Stumpage Price Distributions and Correlations and Their Impact On Timberland Investment Modeling: An Analysis Using Maine Stumpage Prices (1961-2017)

This paper analyzes more than 55 years of Maine stumpage prices and finds that the normal distribution does not best characterize many of the primary species and products located in the state. Nontrivial correlations are also identified among many of the species and product stumpage prices. The implications of these findings are discussed for the value of species and age diversification and the use of financial simulations to assess projected return distributions from timberland investments. Specifically, we look at two hypothetical timberland investment scenarios with varying amounts of species and age diversification and demonstrate the differences in the projected return distributions timber analysts would obtain with simple (normal distribution and independence) versus data-based (best-fit distributions and correlations) assumptions.