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SURVEY PROCEDURES AND RESPONSE Data for this survey was obtained by a mail survey of all known mills in Indiana that buy logs. This list is maintained in cooperation with the Forest Products Utilization & Marketing Program, Indiana Division of Forestry. The prices reported are for logs delivered to the log yards of the reporting mills. Approximate stumpage prices can be obtained by subtracting logging and hauling costs, Table 4, from the delivered sawlog and veneer log prices, however, see Caution below.

The survey was sent to 260 mills. One hundred and two mills reported useable data, compared to 63 last year. Another 53 responded in some form but provided no data. Another 19 responded that they were out of business. This makes the overall response rate 67 percent, above last year's return of 31 percent. After the initial mailing and one reminder post card a subsample of non-respondents was selected and these mills contacted by enumerators of the Indiana Agriculture Statistics Service. The Department of Forestry and Natural Resources pays for this assistance using funds from its John S. Wright Endowment.

The number of mills contributing price data for a specific product is shown in the fourth column in Tables 2 to 5. Seventy-one mills reported their 2005 total board foot production, compared with 54 reporting 2004 production. Twenty-seven mills reported producing 500 MBF or less. The total production for these mills was 200 million board feet, 4 million less than in 2004. The largest mill responding reported over 18 million board feet of output in 2005.

The price statistics by species and grade don't include much data from small custom mills because most do not buy logs, or they pay a set price for all species and grades of pallet logs. They do report the cost of custom sawing. Thus, the custom sawing costs reported in Table 4 do not reflect the operating cost of large mills.

CAUTION This report is intended to be used as an indication of price trends, not for the 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 for particular stands of timber or lots of logs. Because of the small number of mills reporting logging costs �stumpage� prices� estimated from delivered log prices by deducting the average logging and hauling costs must be used with caution.

HARDWOOD LUMBER PRICES Significant price adjustments occurred in hardwood lumber over the last year. There were signs of an economic slowdown over the summer going into the fall, but declines varied by sector. Major cost run-ups occurred in prices for almost all basic commodities, especially metals. Softwood dimension lumber and sheathing panels also had major price increases. These increases have been lost due to a slowdown in housing and mill shut-downs are occurring to bring supply back in line with demand. Hardwood lumber prices are less subject to major price cycles due to housing starts and are a lagging indicator, but housing is a factor. All three hardwood regions - Appalachian, Northern and Southern - report that mills must rely on established customers to move output.

Hardwood lumber price adjustments as of the end of September resulted from changes in consumer preferences as well as reduced construction. Red oak demand is down, reflected in an almost 14 percent drop from July 2005 to September 2006 in the FAS grade price with the premium included. The premium is charged for purchases of this grade only, instead of a mill run grade mix. White oak strengthened, increasing  10 percent over this period. The direction of change noted applied to all grades of red and white oak, reflecting a fundamental change in demand. There's no evidence that timber supply is a factor in these price adjustments. The rise in black cherry lumber prices continued with a 3.6 percent increase in the FAS grade with the premium included. The lower grades also increased proportionately. Apparently veneer mills are buying into the supply of what would otherwise be high quality cherry sawlogs, increasing the supply of lower grade lumber relative to the upper grades. Furniture manufacturers have had to adjust their lumber purchases accordingly.

Both hard and soft maple lumber prices for FAS plus the premium declined by a little over 4 percent from July 2005 to September 2006. The lower grades also declined. Although ash prices declined, Figure 2, the decreases have not been as large as some analysts expected because of ash mortality due to the emerald ash borer (EAB). Log supplies increase ahead of EAB infected areas as landowners seek to beat the EAB by liquidating their standing stock. Once infested ash mortality occurs slowly over a 3 to 5 year period.

Once the dead trees are discovered in the woods, most are already stained and starting to decay.

Increases in ash supply result primarily from timber sales already scheduled with ash marked for removal. Salvage operations to remove dead ash are significant only in urban areas. SAWLOG PRICES Sawlog prices, Table 2, generally reflect lumber price trends; however, sawlog prices change proportionally more than lumber prices. For example, if lumber prices change by 1 percent, sawlog prices would change by more than 1 percent. Overall log prices were much stronger than expected given the slowing economy and declines in lumber prices for some species. It should be noted that responses to this survey come in over a period of several months. Thus, they reflect an average over this period.

