Cherry Timber Prices

[forester2]

Great stuff still gets good prices. Historically speaking 1200-1500 is a pretty darn good price.

 

[jbos333]

forester2, around what dbh does a cherry start to qualify as a veneer log candidate? I think I was told 24"+. Of course, I know there are other factors involved as well. I was going to cut my lot at the peak of the cherry prices, but the avg size of my trees was 18"-20" dbh, so I decided to hold off. A wise move, I hope!

 

[forester2]

Doubtful that all the trees you sell in a harvest are veneer grade. Hence, you will not get veneer grade prices throughout an entire sale when selling on the stump. You can do a roadside sale so logs can be inspected for quality but then the quality risk is entirely on your shoulders and income will be taxed differently. Also, doing a ' diameter limit' cut is rarely good stand management. Get yourself a good consulting forester- some great ones in WNY.

 

[smstonypoint]

You can do a roadside sale so logs can be inspected for quality but then the quality risk is entirely on your shoulders and income will be taxed differently.

Please expand on this statement. Are you saying that if you do a "roadside sale" that your receipts would be treated as ordinary income rather than capital gains?

Thanks in advance for any clarification.

Steve

 

[jbos333]

Thanks forester2, I actually had a consulting forester do a cruise and put an inventory together for a sale....he actually convinced me not to cut it at that time. I asked him what he would do if it were his timber- he said if he didn't absolutely need the money right then, he would sit on it for 5-10 years more. Also he said as long as I call him back in when it's time for a sale I owed him nothing for the 2 days or so he had into marking/inventory. So it's probably been 5 years since then; I will have to try to keep an eye on prices in the upcoming years.....

 

[forgeblast]

Everyone that I have talked to has recommended going with a forester route, those who didnt wish they did.
Most got a better price which paid for the forester, their properties were not high graded and left to degrade but instead cut to promote regeneration, and the sales were monitored.
(A timber company came to walk on my property said they would cut out the firewood sized trees and give me 23.oo a truck load, same company would turn around and sell them for (i think) 650 (could have been more) a truck load for fire wood. (truckload=tri-axel). (yes i know the costs involved in fuel, and manpower, but there is a road right back to the cutting site and its easy to drag them out. )
A forester works for you, which in the timber game is a plus on your side.

 

[Gordon Gould]

Everyone that I have talked to has recommended going with a forester route, those who didnt wish they did.
Most got a better price which paid for the forester, their properties were not high graded and left to degrade but instead cut to promote regeneration, and the sales were monitored.
(A timber company came to walk on my property said they would cut out the firewood sized trees and give me 23.oo a truck load, same company would turn around and sell them for (i think) 650 (could have been more) a truck load for fire wood. (truckload=tri-axel). (yes i know the costs involved in fuel, and manpower, but there is a road right back to the cutting site and its easy to drag them out. )
A forester works for you, which in the timber game is a plus on your side.

I totally agree with going the forester route. He is there to help you and protect your forest. But I have a comment to make also.
Most land owners are shocked at how little they get for low grade stumpage like pulp and firewood. But the truth is that nobody is getting rich. If you were told the costs for payments required on the equipment and its maintainence, the cost of insurance and workmans comp, and all the rest you probably would not believe it. It is a competitive world. If a logger did not pay enough for stumpage he would get no work. I am not saying that everyone is as honest as the day is long because we all know they aren't. This includes loggers, truckers, and foresters. There is a thousand ways to cheat. You have to select carefully. But low stumpage prices reflect the fact that extraction costs are very high compared to the value of the product. They do not reflect the fact that the landowner is getting the shaft.

 

[Gordon Gould]

Please expand on this statement. Are you saying that if you do a "roadside sale" that your receipts would be treated as ordinary income rather than capital gains?

Thanks in advance for any clarification.

Steve

I'll try to answer this one but I am not an accountant. If you invest in forest land and you are not in a forestry business, ie you are a hobbiest or an investor, your profits from your investment may be considered as capital gains. You have invested in land and live growing trees. If you sell the live growing trees ( as stumpage ) the sales price is used along with sales expenses, timber depletion, etc, in calculating a capital gain.
If you cut the trees and sell the logs you are no longer directly cashing in your original investment which was live growing trees. You have become a manufacturer of logs. The logs are a manufactured asset which you are selling and things get way to complicated for me to explain. I have trouble seeing the difference between the two senarios my self but the IRS says there is a difference.

 

[smstonypoint]

I'll try to answer this one but I am not an accountant. If you invest in forest land and you are not in a forestry business, ie you are a hobbiest or an investor, your profits from your investment may be considered as capital gains. You have invested in land and live growing trees. If you sell the live growing trees ( as stumpage ) the sales price is used along with sales expenses, timber depletion, etc, in calculating a capital gain.
If you cut the trees and sell the logs you are no longer directly cashing in your original investment which was live growing trees. You have become a manufacturer of logs. The logs are a manufactured asset which you are selling and things get way to complicated for me to explain. I have trouble seeing the difference between the two senarios my self but the IRS says there is a difference.

Gordon,

I had given this some more thought after I posted my question, but didn't take the time to do any research.

It seems to me that the landowner's income from the sale of "roadside logs" could be separated into two components:

1. the value of the standing timber which would be subject to capital gains taxes (after allowable expenses), and
2. the value of the harvesting services (e.g., cutting the trees, etc.) which would be subject to ordinary income taxes (after allowable expenses).

I am not sure whether the IRS allows this separation.* All of my sales have been of standing timber. The alternative sounds like too much like work to me. *

Steve

Edit -- Apparently the IRS does allow for this separation under IRS Code Sec. 631(a).

http://www.extension.iastate.edu/Publications/PM1162.pdf

 

[Gordon Gould]

Gordon,

I had given this some more thought after I posted my question, but didn't take the time to do any research.

It seems to me that the landowner's income from the sale of "roadside logs" could be separated into two components:

1. the value of the standing timber which would be subject to capital gains taxes (after allowable expenses), and
2. the value of the harvesting services (e.g., cutting the trees, etc.) which would be subject to ordinary income taxes (after allowable expenses).

I am not sure whether the IRS allows this separation.* All of my sales have been of standing timber. The alternative sounds like too much like work to me. *

Steve

Edit -- Apparently the ITS does allow for this separation under IRS Code Sec. 631(a).

http://www.extension.iastate.edu/Publications/PM1162.pdf

Your way ahead of my level of thinking. I just repeated what I think I was told at a tax workshop for forest land owners. What you say makes sense.
What would stop you from paying yourself a high stumpage and breaking even on the harvest so that it would all be capital gains anyway ?

BTW: Thanks for the extension service pub. Looks very helpful.