Private Landowners & Wood Dealers
Given the majority of forestland in the South consists of small parcels owned by private landowners, biomass buyers can expect to work through wood dealers to help secure their supply. Wood dealers (or brokers) purchase standing timber from the private landowner on a stumpage contract basis. They then negotiate delivered rates with forest products companies such as wood pellet facilities.
Buyers of biomass can expect to work with a set of dealers who in turn source supply from multiple landowners. In effect, they aggregate the volume of timber needed by a facility from dozens of different landowners. As with most things, the 80/20 rule applies: 20 percent of dealers control 80 percent of supply. As a result, it is important that buyers find the right dealers (i.e., those in the 20 percent). In addition to possessing industry credentials, reputable dealers are known for good working relationships with both facilities and landowners.
A key to the development of strong trading relationships between buyers and dealers is the use of a price index free of survey-bias. When both parties trust the index, they can move on to address other business at hand such as quality and service.
Lastly, take a conservative view of how much supply each wood dealer can deliver. A buyer cannot take the sum total of biomass three different dealers agree to supply and expect it paint a realistic picture of the marketplace. Wood dealers compete with each other for the same, limited supply of stumpage contracts within a local market. They have no real control over the supply that will become available, and as a result, they too will be leery of long-term contracts.
Corporate Landowners
Unlike the small, private landowner, corporate owners like Timberland Investment Management Organizations (TIMOs) and Real Estate Investment Trusts (REITs) own a substantial volume of contiguous acres. The nature of their business – focused on clear return on investment objectives - allows them to offer a steady supply of timber. Some TIMOs and REITs act as direct owners and suppliers of wood fiber, eliminating the stumpage contract process.
It may be easy to call a corporation to discuss its available supply, but it is nearly impossible to identify the small, private landowners who hold the majority of the timberland across the region. Wood dealers organize fragmented forests owned by individuals and organizations with a wide range of objectives that affect harvest timing and type into a reliable supply chain. This in turn alleviates some of the risk of securing and retaining wood supply contracts.