Q. Where does hardwood lumber come from? How can I lower lumber prices?

A: Part 1. Trees

Lumber does not come from the an 18-wheeler trailer. Rather, hardwood lumber is sawn from trees with leaves, not needles, and the trees are usually 75 years old or older. Most of these hardwood trees are in the eastern and southern U.S. Almost all of the land that these commercial trees are growing on is owned by sawmills or other wood industries or by private individual owners.

Almost all of our hardwood forests in the U.S. have been harvested two or three times since the arrival of the pilgrims. Most of these forests regenerated naturally after a harvest from sprouts from the listing root system or from seeds (oak acorns, for example).

One big question or issue for the future of our forests is, “Would you invest in a forest today that has just been harvested? Although you may enjoy the beauty, the wildlife benefits, and maybe even a pond with a cabin, the main financial return from the sale of the logs on this investment will be in 75 years or so. In these 75 years, there is the risk of insect damage, tornado damage, and fire damage.

Plus, it is likely that the local county will have some land taxes that they want paid every year, although often the forestland taxes are very low. In the South especially, growing of southern pine trees is quite attractive as seedlings are provided at very low cost by the government and harvest and financial returns can occur in 12 years.

Although commercial hardwood forest landowners do plan to harvest their land for their own sawmill, especially when log prices are high, private landowners present a different scenario. Oftentimes, the original land was owned by a grandfather, and when he died he willed the land to his heirs, maybe dividing the land into thirds for three children. These children are often not living near the forests, so the land just sits there without any management. Although with the fragmented ownership of small lots, many of these people are interested in harvesting and liquidating their inheritance within five to 10 years.

Another important ownership group is the farmer. Oftentimes the farm has some small woodlots in land that is too steep or too wet for farming. These woodlots do not bring in much money as they require extra effort to harvest, due to steepness, wetness or just being so small. However, in a year when the farm crops are poor and yet money is needed for paying off equipment loans, the farmer is interested in harvesting. (Special note: Trees grown in a narrow line, such as for wind breaks or property lines or just a few trees in a small woodlot are usually useless for lumber production as such trees are very knotty compared to forest grown trees where competition for sunlight limits lower branches.

 

Part 2. Logs

Not all trees are valuable. For a high valued log, the log produced when harvested must be quite straight and preferably larger than 16 inch diameter and at least 12 feet long with very few branches or knots under the bark. Valuable trees must be of a desired species; cherry, oak and walnut logs are several times more valuable than aspen, white birch and cottonwood.

So, a forester will typical look over (called cruising) the forest land that is potentially offered for sale. Often if the potential purchaser feels there is little competition from others, they might offer a very low price. If there is competition, the potential purchaser must consider logging costs, transportation costs to a sawmill, log quality, and the price being paid for lumber. Further, it is common practice to give the landowner some or all of the money for harvest now, with the actual harvest occurring within a year or two. If the lumber price goes up while waiting for harvest, the purchaser of logs is very happy, but if the price drops, “Ouch!”

We have all heard of the logging adventures of Paul Bunyan and Babe the Blue Ox. (If not, check out the stories in Rhinelander, Wisconsin, or Bemidji, Minnesota, or numerous other locations in these states.). The truth is that logging is a tough, arduous, dangerous job, working outside in all sorts of weather, with not much pay. Not surprising, there is a shortage of loggers. Further, once the tree is cut down and the less useful parts, like branches and small diameter tops, are removed, logging truck drivers are hard to find to haul the logs to the mills or other accumulation site; again, the pay scale is not attractive to today’s young people. Of course, if the loggers and drivers are paid more, that will increase the manufacturing costs of lumber.

One recent trend prior to tariffs with China, and now we expect to see it again as tariffs are being removed, is that log buyers from China take their shipping container into the woods and take the logs they want (usually the best logs) put directly into a container that is then hauled to a port for fumigation and export. These log buyers pay a little higher than the usual market price, which encourages this practice.

The lower grade logs are hauled to a sawmill, but the lumber they produce is lower in quality and lower in price, making it hard to make a profit. But with less lumber available, due to less logs being available, the lumber price of even the lower quality lumber will go up, sometimes 50 percent.

