A Regional Overview

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What are the Market Trends Impacting the Sawmill
Industry?

• A Regional Overview
• Jan Wiedenbeck, NRS
• Al Schuler, NRS

2
U.S. Graded Hardwood Lumber Consumption Trends
(BBF)
Total consumption up 2 BBF (44) between 1962 and
2005, but dramatic changes in where the lumber is
consumed
1962
2005
Total 6.6 BBF
Total 19624.60 BBF, 20056.6 BBF
Source Bill Luppold, USDA
Source Bill Luppold, USDA
3
Many Secondary Manufacturers are Very Dependent
on Housing Markets
Source Buehlmann et al. 2008, Modern Woodworking
4
U.S. Hardwood Flooring ImportsHousings Impact
is Huge
2007 Imports 143 million Exports 92
million Deficit 51 million
U.S. Housing Decline
Customs value (million )
Source USDA, FAS
5
Components in building materialsinterior trim,
moldings, stair parts, flooring blanks
Source WCMA
6
Changing Hardwood Component Markets

• 1984 2008
• Furniture 65 22
• Cabinetry 16 27
• Building Products 10 42
• Decorative/Specialty 4 7
• Industrial Products 5 3

residential and commercial, both new
construction and remodeling
Source 2008 WCMA Market Study
7
World Trade In Temperate Hardwood Logs -- Share
(Value-Basis) of Top Importers and Exporters in
2006
Source Global Trade Atlas
8
Structural Change in International Log Markets
1) Russia is worlds largest exporter (volume
basis) of both hardwood and softwood logs 2)
Softwood tax increases from 6.5 today to 80 by
Jan 2009 3) Hardwood sawlogs (oak, beech, ash)
tax increases from 20 today to 40 by Jan 2009
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U.S. Hardwood Lumber and Log Exports to China A
Comparison

• Log exports increase 35 in 2007
• Lumber exports decrease 19 in 2007

Million
Source FAS
10
With many of todays wood products (e.g., EWPs
and OSB), fiber requirements are less quality
based and more quantity based Plantations
contribute between 25 to 40 of global
industrial wood supply in 20 years, could
exceed 50
11
Plantations Contribution to Global Industrial
Wood Production Is approaching 50 according to
FAO
Source FAO State of Words Forests - 2007
Excludes firewood
12
Per Capita Wood Consumption

• Lots of potential to export more wood products to
  China
• Affluent population today 13 million 40,000
  income (PPP)
• By 2025, upper middle class 520 million people
  25,000

cubic meters per capita
Source China Timber Import Export
Co/Hardwoodmarkets.com 2003
13
China and US Consumption of Wood Products What
will Chinas Share be in the Future and where
will it come from?
World Consumption Share
Source FAO
14
International Exports, 2007

• Indiana is
• 9th most important state in terms of ash lumber
  exports
• 12th in maple lumber exports (OH is 11)
• 9th in cherry lumber exports (OH is 3)
• 10th in oak lumber exports (OH is 7)
• 17th in beech lumber exports
• 13th in log exports (OH is 9, TN is 12)

Source Global Trade Atlas
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You Can Strengthen Your Competitive Position with
Information that is at Hand
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Potential Profit Margins are Slim to Begin With
Value Ratio (lumber value log cost)
Sawmills Studied (35 total)
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Log Value Ratio for Different Log Grades
Value Ratio (lumber value log cost)
FS Log Grade
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Potential Profit Margins by Diameter Class for
Grade 3, Red Oak Logs
Value Ratio (lumber value log cost)
Small-End Diameter (inches)
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Doyle Overrun by Diameter Class for Grade 3, Red
Oak Logs
Doyle Overrun (board feet)
Small-End Diameter (inches)
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LRF by Diameter Class for Grade 3, Red Oak Logs
LRF
Small-End Diameter (inches)
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Operating Costs Have Dramatic Influence on
Profitability of Sawing Individual Logs
Operating Cost Average Value Ratio, 4,857 logs Percent with VR lt 1.00 Percent with VR lt 2.00 Percent with VR 2.00
0/min 1.38 30 54 16
5/min 1.11 42 54 4
10/min 0.96 58 41 1
20/min 0.77 80 20 0
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COST, a Cost Accounting Tool, Gives a Fresh Look
at Your Cost Picture
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Cost of Sawing TimberA Manufacturing Cost
Analysis Program for Sawmills
COST
Jeff Palmer Jan Wiedenbeck USDA Forest
Service Northern Research Station 241 Mercer
Springs Road Princeton, West Virginia 24740 Bob
Mayer Consulting Forester in Indiana
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What is COST?

