A Formula for Tabulating Lumber for Sawmills
Factors Affecting Pricing
According to the U.S. Forest Service, there are many factors influencing the value of timber, from acreage to the number of bidders. Indeed, lumber calculations can be vexing—even for veteran woodworkers. Fortunately, Forest2Market provides great resources to help you chart calculations. The following tips can also help you decide what prices will work to make your sawmill profitable.
Factors Affecting Timber Prices
While prices in the state or region reflect the typical rate, local market conditions are more consequential. Case in point: if the timber you're looking at grows near several mills, it may command a higher price than if your mill were the only one nearby.
The value of a timber depends on the species, size, and quality of the trees. It also relies on the amount of timber sold in a single sale, as well as the type of harvesting done. Quite often, the larger the sale, the lower the price per unit of wood. Conversely, it's usually more costly to cut down just a few units.
Timber prices also depend on growing conditions, which affect the cost to remove and transport timber to a mill. Variables include the distance from the stand to the nearest road, slope degree, and soil wetness.
Investigating Rough Lumber Prices
Getting an idea of the prices most mills are charging for finished lumber can help you work backward to determine a rough estimate for timber costs. Try calling other sawmills in the area to learn what they charge to get an idea of what they charge for finished lumber.
If you can't get the information directly, do some research. To research lumber prices, contact your state service forester, who works with the state department of natural resources division of forestry or forestry commission. Also visit the National Association of State Foresters' website, which can link you to state service forestry agencies. Contact your county agricultural service agent or forestry extension staff, which are typically located in the foresty department of your state's land grant university. You can find a full listing by state and county on the U.S. Department of Agriculture's (USDA) Farm Service Agency's website. You can also consult the USDA Cooperative Extension System for forestry assistance.
When you know the costs of lumber, you can calculate the rough cost of timber:
Sample Calculation: Say you wish to determine timber prices for red oak on the stump. You call area sawmills and determine the average price for red oak grade lumber is $800 per thousand board feet. You also learn that harvesting cost is $100 per thousand board feet, trucking is $100 per thousand board feet, and milling is $250 per thousand board feet. Your equation would be:
$800 – $450 = $350 per thousand board feet for the timber
Calculating a Profit
Before offering $350 per thousand board feet for standing red oak, you have to factor in your profit. For a rough idea, start by adding 50% to 70% to your cost figure (excluding timber) of $450. You can then subtract that total from the estimated price you can charge for lumber ($800 in our above equation).
$450 x 1.5 = $675 per thousand board feet
$450 x 1.7 = $765 per thousand board feet
Therefore, the price range you can pay for red oak on the stump is $35 to $125 per thousand board feet, based on your cost figures ($800 minus total costs). This is called your return-to-log (RTL) calculation.
What Drives Calculations?
Many considerations go into calculating the value of a log. The mill factors in total revenue, variable costs, and fixed costs to determine net return. Forest2Market offers sample calculations that break down the numbers, which are generally driven by the following factors:
- Finished products (lumber): Byproducts, residual chips, shavings, sawdust, bark/hog fuel.
- Variable costs: Log cost, log yard (inventory) cost, sawmill operating costs, labor, drying, planing, shipping, and maintenance.
- Fixed costs: General and administrative costs, log procurement staff, sales staff, depreciation, interest, corporate fees.
Starting out Small
Determining timber prices can be a complicated process. It may be best to start off buying your logs from a logger who will give you a price for the logs you need shipped directly to your mill. As you grow your milling business, you can gradually begin procuring your own timber without a middleman.