Thinning Today to Create Value Tomorrow

At NNRG, we often discuss the importance of thinning to maintain forest health and productivity, as we did here — but in addition to these benefits, thinning can play a key role in increasing long-term timber revenue. In this article, we will explore the economic considerations of thinning.

To shed light on when to thin, and how much timber to harvest when you do, we’ll focus on the financial trade-offs of thinning timing and intensity, while also considering the impacts on the ecological values of forest stewardship. Of course, those considerations are intertwined, since there’s no harvest without a forest, and no economic production without ecological productivity. 

Thinning brings with it both economic benefits and costs. On the one hand, the forest owner reaps an immediate financial return from thinning, and profits over the longer term from enhanced tree growth that increases the value of future harvests. On the opposite side, thinning brings with it costs of the actual forest operation, a reduction in total volume growth across the stand because of the stems you remove, and heightened costs of harvest per thousand board feet (MBF) compared with a regeneration harvest.

Choosing an optimal thinning regime – how much to thin and how often – requires assumptions about tree mortality and growth rates at different forest density levels, as well as predictions of future log market prices and logging costs. Clearly this calls for a crystal ball! Further, if you intend to thin more than once, then the optimal timing and intensity of each entry will have to consider previous and subsequent thinnings. 

Density-dependent growth models can help experts predict future growth and guide decisions between thinning strategies, but they’re not very user-friendly for the average landowner. Fortunately for those without access to advanced growth models, a few rules can guide our selection of thinning intensity and timing.

How soon to thin:

Pay attention to the live crown ratio (LCR) of the tree — the percentage of the tree’s total height that has live branches growing out of it. When the LCR of the dominant trees (the tallest ones in the stand) drops below 30 to 35 percent, the growing space has become congested, growth has stalled, and future revenues are being reduced. Conversely, if the dominant trees’ LCR is above 40-50 percent, that’s a sign that the stand is growing vigorously and it doesn’t need a reduction in density to help it grow well. 

From an economic standpoint, thinning enables the forest steward to harvest trees that would otherwise succumb to competition-induced mortality. If your objective is to increase revenue, you would thin just as suppressed trees begin to die from competition, and you’d thin enough at each entry to maintain a low mortality rate between entries. 

But wait, you might say, aren’t standing dead trees (snags) good for the forest ecosystem? They do comprise valuable habitat … but large snags are even more valuable than small ones, so growing larger trees faster, to provide larger snags, has a biological rationale. Those larger snags can be ones with poor form for timber that you recruit (by girdling) if that meets your habitat goals for the stand.

How intensively to thin:

Thin too hard, and you open up the stand so much that you are wasting your basic resource: photons. The canopy would be so sparse that excess sunlight goes unused, reducing the growth potential of your forest, and thus future revenue. It can also destabilize the forest to remove too much at one time. A rule of thumb (to prevent windthrow, disruption to the understory, and photon-wasting) is to leave at least 50 percent of the stems that were in the forest.

On the other hand, if you thin too lightly, the stand will close up quickly, competition-based mortality will return within a few years, and you will have to come back and thin sooner than would be economically optimal. Some thinning costs, such as hauling per load of logs and felling and yarding per ton of wood, vary with the harvest volume and don’t generally affect your choice of thinning frequency. But some costs — such as road reopening, moving logging equipment to the site, and permitting — recur every time you undertake a thinning. The more often you thin, the more often you have to pay them. If you need help evaluating the fixed costs of thinning your forest, your forester can be helpful here. Or feel free to give us a call!

Growing valuable timber, not just more cubic feet

At the end of the day, you bring your bank a check from the mill, not a truck load of logs, so the value per MBF matters alongside the total volume of timber you raise. Trees harvested during a commercial thinning are sorted by size and species into categories (e.g. smaller pulp logs, larger sawlogs, highest-quality poles, etc.) that fetch different prices at the mill. Depending on how you manage the growing space, you can produce more, smaller trees or fewer, larger trees. While larger diameter logs generally produce more value at the mill or the export dock, that depends on local markets and mill configurations. Although you can’t predict future log prices with much accuracy, you can look at current and historic price tables to understand market trends, or decide to hedge your bets by choosing a thinning regime that produces a mixture of small (lower value) and large (higher value) logs.

Another factor to consider is the shape, or form factor, of the trees that grow under your thinning regime. Trees growing in dense stands allocate more resources to height growth in order to outgrow competing trees, often resulting in straight and tall trees which make saw logs of higher quality and value. Trees growing in dense stands will also drop their lower branches as available light decreases, yielding more knot-free and higher quality timber. But don’t take that too far: densely grown trees experience reduced growth rates, and very tall, slender trees can even become unstable and topple over. Therefore, financial returns are improved by maintaining sufficient density to produce tall, knot-free trees, but keeping height-to-diameter ratios below 80:1 (80 feet of height for every foot of diameter at breast height) in order to maintain structural stability.

Taking the time value of money into account

One reason some forest managers might want to accelerate their thinning schedule is the “time value of money” — a widely accepted principle that people prefer money now instead of later. For example, if I loan you $1,000, I expect you to pay me interest to make up for my loss of access to the money during that time. This idea can also apply to future income. If I expect to receive $1,000 in the future, how much of a discount would I accept to get that money today?

The discount rate is a measure of how intensely a person feels this principle. It is used to evaluate trade-offs between current thinning revenues and the prospect of a fatter check from the mill if you wait a few years. The further in the future the income is anticipated, the more it is discounted, reducing its value in the present. 

This principle governs much of how forests are managed today. When choosing between thinning regimes, a landowner focused on financial returns will prefer to receive the same amount of money sooner rather than later. As future income is reduced by the discount rate, this same landowner would only consider thinning regimes in which the value added by waiting exceeds the loss incurred through discounting. At a high enough discount rate, this analytical frame motivates forest managers to conduct a final harvest and liquidate the entire standing timber inventory, rather than thinning and waiting for the remaining trees to get even bigger. 

Ultimately, the choice of discount rate is a personal one that reflects your values. Large commercial forest owners, driven by capital markets, often use high discount rates and favor shorter rotations. In contrast, a small family forest owner may want to use a lower discount rate, allowing for longer rotations, fewer thinning entries, and the growth of larger, older trees.

Final Thoughts

Thinning is both an art and a science. By balancing biological and economic factors, landowners can develop a strategy that enhances forest health while also increasing long-term financial returns.