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Logging Costs

Started by Black_Bear, May 02, 2006, 09:10:19 AM

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Black_Bear

How many loggers out there track their logging costs for the short term and the long term?

The reason I ask is because that I have talked to many sole proprietorship loggers who really do not have a good handle on what it costs them to harvest a certain tract of land. Most of the medium to larger company's have cost control (accounting) measures in place, but the majority of the solo or smaller company's did not.

When asked what they would be able to pay in stumpage for a certain tract many gave standard replies like 30% or 50%. Most stated these percentages because that is the going rate in their locale and they do not know any different. Many did not change their rate with differing conditions such as access, terrain, wood quality, etc. etc. This really is not fair to the landowner and ultimately may not even be fair to the logger.

I cut wood for a living with a good crew for 8-9 years and have always been active in the woods. Since returning to school I have learned that many loggers do not have a good handle on their costs and many of them end up with parked equipment or at an auction. 

Anyway, I have created an MS Excel spreadsheet that is designed to help the sole proprietor logger (or any sized company) track these costs. I would appreciate it if any of you would look at it and comment on it, good or bad. I will hopefully complete this spreadsheet sometime tomorrow and would be happy to e-mail it to you. You can find my e-mail in my profile.

Comments on how you track logging costs are also appreciated.

Foresters: how do you assess and track contractors for efficiency, utilization, and cost control?

Thanks,

Ed Fortin
Land Surveying Intern
Forest Operations Major
Surveying Technology Minor
University of Maine

sawguy21

They are not going to stay in business for long if they don't. :o  I have seen a lot of small businesses fail for that very reason.
old age and treachery will always overcome youth and enthusiasm

Black_Bear

Sawguy, that is my point exactly.

I'm not trying to make anyone feel inadequate by any means. When I was a loggah many of my co-workers felt good if they had money in the check book at the end of the month. They figured they had to be making money because they have money in their check book.

The idea behind this spreadsheet is to help those who do not have any cost control measures in place.

Ed

SwampDonkey

I would think quickbooks would be good for this purpose, but I know alot of loggers that can't even run a computer, they hire accountants for their books.
"No amount of belief makes something a fact." James Randi

1 Thessalonians 5:21

2020 Polaris Ranger 570 to forward firewood, Husqvarna 555 XT Pro, Stihl FS560 clearing saw and continuously thinning my ground, on the side. Grow them trees. (((o)))

Jeff

Black_Bear, depending on the format, you can attach the spreadsheet to a post using the additional options link when you are making a post.
Just call me the midget doctor.
Forestry Forum Founder and Chief Cook and Bottle Washer.

Commercial circle sawmill sawyer in a past life for 25yrs.
Ezekiel 22:30

Gary_C

Back in February, I was visited on my logging job by a group of forestry students on their winter tour. Most of the questions they asked were about my logging costs and fuel costs. I probably did not impress them with my knowledge of my costs and I do admit that I do not have a good handle on those costs. I do, or more accurately my accountant/daughter uses a double entry accounting system that will track project costs. However she also works full time and is about to add a second child to her family and grandchild number twelve for me and the accounting has been neglected.

One important point that I failed to bring out during the students visit is that even though logging costs are important, there are two other factors that will be far more important in a loggers survivability than logging costs. They are:
   1. ACCESS TO MARKETS  In this area, Aspen pulp has sold for as high as $164 per cord for stumpage. Most of the standard prices paid at the mills for Aspen pulp is in the $90 per cord range. Not even the lowest cost per cord producer can survive with those numbers!!!  The logger that paid that much for stumpage had obviously negotiated a better price at the mill.
   2. SORT TILL THE BARK FALLS OFF  You must market your logs where you get the best price. Sending good saw logs to the pulp mill because it is too much trouble to sort them out is not going to work. The logger that paid $164 for stumpage may have recgonized that he could sell some of that Aspen as saw logs or as veneer.

Never take life seriously. Nobody gets out alive anyway.

Ron Scott

If you don't know your operational and logging costs, I don't know how you can effectively and efficiently bid on the stumpage needed to stay in business.

A prudent operator will have knowledge of their unit costs and maintain a yearly and historical record to make them more efficient and effective.
~Ron

Phorester


The loggers and pulpwood cutters that stay in business for themselves rely on someone, a family member or hire somebody, to handle all their book keeping. They know the production end of the business, very few also know the cost and profit end of it.

Some will work for another logger for several years until they think they know the business, then try to go out on their own.  Most will return to working for someone else in a few months or years because they don't understand there's more to running a logging business than knowing how to cut, skid, load, and drive a truck.

This is the main reason there are some loggers who will not bid on timber sales.  They buy everything directly from landowners.  They don't know enough about cost and profit to effectively bid on sales.

