Finnish Forest Research Institute  Metla

Press release 28.11.2006

Impact of stumpage price and volume growth variations on timber harvesting age ready for applying in practice

Finland probably has the world’s best and most detailed data on stumpage prices gathered since the 1940s. The data can now be utilized in defining timber harvesting age and its sensitivity to economic and stumpage price process parameters. The results have been programmed and could be implemented in the forest management software systems. They make it easier to determine the impact of variation in stumpage prices and volume growth on timber harvesting age.

In forest management and planning programs prices are assumed to be constant, although during this year, for example, prices shot up by almost 10 per cent. Determining the timber harvesting age, also called optimal rotation age, for regeneration has now been improved by taking into account the volatility of stumpage prices and volume growth.

Exact annual, biannual, monthly, and even weekly data are available on the development of stumpage prices at the national and regional levels. Annual data are available on stand establishment costs for forest regeneration. Research data are already available on the impact of random variation on growth volume.

There are a fair number of previous studies that take into consideration the random variation, also called volatility, of prices and growth volume, but almost without exception, they represent academic publications that can hardly be applied in practice. The results of the present studies have already been programmed to be applicable in the forest management planning programs. The fact that stumpage price development is included in calculations makes the results more realistic. The greatest benefit of the results was gained when they were implemented to forest management software packages, such as Motti-software of the Finnish Forest Research Institute (Metla). Then, by feeding the stand input data, different values can be given to financial input data, such as stumpage price development estimate, to get a clear idea of the optimal timing of fellings.

The program takes full advantage of the input data and develops solutions for optimal timber harvesting timing. The calculations are based on state-of-the-art applications of recently developed probability calculation methods, stochastic differential equations. Though deriving the results involves complicated problem solving, the actual results are rather simple and easy to program. The programming is written in MATLAB language, but it could just as well be performed in spreadsheet programs, such as Microsoft Excel.

The example calculations were made for a Vaccinium-type Scots pine stand. In this case, stumpage price volatility prolonged rotation age by 5-9 years, while the discount rate applied by forest owners varied between 5 % and 2 %. Volume growth volatility prolonged harvesting by only 1-2 years, i.e. the same time as the impact of ignoring the future thinning benefits. In contrast, assuming the slightly more than one per cent negative price drift in real stumpage prices observed during recent years to continue also in the future dropped the harvesting age by 6-10 years. For example, discount rates of 3 % produced an optimal rotation age of approximately 75 years. The recent rather surprising leap in stumpage prices emphasizes the importance of stumpage price development estimation.

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