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# Timber (Stumpage) Demand and Supply - PowerPoint PPT Presentation

Timber (Stumpage) Demand and Supply. Time Periods. Short-run – all factors (shifters) are held constant, only P and Q change. Long-run – all factors can shift, defining new relationships between P and Q .

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### Timber (Stumpage)Demand and Supply

• Short-run – all factors (shifters) are held constant, only P and Q change.

• Long-run – all factors can shift, defining new relationships between P and Q.

• At any given price the quantity of stumpage can change because of factors other than price.

• Specify a time period, usually one year, and a group of buyers, then

• Timber demand is the quantities of stumpage that the group would purchase for harvesting at different prices

Market demand curve for short-run, i.e. all “shifters” held constant

\$/MBF

P

Q

MBF/year

It starts with DLumber and DLogs and DStumpage are derived from DLumber

DLumber

PLu = \$300

Milling & distribution cost = \$100/MBF

DLogs

Plo = \$200

Logging & hauling cost = \$70/MBF

DStumpage

Q (log scale)

Q

• Flow supply is based on the “flow” of stumpage at a given price, quantity that would actually be sold.

• Stock supply is timber inventory in the market area specified, only a small portion of which is actually available at prevailing market prices.

• Sawtimber volume was 17.1 bil. bd. ft. (Doyle) in 1998 (Stock supply)

• Sawtimber harvest of industrial roundwood was 367 mil. bd. ft. in 2000 (Flow supply)

• Flow was 2.1% of stock

Doesn’t reflect recent increase in removals

• Specify a time period, usually one year, and a group of sellers, then

• Timber supply is the quantities of stumpage that forest owners would sell for harvest at different stumpage prices

\$/MBF

P

SStumpage

MBF/year

Q

\$/MBF

SLu

300

Milling & distribution cost = \$100/MBF

SLo

200

Logging & hauling cost = \$70/MBF

SS

130

MBF/year log scale

Q

Timber Supply as Aggregate of Individual Supply Curves

For a given price sum quantities horizontally

\$/MBF

SstumpTtotal stumpage supply curve

SstumpB for timber owner Bob

SstumpJ for timber owner Jane

500

100

MBF log scale

150

300

50

150

100

200

Price of \$100/MBF

Price of \$500/MBF

• Highly competitive stumpage market

• Small mill is price taker

• Large mill

• Oligopsonist – very few buyers

\$/MBF

Ss

Eps > 1 elastic

MBF

\$/MBF

Ss

Eps < 1 inelastic

MBF

\$/MBF

SLu

300

DLu

SLo

200

DLo

SS

130

DS

MBF/year log scale

Q

• Theory is that buyer pays same price for all the stumpage it purchases

• Price based on intersection of Ss and Ds

• Example

• Mill buys 12,000 MBF @ \$200/MBF

• Total cost is \$2,400,000

• Mill wants to increase output, need to buy 14,000 MBF.

• Must increase price to \$250/MBF

• Total cost is \$3,500,000

• Increase in total cost is \$1,100,000

• Marginal cost is ΔVC/ Δ Q,

• \$1,100,000/2,000 = \$550/MBF

• MC isn’t \$250 - \$200 = \$50

• Stumpage markets are segmented by

• Average quality of timber stand, and

• How timber is sold

• Sealed bid, usually with a consulting forester conducting the sale (highest price)

• One-on-one negotiation between single buyer and timber owner (lower price)