Black_Bear

In reference to Gary_C's comment, the spreadsheet has a market price section that is used to calculate the market price on the wood. The user will have to input current or estimated future prices. Unfortunately I have not linked the spreadsheet to a linear programming model that will give you the optimum mix of products for the current market. There are optimization programs out there though.

Also in reference to one of Gary's comments, this spreadsheet is designed
to be used with a job order costing accounting system, which is one form of a double-entry accounting system. The machine rate system is OK to use also and the argument against job order costing has always been how cumbersome it can be. With technology today (a simple spreadsheet) it is easy to itemize all of your costs and to apply costs where they should be applied.

Ron, many friends of mine are loggers and they simply know what the standard stumpage price is in that area. They know this because they ask around and follow the markets. But they still couldn't tell ya how much they pay in interest or how depreciation factors in. That's what this spreadsheet will try to accomplish.

Phorester said it best: "there's more to running a logging business than knowing how to cut, skid, load, and drive a truck."

Hopefully I will have it complete by tomorrow.

Ed

Ron Wenrich

Not only does not keeping good records go in logging operations, but a good deal of sawmills are in the same boat.  I tried to market my services to sawmills, but no one is really interested.

I don't know of any loggers that keep costs, much less compare them from job to job.  Many of the independent loggers have sub-contracted with mills.  The mill buys the stumpage, then have loggers work it at a set $/Mbf.  Quality of jobs varies, but usually leaves a lot to be desired.

Of the few independent loggers that are on their own, they make their mony marketing logs, not logging. 

I have worked with a logger like this for about 25 years.  They normally buy stumpage from consultants, so they are paying top price for the timber.  They do good work in the woods, so there's no skimping there.  But, they get really good production, which drives their harvesting costs down. 

The areas I notice where they save is they do their own trucking, and normally buy good used equipment, except skidders.  They overload their trucks on a normal basis.  They feel they save in trucking, I contend they lose due to added repairs and fines.

They also pay cash for everything.  That has kept banks out of their backpockets and they reap that added interest payment.  All woods help is sub-contracted, so there is no workmen's comp.  All owners are working managers. 

They can't tell you how much they have bought up or how much things costs or any type of maintenance schedules.  I feel they spend too much in repairs, but they won't let me near the books.  If they have more money at the end of the month than the beginning, then they made money.   ::)  Its the same way their father ran the operation, so who's to argue.

Working by the books is working smarter.  But, most guys just won't take the time to figure things out.  I think it scares them to see what their costs actually are. 
Never under estimate the power of stupid people in large groups.

Black_Bear

Thanks for your input Ron, that last line sums it up real nice.

I thought that the mills here in Maine were very cost-conscious. This includes sawmills and pulp & paper mills. All the mills that we visited (about 20 in all) talked extensively about raw material cost and energy costs and labor costs, etc., etc.

Cost analysis can and will allow a good manager to find the weak links within the system.

Ed


Redonthehead

I'm not that familiar with the process but here's some insight.

In Missouri its rare for a landowner to have more than one timber sale in their lifetime. Thus there's not a lot of knowledge about how to go about a timber sale. Fortunately my father-in-law knew enough to hire a professional forester (6% commission??) to conduct an auction. The highest bid was THREE times the lowest bid for 120+ walnut trees.  A pile of money. What does that tell you about the loggers?

Ron Wenrich

Red

I've bought timber, I've sold timber, and I've bid on timber.  You can't put any corelation to high and low bid.  Here's why.

Some guys bid on a sale just to see what other guys are bidding.  They low ball, just so they get bid results.

Some guys place a low bid just in case no one wants it.  Those low bids are usually rejected.

Some guys really need the timber and will pay a premium.  Some guys have a really good market and can pay a premium.  Some guys are close by, and have a lot lower hauling costs.

What I usually find is that the true market value is the flush of bids that are near the middle.  They are usually packed quite closely and is what loggers are paying without the benefit of a bid sale.  These guys aren't paying the premium.  If you got more than the midrange + commission, then you are ahead of the game.

Bid sales are usually the best way to go.  I've seen some real horror stories of selling to the first guy that comes along.  6% commission is pretty good as well.  Having timber marked and appraised is always the minimum a landowner should have.

If timber is managed pretty well, you can have a sale every 15-20 years.  It just depends on how many milkers you leave.
Never under estimate the power of stupid people in large groups.

Dale Hatfield

A few years ago  a few of us  sat down a figured out op costs on JD 450 skidder /dozer/manual felling to the minute.
It was like 1.50 for skidder.
.40 cents for timber cutter.
But things are little higher now.
I would like to see the spread sheet.
Dale
Game Of Logging trainer,  College instructor of logging/Tree Care
Chainsaw Carver

Tillaway

QuoteWorking by the books is working smarter.  But, most guys just won't take the time to figure things out.  I think it scares them to see what their costs actually are. 

