Stumpage Market in the South Central United States : Preliminary Results

This study investigates the supply and demand structure of the hardwood stumpage market in the South Central United States for the period 1981-1996. Three stage least squares regression is used to estimate parameters in a simultaneous equations model of pulpwood and sawtimber stumpage markets for mixed hardwoods, oak, and total hardwoods. Stumpage prices are generally non-significant. Hardwood pulpwood is a gross complement in sawtimber production, but there is no evidence of substitution of sawtimber for pulpwood production or hardwood pulpwood for pine in pulp production. The wage rates and interest rates have reduced the demand for hardwood pulpwood. Final good prices have a positive influence and wage rates have a negative effect on the demand for hardwood sawtimber. Price and inventory elasticities are estimated. 1 Approved for publication as Journal Article No. FO-098 of the Forest and Wildlife Research Center, Mississippi State University. 2 Graduate Research Assistant and Assistant Professor, Forestry Department, Mississippi State University, Box 9681, Mississippi State, MS 39762. INTRODUCTION The South Central United States occupies a key position with 23% of the inventory, 29% of net annual growth, and 32% of annual removals in the U.S. hardwood stumpage market (Powell et al. 1993). Timberland is predominantly private with 70% in nonindustrial private forest (NIPF) ownership. Nontimber objectives of NIPF landowners significantly influence their production behavior and available timber supplies (Newman and Wear 1993). The hardwood market has experienced several changes in recent times. Hardwood lumber production increased nearly 50% from 1979 to 1995. Hardwood lumber exports, as a percent of total hardwood lumber production in the United States, increased from 2.3% in 1960 to 8.5% in 1996 (West and Hansen 1997). Technological developments have increased the use of hardwoods as a substitute for softwoods in pulpwood production and in structural panels such as oriented strand board. Consequently, real hardwood pulpwood prices increased at an annual compound rate of 6.3% compared to 1.5% for softwood pulpwood during 1977-96 (Nagubadi and Munn 1997). Haynes et al. (1995) project that real hardwood sawtimber prices will increase between 1.0 and 2.4% annually during 1991-2040, reflecting the increase in demand. Although the hardwood annual growth to removals ratio is 1.5:1 compared to 0.99:1 for softwoods, and the inventory to annual removals ratio for hardwoods is 48:1 versus 18:1 for softwoods, the actual difference in available stumpage is much less. Much of the hardwood resource is grown in bottomlands, coastal areas, or steep slopes in mountain areas. Increasing environmental restrictions imposed on wetlands have restricted the hardwood stumpage supply. Further, hardwoods grow in mixed-age, mixed-species stands in contrast to primarily even-age, single species softwood stands. For these reasons, the supply and demand structure of hardwood stumpage markets is sufficiently different from softwoods to deserve a separate look. Researchers have studied the supply and demand structure of softwood lumber and stumpage markets (Robinson 1974; Adams 1977; Newman 1987). However, no studies examined the supply and demand structure of the hardwood stumpage market. The supply and demand responses to stumpage price