Although some furniture, cabinet plants and flooring mills are beginning to purchase forestland in order to control the cost of their logs, some plants are working with timber buyers and sawmills to assure reasonable prices and supplies. Users of hardwood lumber may also want to work with state officials to make sure that the state does not encourage exporting of logs, especially when the logs come from state forests. Is it right that some state forestry people encourage exporting from the state which will raise the lumber prices for lumber users, such as sawmills, furniture and cabinet plants, flooring mills, etc. within the state? Is it right that logs from state forests go out of state rather than be used in the area where the trees were grown?

 

Part 3. Sawmills

Sawmills have been a key financial aspect of the eastern and southern U.S. since the coming of Europeans. Although sawmills were pretty basic manufacturing operations with mainly saws and lots of metal frames holding motors in the 20th century, we have seen advances in saw milling the last few decades with computers, laser scanners, and sophisticated saw blades. A modern sawmill today might have only six employees working in the mill itself, producing several million feet of lumber per year. Most of these employees are computer savvy. When wood was plentiful, sawmill profits were related to the volume of lumber produced. But today quality and efficiency have taken over. Log quality is very important.

For a lumber user, close ties to the mills are very important to assure adequate supplies of the quality lumber required at the right price. This is a new approach, but is the required approach. As just one example, the railroads need ties for their rails. The cost of a ties is small compared to the value of the product they haul and the cost of a wreck due to rotten ties. So, they will pay whatever it takes to get ties.

If your sawmill has contacts with a tie buyer, they are attracted to seemingly high prices. Plus, when sawing a tie, there are fewer saw costs compared to sawing lumber that means a finished product more quickly when sawing ties. It also means less useful lumber will be sawn when the center of a log is a tie. A close connection between the sawmill and the lumber user can help change this scenario.

 

Part 4. Manufacturing Profit

For many wood products, the manufacturing costs are dominated by the price of wood. So, what can we do to lower wood costs, as this will directly improve profit? A few, practical and effective ways have already been given. But there are more.

a. Drying. Consider buying green lumber and kiln drying it yourself. When you dry it yourself, the cost may be under $150 per MBF, all costs considered. However, the difference between green lumber prices and KD prices are often $300 per MBF or more. Plus, when you dry it yourself, you will likely get the correct final MC and eliminate most moisture related splits, open blue joints, warp and more.

b. Grades. Learn lumber grades so you can check that you are getting the correct grades. Why should you pay full price for lumber that has 3 or 4 percent below grade? You might also find that you are getting the lowest quality within a grade group and someone else is getting the “cream.” Did you know that it is not appropriate when selling KD lumber to add a shrinkage number to the footage? Did you know that planed lumber is graded from the best side, while rough lumber is graded from the worst side?

c. Species. Consider using a less expensive species, perhaps a species that is not desired for RR ties.

d. Grades. Consider using a lower grade of lumber. For example, did you know that in almost all cases the yield of parts from FAS 1-Face and Select are the same as from No,1 Common, yet the price of No.1 Common is nearly half? Did you know that the yield from No. 2 Common is only about 6 to 8 points lower and yet the cost of No. 2 is nearly half the cost of No.1 Common? Maybe you can tolerate a small yield loss and a lower lumber cost overall by including a small amount of lower grade lumber in your orders. (See “b” above as well.)

e. Rip Saw. Did you know that the rip saw is where we lose a lot of yield? Did you know that ¼ inches of edging waste on a rip saw plus 1/8-inch saw kerf is 6 percent yield loss? Likewise, ½ inch of side bend could be as much as 8 percent loss? Did you know that there are certain narrow widths (under 6 inches” wide) of lumber can give 20 points higher (or even higher) yield than some other narrow widths, depending on the variety of widths of parts that you can use? Check this out and eliminate this low yield lumber or use the low yield lumber on another cutting order. Did you know that crosscutting very close to a knot may increase yield but the severe cross grain can result in subsequent gluing and machining failures?

f. Thickness. Does thickness matter? If so, check the incoming lumber thickness. Did you know that quartersawn or rift sawn grain shrinks twice as much in thickness as flat grain?

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