex, age, religion, or handicapping

condition. Any person who believes he or she has been

discriminated against in any USDA-related activity should

immediately contact the Secretary of Agriculture,

Washington, DC 20250.