Impact of Market Price Fluctuations on the Break-Even Log in Hardwood Sawmills

Abstract On the basis of an analysis of operating costs and market prices for hardwood logs and lumber, earlier research determined that in an average eastern hardwood sawmill, a small change of 0.1 percent in any of these factors (operating cost, log cost, lumber prices) will lead to a statistically significant (α = 0.05) change in profit. However, operating cost, log cost, or lumber prices typically fluctuate more than 0.1 percent, with changes of several percentage points for all factors not uncommon. The effect of these fluctuations on what constitutes the break-even log is unknown. The break-even log is the combination of a diameter class, length, species, and log grade factors such that when the log is sawn into lumber and residues the total value generated is offset by the total costs (e.g., a zero-dollar profit). In this paper we explored the impact of statistically significant market price changes for operating cost, log cost, and lumber prices on the break-even log. Findings include that, in general, statistically significant market price fluctuations did not lead to immediate changes in characteristics of the break-even log. However, market price (logs, lumber) or operating cost changes of 2.5 percent or more did lead to pronounced differences in what constituted the break-even log for a US hardwood sawmill.