The Impact of Cost and Price Fluctuations on U.S. Hardwood Sawmill Profit

Abstract

While public reports exist about hardwood log and lumber prices, sawmills’ operating costs are proprietary, and few records are publicly available. Operating costs make up a considerable share of a sawmill’s cost structure and are, therefore, crucial for understanding the fiscal health of a given operation. Using the assumption that today’s depressed lumber and residue markets result in sawmills, on average, making no profit and incurring no loss, this study estimated operation costs of a hypothetical 4, 8, and 12 MMBF production hardwood sawmill in the eastern United States producing red oak lumber. Using this knowledge and the Log Recovery Analysis Tool (LORCAT), this study found that a sawmill’s financial well-being is highly dependent on hardwood log and operating costs as well as lumber prices. A 0.1% change in any of these factors will lead to a statistically significant change in profit for a sawmill. For example, with a 12 MMBF/year production sawmill, a 0.1% increase in operating cost would reduce profit by $4,510 but would increase profit $4,536 with an operating cost decrease of 0.1%. Similar observations can be made for log cost while lumber prices contribute even more to the volatility of the financial well-being of a sawmill.