2011 Indiana Forest Products Price Report and Trend Analysis

 By William L. Hoover and Greg Preston

 Survey Procedures and Response

       This Report is intended to be used as an indication of price trends, not for the appraisal of logs or standing timber (stumpage). Data is collected once a year, but log prices are constantly changing. Standard appraisal techniques be those familiar with local market conditions should be used to obtain estimates of current market values for particular stands of timber or lots of logs. Because of the small number of mills reporting logging costs, "stumpage prices" estimated by deducting the average logging and hauling costs (Table 4) from delivered log prices must be interpreted with caution.

       Data for this survey was obtained by a direct mail survey of all known sawmills, veneer mills, concentration yards, loggers, and firms producing wood chips, sawdust, etc., as a byproduct. Only firms operating in Indiana were included. Firms stating that they will not respond are dropped from the mailing list. The survey was conducted by the Indiana Agricultural Statistics Service and analyzed by Prof. Hoover. The prices reported are for logs delivered to the log yards of the reporting mills and concentration yards. Thus, prices reported may include logs shipped in from other states, e.g. black cherry veneer logs from Pennsylvania and New York. 

            The survey was mailed to 295 firms. There was an initial mailing and one reminder postcard sent to non-respondents. At least one call was made to all non-respondents that received the long form. The phone calls were made by enumerators of the Indiana Agricultural Statistics Service. Purdue’s Department of Forestry and Natural Resources pays for this assistance using funds from its John S. Wright Endowment, not from public funds.  An abbreviated survey form was used for the 113 firms that do not buy logs. The long form with the tables for prices paid for sawlogs and veneer logs went to 182 firms.

Fifty-six mills reported some useful data, less than the 62 reporting in 2010, 73 in 2009 and 88 in 2008. Seventeen mills were dropped because their phones were disconnected, or they reported being out of business. 

            The number of mills contributing price data for each product is shown in the second and third columns in Tables 2 and 3, and in the second column in Tables 4 and 5. Forty-six mills reported their 2010 board foot production. Eighteen mills reported producing 1.0 million board feet (MMBF) or less, Figure 1. Seven mills reported production of 5 MBF or greater. Total production reported was 103 MMBF, down from the 120 MMBF in 2009, 157 million MMBF in 2008, 175 in 2007, and 205 million in 2006. The largest production reported was 10 MMBF, compared to 15 MMBF in 2009, and 20 MMBF in 2008. These annual levels are not comparable since they do not represent a statistical estimate of total production. This year we did, however, compare the production levels for the 12 mills that reported in 2008, 2009, and 2010. Their total output was 58 MMBF in 2008, 56 MMBF in 2009, and 61 MMBF in 2010.

            The price statistics by species and grade don’t include data from small custom mills, because most do not buy logs, or they pay a set price for all species and grades of pallet grade logs. They are, however, the primary source of data on the cost of custom sawing, and pallet logs. The custom sawing costs reported in Table 4 do not reflect the operating cost of large mills.

Hardwood Lumber Prices

            If you ever wondered what would happen to the hardwood industry if production declined by over 30 percent, you now know. It hasn’t been fun for anyone in the industry, but having an exemplary free-market structure has allowed producers to adjust to this new reality. Inadequately capitalized and managed firms have closed. Survivors have increased the productivity of their capital (equipment) and labor, and further developed targeted marketing programs. The necessary decline in the inflation adjusted cost of putting logs on the yard has occurred and still has a way to go. This is required for any raw material that is processed into finished products for which inflation adjusted price does not increase in real terms. We noted in the past that the increases in the inflation adjusted cost of logs was possible because of increased mill efficiency. Barring a new cost effective technology not currently on the horizon, log prices will decline until a new equilibrium is established.

            Lumber price changed from July 2010 to 2011 and it varied by species. The only species that increased slightly were cottonwood and black walnut. Beech as usual was constant in all grades. Ash stayed above the level in the 2008-09 period. Beech and sycamore as usual were unchanged. Cherry continued to decline due to consumer preferences and increased use of cherry veneer for furniture. Hickory was up from year-ago levels, reflecting continued demand from the cabinet and flooring industries. Soft maple continued to decline as well, most likely from reduced export demand. White oak was down from 2008 levels. Red oak also continued to decline. Yellow (tulip) poplar was down due to major decline in millwork output because of drastically low housing starts.