• It is a computer program that calculates a
  sawmills annual and per-minute operating cost
• The per-minute cost figure is calculated based on
  information provided by the user that can be more
  or less specific
• It is a companion to the SOLVE sawmill analysis
  application (a sawmill operations performance
  analyst)

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Simply stated
COST provides you with a good estimate of the
total annual and per minute costs of operating
YOUR sawmill.
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What are the required inputs?

• Production information (annual log consumption
  and lumber / byproduct production)
• Weekly work schedules, annual wages and salaries
• Downtime, planned shutdown days and annual
  overhead costs

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What information does COST provide?

• Work shift summaries
• Annual wage and salary costs
• Non-payroll operating costs
• Annual procurement costs
• Annual sawmill operating cost, cost per mbf of
  logs processed and cost per mbf of lumber produced

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What If
All wage employees given a 5 increase?
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What If
Offering a 2,000/employee wage incentive
increased production by 5?
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What If1 more material handling employee is
needed and 1 greater downtime occurs when
processing small diameter logs?
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What If1 more material handling employee is
needed and 1 greater downtime occurs when
processing small diameter logs?
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The Performance Analyst for Hardwood Sawmills
SOLVE
Jeff Palmer, Jan Wiedenbeck and Elizabeth
Porterfield USDA Forest Service Northern Research
Station 241 Mercer Springs Road Princeton, West
Virginia 24740
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Additional Software Tools that You Should Find
Useful

• Hardwood Quality CD
• Hardwood Log Defect CD
• Hardwood Lumber Edging and Trimming
• SAWFEAS and other Wisconsin Extension Programs
• ROMI-3

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The Hardwood Edging and Trimming Trainer For
Windows 95, 98, 2000 and XP
Developed by the Southern Research Station,
Blacksburg, VA Phil Araman
43
The Hardwood Edging and Trimming Trainer is
designed to help hardwood sawmill edger and trim
saw operators improve their processing
performance.
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Hardwood Edging Trimming Trainer
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Hardwood Edging Trimming Trainer
Zoom screen
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Hardwood Edging Trimming Trainer
Lumber price editor
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Hardwood Edging Trimming Trainer
Graded board
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ROMI-3 Rough Mill Simulator Version 3.0

• Ed Thomas
• Joel Weiss
• USDA Forest Service
• Princeton, WV

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Decision Support Software
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What If

• I process a different grade mix?
• I had a wider arbor?
• I used more part grades?
• I can cut more lengths at a time?
• I process more narrow or short lumber?
• I can use a narrow min. width in my panels?
• I bid on this job what yield can I expect?
• I bid on this job how much lumber and processing
  will this order require?

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Lumber Data Banks

• 3,483 kiln-dried red oak boards totalling over
  20,000 board feet, graded to 1998 NHLA rules
• 655 FAS boards
• 350 F1F boards
• 278 Select boards
• 1,040 1 Common boards
• 925 2A Common boards
• 235 3A Common boards

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Lumber Data the foundation

• The data banks consist of actual boards whose
  length, width, defect size, location, and type
  information were recorded.

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Least Cost Grade Mix

• Determines the grade-mix that has the lowest
  combined lumber and processing cost for a given
  cutting bill
• Older programs such as Optigrami were limited
• Based on chop-first yield studies from the 60s
  and 70s.

Developed by Urs Buehlmann and Xiaoqiu Zuo at
NCSU
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COST SOLVE
Jeff Palmer, Jan Wiedenbeck and Elizabeth
Porterfield USDA Forest Service Northern Research
Station 241 Mercer Springs Road Princeton, West
Virginia 24740 304-431-2700 or jpalmer_at_fs.fed.us