Best deal for landowner: 50/50 or lump sum?

[WVMountaineers]

Hello,

I did my first private consulting job for my brother in law and I want to make sure I can get landowners the best deals going forward.

I painted the trees on his Woodlot, tallied the volumes, and will sell the stumpage to a mill for a lump sum. 

Other people in the area have just done 50/50 deals with loggers. I wonder which one is best for the landowner. 


Thanks

[Ron Scott]

Usually tree measurement, lump sum, with a minimum appraised value and sealed bids. 

[Ianab]

Whether a 50/50 deal is good depends completely on the value of the trees. If the trees are high quality, it's the logger who wins. If the trees are junky, the logger probably wont want to touch the deal as it's just as much work as harvesting good logs, but the pay is much less. 

Value of the standing tree should = (Value of the logs at the mill) - (harvesting and trucking costs). Heck, sometimes that will just happen to work out as 50/50, other times 60/40, or 40/60 etc. 

Like Ron says, best option for the landowner will be mark / measure and get bids. Realistically a logger is only going to offer a 50/50 deal if it's fair, or in his favour. If the tree value is less than 50%, you aren't going to get a 50/50 offer. So at best it's a break even, at worst the land owner could be getting the short end of the deal. 

[Ron Wenrich]

Depends on your risk tolerance.  50/50 requires a lot of faith in the ability of the logger to market the logs at the best price.  Also, there's the problem of bookkeeping.  Who takes care of the receipts?  Sometimes a load or 2 may go missing.  Not always the case, but needs to be looked out for.

Lump sum bid sales puts the risk on the logger.  If his eye is good and he needs timber, then he'll make a bid that is reasonable.  They'll be bottom feeders who are looking to see how much the competition is willing to pay.  If the loggers eye is bad and he overbids, he'll have to take the loss.  

Are you putting out for bids or going directly to one mill?  Bids are better from your standpoint.  You get the highest available price at the time of sale.  Going direct means that you better have a really good idea what its worth.  If you have experience as a procurement forester, you might have a good idea.  With this being your first sale, I have to wonder how you're setting your price.

[Ron Scott]

Scaled sales may also be a more suitable option in some cases depending upon the diversity of the area and products and values involved. These should also be bid sales as appropriate.

More work and accountability are usually required in such sales. Some timber sales might also be both tree measurement and scaled with options provided.

In any case, ensure that payments are received in advance of cutting and a performance bond is required.

[WVMountaineers]

Depends on your risk tolerance.  50/50 requires a lot of faith in the ability of the logger to market the logs at the best price.  Also, there's the problem of bookkeeping.  Who takes care of the receipts?  Sometimes a load or 2 may go missing.  Not always the case, but needs to be looked out for.

Lump sum bid sales puts the risk on the logger.  If his eye is good and he needs timber, then he'll make a bid that is reasonable.  They'll be bottom feeders who are looking to see how much the competition is willing to pay.  If the loggers eye is bad and he overbids, he'll have to take the loss.  

Are you putting out for bids or going directly to one mill?  Bids are better from your standpoint.  You get the highest available price at the time of sale.  Going direct means that you better have a really good idea what its worth.  If you have experience as a procurement forester, you might have a good idea.  With this being your first sale, I have to wonder how you're setting your price.

Ron, do you know a Jason Wenrich by any chance?
Anyways, I scheduled a bid opening but no one showed up. A couple procurement foresters went out and looked at it. They didn't like the gas lines being out there. They also cited access issues. It was my boss who they talked to about it. I see no reason why the well road couldn't be fixed up and you got a wide landing spot up there. We do have a potential buyer right now, so hopefully that works out. 
As far as pricing, I have 5 years experience as a tech so I have confidence in the volumes I came up with. I asked my boss about stumpage prices by species and based it on that.
Thanks

[JonathanPace]

50/50 needs a lot of trust in the logger's ability to sell the logs at the highest price.  There's also the issue of accounting. It all comes down to your risk level.  

[Blue Noser]

Whether a 50/50 deal is good depends completely on the value of the trees. If the trees are high quality, it's the logger who wins. If the trees are junky, the logger probably wont want to touch the deal as it's just as much work as harvesting good logs, but the pay is much less.

Value of the standing tree should = (Value of the logs at the mill) - (harvesting and trucking costs). Heck, sometimes that will just happen to work out as 50/50, other times 60/40, or 40/60 etc.

Like Ron says, best option for the landowner will be mark / measure and get bids. Realistically a logger is only going to offer a 50/50 deal if it's fair, or in his favour. If the tree value is less than 50%, you aren't going to get a 50/50 offer. So at best it's a break even, at worst the land owner could be getting the short end of the deal.

No room for profit?