1999 Indiana Forest Products Price Report and Trend Analysis
by William t. Hoover, Professor of Forest Economics Purdue University and Ralph W Gann, State Statistician Indiana Agricultural Statistics Service
Data for this survey was obtained by a mail survey of all known mills in Indiana who buy logs. The prices reported are for logs fob the log yards of the reporting mills. approximate stumpage prices can be obtained by subtracting logging and hauling costs, from the delivered sawlog and veneer log prices.
The number of mills providing data approximately doubled from last year. This makes the results much more reliable indicators of what's being estimated, i.e. price trends. The number of mills contributing price data for a specific product is shown in the product entries in Tables 1 and 2.
For the lost 15 years at least the Indiana Forest Products Price Survey has been mailed out and responses returned to the Indiana Agricultural Statistics Service (IASS). This year for the first time IASS enumerators were used to contact mills not responding to the mail solicitation. These enumerators were familiarized with the hardwood forest products industry and this survey as part of their annual training. Although a few mills "sent packing" enumerators who made mill visits, a large majority were well received. The enumerators usually deal with production agricultural surveys. They appreciated the opportunity to become familiarly with our industry and the many wonderful men and women representing it.
This report is intended to be used as an indication of price trends, not for the market appraisal of logs or stumpage. This data is collected only once a year and log prices are constantly changing. Proper appraisal techniques by those familiar with market conditions on a day-by-day basis should be used to obtain estimates of current market values
SAWLOG PRICES
The hardwood lumber industry remained very strong over the last twelve months. There were the usual periods of price adjustments in response to log availability and lumber demand. To the surprise of many in the industry the price of black cherry continued its upward spiral, while oak softened.
As of the May survey data sawlog prices were mixed, Table 1. Prices for the premium species were about the some as 1998, but with some adjustments. Hard maple was down about 9 percent on average. White oak was down for the two top log grades. Tulip poplar and black walnut were also down. Black walnut was down over 15 percent, except for the lowest grade of logs.
Lumber prices as of the end of November 1999, indicate upward pressure on prices. Since the weather has been dry throughout the hardwood region the increases can't be attributed to poor logging conditions in the woods. Since there's no indication of any demand increases, the price increases are apparently due to a less than ample logs supplies at mills.
Mills may have held back on log purchases to see how the economy was going to respond to interest rate increases.
VENEER, LOG PRICES
Although veneer log prices appear to have increased dramatically from 1998 to 1999, no such conclusion should be drawn from the data. This is because the response in 1998 was too small to provide reliable averages. However, given the relatively good prices for sawlogs reported this year, it can be assumed that veneer logs still bring a premium over sawlogs and should be carefully marketed to obtain the best price.
INDIANA TIMBER PRICE INDEX - UPDATE
The delivered log prices collected in the Indiana Forest Products Price Survey are used to calculate the delivered log value of typical stands of timber. This provides trend-line data that can be used to monitor long-term price trends for timber. The species distribution used to calculate the weighted overages are presented in Table 5. The log quality weights used are presented in Table 6. These weights are based primarily on the 1967 Forest Survey of Indiana.
AVERAGE STAND
The nominal weighted average price decreased from$391.1 in 1998 to $389.2 in 1999 for the average stand. This is a 0.49 percent decrease.
The new equation for the trend line for the 1957 to 1999 period is,
Avg. Index = 167.57 + 2.53 x T,
where,
T=1 for 1957, 2 for 1958, etc.
A linear trend line should be used if it's necessary to project timber prices, as
discussed in greater detail in Station Bulletin No. 148. Although it's easier to simply
plug the average annual compound rate of increase value into the compound interest formula
(exponential rate of increase), projections much over 15 years gives unrealistic results.
Real prices can't increase exponentially for long periods of time. Market adjustments,
like those observed for black walnut, come into play to retard the increase and eventually
reverse it.
The real price increase based on the trend line is 1.13 per-cent per annum for the average stand from 1957 to 1999.Although this is down slightly from last year, this still represents a significant increase in purchasing power for timber assets.
QUALITY STAND
The nominal weighted average price for the quality stand increased by 4.9 percent from 501.7 in 1998 to 526.3 in 1999.
The average annual compound rate of increase for the trend line decreased somewhat to 1.50% per annum. The equation for the trend line is,
Qual. Index = 199.4265 + 4.2249 x T
Thus, a quality stand provides a better rate of return than the average stand of timber in Indiana.
