Ronald D. Wenrich is a sawmill management consultant from Jonestown, Pennsylvania, USA. This Penn State graduate has logged timber, inspected treated forest products, been a mill foreman, procured wood, and is now a sawmilling specialist.
Q: Ron, probably the first question I need to ask is how are timber prices determined?
Ron Wenrich: Steve, timber price is equal to the log values less the logging costs and profit. Log values are determined by lumber prices less the milling cost and profit.
But the true value of any stand or forest product is the price a willing buyer will pay to a willing seller for the timber. Buyers will always try to buy at the lowest price as sellers always try to sell at the highest price. Equilibrium is reached when there is an agreed price.
Q: OK, that being true and a price is agreed on, what happens to a tree after being sold?
Ron Wenrich: The tree is cut and topped in the forest. Some of the larger limbs may be taken and used for pulpwood or firewood. The main bole of the tree is taken to a "landing" to be cut up (bucked) to log length or "treelengthed" and taken to a mill.
Logs are separated at the mill, with some logs (veneer) being sold to other secondary processors. The cull logs are removed for pulp and firewood.
The logs are then broken down in the sawmill into timber, cants, and lumber. Mill configurations vary from area to area. Lumber is graded and separated. It is then put on drying stickers (little wood sticks that separate layers of lumber) and kiln-dried.
Q: Great job in explaining the initial process. What effects timber prices?
Ron Wenrich: By and large, lumber prices have the biggest impact on timber prices. However, hardwood lumber has several different grades - FAS, F1F, Select, 1 Common, and 2 Common (terms used in hardwood lumber grading from best to least quality).
These limber grades are governed by the amount of clear lumber which can be cut out of a board. Higher quality timber yields higher quality lumber - for a higher price.
In addition, veneer from high quality timber adds additional value. Red Oak veneer is selling for $1,500 US per thousand board feet in the log. Sawn 4/4 FAS is selling for $1,200 US per thousand board feet.
Q: Then what determines lumber prices?
Ron Wenrich: Lumber, like ag products, are governed by supply and demand. There is little government intervention that supplements lumber supply and demand in the North East United States. Lumber prices will rise and fall as determined by the free market.
Q: Lumber prices are one thing but what effects supply?
Ron Wenrich: Production capacity, availability of resource, market price, and weather all effect lumber supply. Weather can cause disruption in the log supply and it can be very localized. Heavy snow or rain can curtail logging in any area.
This disruption will affect the amount of logs that are available to be milled. If market prices are suppressed due to demand, mills will curtail operations to reduce inventory backlogs at the mill.
If timber is scarce, mills will have no need to increase production capacity. If production capacity is static, lumber prices will rise when demand isn't met.