Will the "real" price of pine sawtimber stumpage rise or fall by 2001? That is the question.
David South (Professor, School of Forestry, Auburn University) bet the price will increase (after adjustment for the consumer price index). Julian Simon (Professor, College of Business and Management, University of Maryland) bet the price of pine sawtimber stumpage would decrease over a 5-year period (4th quarter 1995 to 4th quarter 2000).
If you want to see the contract between South and Simon, click here.
In 1996, Julian Simon wrote:
"Re the bet: I must tell you that I think you have a very good chance of winning over a five-year period - close to 50-50. Of all the topics that might fall into the categories I specify, I think yours is the most challenging for me. And if I
did not feel bound to accept the bet by my general statement - I would feel that I was welshing if I didn't accept it - I would have demurred. This is one of those situations in which we are moving from a hunting-and-gathering situation
to cultivation, and during that period prices certainly can go the other way for five years.
After reading a note by Roger Sedjo, Julian Simon withdrew from the bet with David South in March of 1997. He sent South a check for $1,000. Simon believed the price of pine sawtimber (standing) in south Alabama in December of 2000, would be affected by actions by environmental groups and the USFS in the Pacific Northwest. Here is the text of a letter explaining his decision.
The Figure below shows the trend in the price of southern pine sawtimber in south Alabama from the 4th quarter of 1995 to the 4th quarter of 2000. According to Timber Mart-South, the average price per thousand board feet (Scribner) increased from $224 to $336 (exactly a 50% increase in nominal $).
Nominal Price of southern pine sawtimber in south AL 4th quarter 1995 = $224
Nominal Price of southern pine sawtimber in south AL 4th quarter 2000 = $336
$1000 (4th quarter 1995 = 100) = $1,158 (May 2001) [177.7/153.5 = 1.158)
use CPI at ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
4.464 MBF in 4th quarter 2000 = $1499
Since 4,464 board feet of sawtimber cost $1499 in Dec. 2000, the loser of the bet would have sent the winner a check for $341 in May of 2001 (i.e. $1499 minus $1158). Instead, Julian Simon sent David South a check for $1,000 in March of 1997. A year later Simon passed away.
More info on price trends for sawtimber stumpage can be found at....MORE ON STUMPAGE TRENDS
Julian Simon has said that "Every resource economist knows that natural
resources have become cheaper rather than more expensive." While
this has been true for many resources, it is not true for all. The
price of sawlogs has gone up several time in constant dollars since 1900.
This suggests an increasing scarcity of this resource.
The Southern Forest Products Association collects and analyzes data
from wide variety of sources, then compiles this information into useful
reports. A number of these reports are available
on the web.
Consumer price index
Reasons why the price of pine sawtimber stumpage may increase
"In general, then, if the scarcity of a raw material increases, its price
(Julian Simon: The Ultimate Resource (p. 18))
Apparently the scarcity of sawlogs and standing sawtimber is increasing as evidenced by the following:
The price (adjusted relative to the wholesale price index) of sawlogs in 1973 was about six times higher than in 1870 (Figure A-8: The Ultimate Resource (p. 352)).
The price (in 1982 constant dollars) of southern pine stumpage has increased 40% from 1970 to 1992.
The price (producer price index) of lumber and wood products has increased five times from 1950 to 1995.
If the trends of the past are any indication of the trends for 1995 to 2000, then the adjusted price of sawtimber should increase.
Since the price of sawlogs and standing southern pine stumpage has increased, I argue that the scarcity of this raw material has increased. Just because the US has more standing volume of sawtimber now than 1900 does not mean we are not currently experiencing a shortage of standing sawtimber.
Note: The above statements do not pertain to either fuelwood or pulpwood. Since the price of fuelwood and pulpwood have remained relatively the same since 1910, David South decided not to bet with Julian Simon on these raw materials.
Some forest economists are predicting a dramatic increase in pulpwood price of softwoods in the southern United States (Abt, R.C., F.W. Cubbage and G. Pacheco. 1995. The timber supply situation in the Southeast: implications for intensive management. In Proceedings of the 23rd Southern Forest Tree Improvement Conference). They predict a 90% real increase in softwood price from 1993 to 2000. If harvesting of pulpwood increases due to an increase in stumpage price, the number of trees that will grow into sawlog sizes will be reduced in the short-term. The incentive to grow sawlogs will decrease if the relative price of pulpwood increases relative to sawlog prices.
Roger Sedgo, (Resources for the Future, Washington, DC) suggests that "timber prices will rise above the long-term trend in the near and perhaps intermediate-term." However, in the long-term he suggests that timber price has been experiencing a relatively flat trend since the 1950's. If the constant-dollar price of pine sawlogs remains relatively constant for the next 5 years, there is only a 50% chance that David South will lose the bet.
"To understand the economics of natural resources, it is crucial to understand that the most appropriate economic measure of scarcity is the price of a natural resource compared to some relevant benchmark." (Julian Simon: The Ultimate Resource (p. 20))
The costs of raw materials have fallen sharply over the period of recorded history, no matter which reasonable measure of cost and price one chooses to use.... historical trends are the best basis for predicting the trends of future costs, too." (Julian Simon: The Ultimate Resource (p. 20))
The price of raw materials to produce alternatives to lumber should decline in the future. Once the price of alternative building materials goes below that of lumber, the demand for lumber should decline. For example, in some areas, the price of constructing homes out of steel may equal that of constructing homes with lumber. If the price of energy continues to decline in the future, the cost of steel studs should continue to decline (in constant dollars) in the future.
For some uses such as fencing, picnic tables and benches, recycled plastic can be used instead of wood. Patio furniture can be made from recycled milk jugs. In some cases, wheat straw can be used instead of wooden structural panels.
Wood production/acre will increase (especially from plantations established on industry land). Some organizations now claim they can produce 12 US green tons per acre per year (roughly 24 m3/ha/year) on typical loblolly pine sites in the South. Some even believe that with intensive culture, production can exceed 30 US green tons per acre per year (60 m3/ha/year.) (Wallinger, R.S. 1993. Private-sector leadership for a changing nation. Journal of Forestry 91(1):20-23). Therefore, application of technology can produce significant increases in wood production. The establishment of "Fiber Farms" is increasing in the southern United States. Although this increase in production is mainly for pulpwood, this should help to keep some sawtimber stands from being used (harvested) by pulpwood companies.
The increase in wood production by industry is part of what is termed the
Some prices paid for large-diameter trees are due to the plywood industry. If fiberboard is used in construction, the need to grow large diameter trees (to produce plywood) decreases.
The use of pine trees for paper may decline if alternative sources of fiber prove more cost effective. For example, the USDA has spent several million dollars on researching the production of Kenaf. In fact, the ecologist E. O. Wilson claims that "wood grass" will produce more paper per year per hectare than southern pine plantations (talk given at Auburn University in 1996). "Industry souces told Advertising Age that kenaf production could become economical when the price of domestic newsprint hits about $400 a ton." (The Ultimate Resource; page 80). In 1995, some newsprint sold for more than $800 per ton (1995 dollars). If claims about kenaf are true, market forces should cause kenaf farming to increase and kenaf paper should be cheaper to produce than wood paper from southern pine plantations. If the demand of pulpwood decreases, the incentative to grow sawtimber may increase.
SOUTH MAKES A BET ON THE PRICE OF OIL!!!!