Sawlog Prices

            The number of mills reporting sawlog prices was about the same as last year (Table 1). Changes varied by species with median prices showing less change than average price. This is because one out-of-range price changes the mean price more than the median price.

             A good supply of ash logs resulted in a decline in log prices, despite a small increase in lumber price. The impact of the emerald ash borer is likely to reduce log prices further. Steady niche markets for basswood and beech kept sawlog prices at about the same level. The small variation in the quality of cottonwood logs is reflected in insignificant differences among log grades. The 11 percent increase in price of No. 2 and 3 logs best reflects market conditions. A good supply of cottonwood is readily accessible as long as bottom lands can be accessed.

            Black cherry log prices were not down as much as expected based on lower lumber prices. Hard (sugar) maple was down significantly, reflecting lower lumber demand. Soft maple markets are similar to those of cottonwood, i.e. white wood that can be finished to imitate many other species. Soft maple is also a bottomland species. White oak was stronger than would be expected from lumber markets. This is likely due to relatively stronger demand for quarter and rift sawn lumber used for high-end furniture lines. High-end markets for many products, including furniture, are stronger than mass consumer markets because of the much ballyhooed differential between the “well-off” and the bluecollar sector. Red oak was down well over 10 percent and black oak by even more. Red oak sells in some of the same markets as white, but more in the upper end of the mass market. Feeble housing starts explains a decline in tulip poplar prices of over 15 percent. Many millwork producers have closed down. Black walnut demand is much better than all the other species. The 16 percent increase in prime sawlogs is most likely due to the lack of a clear bright line between the upper end of sawlogs and the lower end of veneer logs.

Softwood Logs

            Two fewer mills reported pine log prices, bottom of Table 2. The average for the five reporting was $228, up slightly from 2010. This may reflect at least level demand from mills producing cants and lumber for pallets and other industrial materials. The average red cedar price was down, but the median was unchanged. More mills reported this price. Eastern red cedar lumber and chip board go into higher end houses, the stronger end of the housing market.

Table 1. Prices paid for delivered sawlogs by Indiana sawmills, May 2010 and May 2011.

Table 1. (continued) 

Table 1. (continued)

Table 1. (continued)

Veneer Log Prices

            Veneer log prices (Table 2) were down for most species and grades, even black walnut. Apparently mills were able to get adequate supplies, even with increased demand. This may be reflected in larger price declines for small diameter logs. As over the last several years fewer mills report prices for the lower quality veneer logs, the select grade. Prices reported for prime logs most likely clearly reflect prices for the very best logs, regardless of the complicated log grading system used. These log grading systems make it harder to identify what is meant by a select grade log.

            About twice as many mills reported prime white oak prices compared to last year. This is assumed to result from increased interest in this species. Prices were down less than black walnut in percentage terms. Prime and select mid-size logs, the largest segment of the market, actually increased.  This species serves higher end domestic and export markets, especially for quarter-sliced veneer.

            Black cherry veneer logs were down more than sawlogs. Because of gum pockets and other defects more common in Midwest cherry, the prices reported include logs shipped in from Pennsylvania and New York. Because of lower demand buyers don’t have to buy small logs, resulting in price declines of over 50 percent. The strongest prices were for midsize select grade logs.  Red oak veneer log prices were much stronger than would be expected given the lower lumber prices. Apparently there remains a demand for “affordable” red oak furniture. Affordability is achieved by using veneered dimension parts. There’s still a market for hard maple veneer logs, but not a strong one. Prices were down from 20 to 40 percent. Yellow poplar sap veneer still has a market for use over cores made of composite materials such as medium density fiber board and industrial particleboard. It is also used as a smoothing layer between composite materials and a higher quality face veneer.

Table 2. Prices paid for delivered veneer logs by Indiana mills, May 2010 and May 2011.