I can't think of any loggers I have that don't.  Yes, they are scared in fact I have one that is thinking seriously of scaling down because a big crew does not pay here anymore.  Too few good skilled productive employees and those that are are getting top wage.  They are finding that keeping a ridiculously small crew 3 or 4 including owners for a operation that usually has 7 or 8 is much more profitable.  That way they have fewer breakdowns and far more production per person per day.  They drop from six loads a day to three or four.  I have logger now working a side that normally takes 5 or 6 running just himself and his hook tender.  They get about two or three loads per day.
Making Tillamook Bay safe for bait; one salmon at a time.

Gary_C

To add to my earlier post.

There is a big difference between knowing your costs and maintaining good cost control. I am always looking to keep my costs as low as possible yet I could not tell those students what my fuel costs are per cord. The reason is that I am not simply a logger of cordwood. The job I was and still am working on contains over 600 cords of Maple pulpwood, 100 MBF of Red Oak, 30 MBF of Hard Maple, and too DanG much worthless Basswood. Even the total job costs of production will not mean much to me because of the mix of products.

My goal is not to be the logger with the lowest cost of producing pulpwood, because I know that is just not feasible. The only jobs I consider are the ones with a good mix of pulpwood along with hardwood sawlogs. If I can cover my equipment, operating, and stumpage cost with the cash from the pulpwood sales, my profit is in the free sawlogs.

From the other replies, I do not think anyone got my main point. Some years ago, after there was a major price crash in hog prices, a writer in a farm magazine made the following assertion:

In the future, being the lowest cost producer will not guarantee your survival. Your survival will depend more on your ACCESS TO MARKETS.

What he was saying is that the small farmers with the lowest production costs may not survive if they relied only on the cash markets. The name of the game is now CONTRACT GROWERS!!! Sure, you make less per hog, but you are guaranteed some profit even if the cash markets totally crash.

For loggers, this means that you must absolutely market your production for maximum value AND/OR move as far up the value added chain as you can handle so that regardless of your costs of production or the cash prices for both pulpwood and sawlogs, you can survive.

Now as far as bidding on auctions, I hope and pray those loggers that are not bidding now, will continue to not bid.  :D  Stumpage is already too high

Seriously, preparing to bid on auctions is a very difficult and time consuming task. Instead of using unit costs of production, I will usually go by number of days needed to cut, including road and landing construction, times a rough cost per day or week to be on the job. The most important and difficult task is in estimating the quantities and mix of products that can be cut and sorted from the job along with finding a market for each of those products. In the end, the "pretty" jobs will go too high and you will have difficulty making any money while the "ugly" and out of season jobs will make you the most money.  8)
Never take life seriously. Nobody gets out alive anyway.

Black_Bear

Gary, hopefully being able to see all of your costs on one paper will allow you to determine your costs per cord (or ton or whatever unit you use) and also allow for cost control analysis.

Tillaway, that is the consensus here also. There is no great return from the economies of scale that come into play with a large crew. The crew I worked for had 7-8 cable skidders and 2 grapples. We often split this crew up into two separate crews. For some reason the smaller crews usually did a better job and production was up. My own personal experience tells me that when you have a crew of say 10-12 workers some workers don't work as hard because they feel like they can blend in and there reduced production wouldn't be noticed. Trouble is, our manager was smarter than the workers.

Sure would like to have some of that walnut up here. Cha-ching!

Ed

Black_Bear

For those that requested the spreadsheet, I have run into a log jam so it won't be ready today. I have all day tomorrow to work on it and hopefully can finish it then.

Ed

jon12345

One guy I know who logs, tracks his costs in the pocket of his flannel shirt.  On days the truck comes it is full, after a few days of no pick ups, it gets empty.  :D :D



I have a couple disks for logging costs from a Northeastern Logger course I attended, but they are 3.5" and I don't have a drive they fit in at the moment  ::)
A.A.S. in Forest Technology.....Ironworker

David_c

I took that same course 2 years ago. I have yet to plug that disk in. Actually I think I completly forgot I had it till you just now mentioned it. I think I will have to take a look see. I quess I also got Financial ratio analysis and log rule tools. Never looked at any of them ???

Frickman

I track my costs on each and every job, at least all the cash outlays. These include stumpage, fuel, trucking, labor, etc. I can then add in a best guess for depreciation and wear/tear on equipment, usually based on the number of days on the job.

The actual logging doesn't make me money, marketing logs and lumber does. The harvesting operations are just a way of obtaining the logs I need to operate a log and lumber marketing business.
If you're not broke down once in a while, you're not working hard enough

I'm not a hillbilly. I'm an "Appalachian American"

Retired  Conventional hand-felling logging operation with cable skidder and forwarder, Frick 01 handset sawmill

Pretend farmer when I have the time

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