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Forest Science -Washington- 11/2010; · 1.05 Impact Factor
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ABSTRACT: Three different option value approaches are used to estimate the value of a typical New Zealand plantation stand, under the assumption that log prices follow a random walk. Crop values are compared with the Faustmann value, the benchmark for forest valuation in New Zealand. The increase in forest value can be substantial when log prices are low and close to the exercise cost. Gains quickly diminish and become small, both as an absolute difference and as a percentage of forest value, as price increases. However, results are very sensitive to the log price model adopted. Assuming log prices are mean reverting gives higher values than Faustmann for all log prices. Stochastic Dynamic Programming (SDP) and Binomial Option Pricing (BOP) give very similar results. They evaluate the same harvest/defer harvest/never harvest options. A new Abandonment Adjusted Price approach gives results that have a similar pattern but are consistently lower than SDP and BOP. This approach only considers whether to harvest or not in the optimal year and does not allow the option of deferring harvest. At the present time, option valuation approaches have limited relevance for the practice of forest valuation in New Zealand. Practical issues (determination of the log price model, estimation of volatility, allowing for multiple log grades and modelling at the estate-level) need to be addressed before option value approaches can be routinely used for forest valuation.
Forest Policy and Economics 01/2010; 12(4):299-307. · 1.48 Impact Factor
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ABSTRACT: In this paper the integration of log prices across four regions in New Zealand was assessed. A time series of prices for six Radiata Pine (Pinus radiata D. Don) log grades in each of the regions were tested for co-integration using Johansen’s method and Engle-Granger pair wise tests. Prices for export grades display significant integration across regions and generally follow the law of one price. However, markets for domestic grades tend to be regionally segregated. These results are most likely due to the high costs of transporting logs between regions. Future modelling will need to incorporate such transportation costs in order to adequately characterise log markets in the country.
New Zealand Journal of Forestry Science 01/2008;
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ABSTRACT: In this article the monthly prices of logs in four New Zealand regions were examined for their stochastic properties. Of interest was whether log prices can be considered stationary or non-stationary processes. Tests which had both stationary and non-stationary null hypotheses were employed. Results support a non-stationary price process for virtually all log grades and regions. This has implications for the timing of harvesting and the valuation of timberland in the country as they suggest reserve pricing rules will yield little gain for timberland owners. The idea of a random walk will be developed further later. However, a good basic definition is provided by Stock and Watson (2003) "The basic idea of a random walk is that the value of the series tomorrow is its value today, plus an unpredictable change".
NZ JOURNAL OF FORESTRY. 01/2007;