Black cherry log prices were down for the two top grades and up for the two lower grades. This is a pattern observed for other �hot species� and reflects lumber producers� need to reduce log costs, and the sorting of better logs for veneer log buyers. Black walnut sawlog prices were up for the three lower grades, but down for Prime. Hard and soft maple log prices were down, especially soft, declining 11 percent for prime grade logs. White oak prices were up about 11 percent for the lower grades, but only 7 and 4 percent for prime and no. 1�s. The demand for hardwood flooring, including the wider plank flooring, remains strong, driving up the price of larger diameter white oak logs. Red and black oak were both down based on a change in consumer preferences. Tulip (yellow) poplar was up except for No. 3 logs, most likely reflecting strong demand from millwork producers.

SOFTWOOD SAWLOGS Interest in softwood logs remained strong within the purchase area of softwood mills, but not state wide, bottom of Table 2. Eight mills reported pine prices, the same number as last year. The average pine price was $268 per MBF, an increase from $251 per MBF Doyle log scale last year. The average cedar price was $428 per MBF this year, compared to $369 last year. Innovative cedar processors continue to find niche markets to serve.

VENEER LOG PRICES The number of mills reporting veneer log prices was about the same as last year, Table 3. Average prices increased for almost all grades and sizes with black walnut and white oak showing the greatest increases. These species are regaining their historical consumer preference for furniture and cabinetry. During the run-up of black walnut prices in the 1970�s and early 1980�s large diameter prime grade logs led the way. As the supply of these logs declined increasing prices further didn't bring more into the market. This and the fall off in consumer preference led to significant price declines. This year's increases for larger diameter premium grade black walnut may signal supply availability, as well as good demand based on consumer preferences.

IMPLICATIONS My colleagues in agriculture have trouble understanding what's so difficult about selling timber. They deal with domesticated grain and livestock, all genetically breed for specific characteristics desired by the marketplace and sold as commodities. This and the large volumes marketed make futures markets possible, allowing producers to hedge and speculators to speculate. My colleagues in the Hardwood Tree Improvement and Regeneration Center here at Purdue promise me that they will someday have domesticated temperate hardwood growing stock to �seed� our forests, but in the meantime it's back to the reality of marketing what amounts to a highly variable specialty product, at least in the case of stands of good timber. it's correct to classify as commodities woods-run timber saleable only as pallet grade beech, cottonwood, elm, sycamore, gum, and other non-premium species. There's only a limited amount of marketing effort needed to �get rid of� this kind of timber. But, even in the poorest of stands it's common to find a rose among the thorns. Thus, it's dangerous to say that there are cases where good timber marketing advice isn't needed.

The other big problem is that even in the best of times it's a rare day when the demand for all species and grades is strong. Imagine a farmer running the combine down a row of corn at harvest time and having to select which ears of corn to pick and which to leave. This would take some serious engineering to accomplish. Selecting which trees to harvest and which to leave is no less of a challenge. The easy answer is to let the timber buyer make a diameter limit cut. But, if you're into timber for the longhaul this is the worst approach since you need to leave crop trees that will add value at an acceptable rate of financial return until the next harvest.

MISCELLANEOUS PRODUCT The average price paid for logs converted to pallet lumber, Table 5, was up $7 on a MBF basis to $226, and $5 on a tonnage basis. Pulp chip prices were up $3 to $20 per ton, while pulpwood stayed at $28 per ton. The IP mill at Terra Haute is still buying chips. The potential still exists for it to close, however, creating the problems for central Indiana sawmills that mills in Northern Indiana have had due to the closing of a pulp mill in southern Michigan. Sawdust and bark prices were up.

INDIANA TIMBER PRICE INDEX 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 trendline information that can be used to monitor long-term price trends for timber. The species distribution used to calculate the weighted averages are presented in Table 6. The log quality weights used are presented in Table 7. These weights are based primarily on the 1967 Forest Survey of Indiana.

The nominal (not deflated) price, columns 3 and 6 of Table 8, are a weighted average of the delivered log prices reported in the price survey. The price indexes, columns 4 and 7, are the series of nominal prices divided by the price in 1957, the base year multiplied by 100. Thus, the index is the percentage of the 1957 price. For example, the average price in 2006 was 804.6 percent of the price in 1957 for the average stand. The real prices, columns 5 and 8 are the nominal prices deflated by the producer price index for finished goods with 1982 as the base year, Table 8, column 2. The real price series represents the purchasing power of dollars based on a 1982 market basket of finished producer goods. It's this real price trend that is important for long-term investments like timber. Note that each year the previous year's numbers are recalculated using the producer price index for the entire year. The price index used for the current year is the last one reported for the month when the analysis is conducted, August this year. You'll see from this series that inflation this year is running at about 5 percent.