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Author Topic: hardwood grade mill profitability  (Read 2240 times)

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Offline autotomk

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hardwood grade mill profitability
« on: August 29, 2014, 10:20:36 AM »
I said I would introduce my self in the last post.  Ill update my profile as time goes, but im just a sawmill nut with hydralic oil and sawdust leaking from my wounds, and theres a few.  First I need to swalow some pride and say i run a failing WM bandmill operation in survival mode today, sawing only part time. Grade prices are up now and i think we could make it ful time again, so we may try again in the spring next year. Is there software available or easy formulas to determin best value per load.  for example sawing ties we produce about 33% more lumber per day, but about 30 dolars less per thousand.  the extra production seems to offset the lower profit per 1000.  I know this is a huge subject but who better to ask than sawmill guys.  Ill be sawing most of the week end but ill check back as time allows.  thanks
tom
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Offline Dave Shepard

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Re: hardwood grade mill profitability
« Reply #1 on: August 29, 2014, 12:02:19 PM »
Welcome to the Forum. I don't have any advice, but will be watching this thread closely.
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Offline Larry

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Re: hardwood grade mill profitability
« Reply #2 on: August 29, 2014, 12:10:26 PM »
I don't know of any ready made programs that would work.

A Excel program would do what you want.  A whiz kid could do the computer work in a few minutes.  The hard part is data collection which you would have to manually do.  For example how much lumber do you get out of a 13" doyle log?  How much out of a 27" log?  What is typical grade split for your logs?  Time to saw/1,000 bf?  Probably more criteria I haven't thought of but you can customize it just for your operation.

Welcome to the forum.  This is a good place to gather information and to BS.



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Offline Ron Wenrich

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Re: hardwood grade mill profitability
« Reply #3 on: August 29, 2014, 12:58:24 PM »
Sawing ties and sawing grade isn't necessarily an apples to apples comparison.  Some logs are better sawn into ties, and some are better sawn into lumber.  As a sawyer, you have to know this by being able to read a log.  The sad part is that hardwood grades are determined by the side you can't see.  To be successful, you have to know where to stop and turn instead of making the next cut.

There are several inputs that go into those decisions.  One is the cost of mfg.  I ran a circle mill and sawed a couple hundred of grade logs each day.  I did it for 30 years.  I knew my production costs down to a cost per minute.  That helps to determine if its worthwhile to take a few extra minutes and saw lumber or better to take it off and move on to the next log. 

Not all lumber is priced the same way.  If you get $30 for a 7x9 delivered and it yields 44 bf, you're getting $680/Mbf.  Cut that down to a 3 x 6 and a bunch of boards, and you won't get that volume.  It will also take longer to cut the log, which adds production costs.  Your breakeven point ends up being the price of the tie - the blocking value - the added cost of production.  That's what your lumber has to add up to.  You won't have the same volume due to the extra thickness in the boards.  I've always found when you're out of 1 Com lumber, its best to move on.  Your timber may vary in quality.

Another reason to know your time costs are that you can figure out which logs you profit the highest from, and those that you lose money on.  Small logs have higher yield from a log scale standpoint.  But, it takes longer to produce on the mill.  Those logs shouldn't be put through the mill.  Either don't buy them, or find an alternate use.  We sold firewood.  I didn't get a whole lot of small junk logs.

Also, logs too large for the mill could be money losers.  It takes longer to saw them up, and longer to handle material.  We never got them out of our production flow.  We didn't get too many.  A nice grade log will have a different breakeven point vs a lower grade log.  All depends on your cut list.

Production costs can also come to play in your daily operations.  Time not spent cutting lumber will jack up your production costs.  Sometimes its cost efficient to hire other people or to add different equipment.  You'll be able to reach an informed decision if you have cost numbers in front of you. 

There are a lot of studies you can do.  Time studies to figure out how long it takes to cut a log, which can be further broken down into loading, sawing and turning times.  Yield studies can determine the volume and grade.  These all vary by grade, species and cutting patterns. 
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Offline autotomk

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Re: hardwood grade mill profitability
« Reply #4 on: August 29, 2014, 07:48:21 PM »
  thanks for info Ron  very helpful, break down to cost per minute is good.  we usually do stop at ic with ties, except red oak, we can sell flooring for .69 any grade no pith. we get .61 out of ties.  again cost per minute would be very helpful to make sure lower production for cutting flooring is worth it.  I do struggle with not sawing small or even extra large logs.  I have even bought a load of logs from an area mill thy wouldn't saw, but i only did that once, and we were trying to saw crating, counting on overrun for profit. that never happened.

my son the comp. wiz has made a spread sheet program for us using log cost ,and sawing cost subtracted from total sales.  didn't seem to be very accurate though.

 thanks again for the great info. absolutely nothing better than talking to experience.

im open to any questions.  i do want to make this thing work

tom
 
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Offline beenthere

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Re: hardwood grade mill profitability
« Reply #5 on: August 29, 2014, 08:15:03 PM »
tom
There is a publication that may be of interest to you.
http://www.fs.fed.us/ne/newtown_square/publications/research_papers/pdfs/scanned/rp468a.pdf

Shows lumber grade yields by log grade (standard grades of USFS) by diameter class and by species.
south central Wisconsin
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Offline Ron Wenrich

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Re: hardwood grade mill profitability
« Reply #6 on: August 29, 2014, 11:45:41 PM »
I have that publication and find that it may be a good guideline, there are a lot of limitations to it.  That study was done in New Hampshire, I believe.  The timber quality varies from area to area, so what was true in NH is not true in other places.  Its best to do the yield studies in a particular area.  Still, its a good guideline.

There are many types of yield - grade, volume and cash, for example.  Most guys would opt for the dollar yield of a log.  I have always used the values of profit = lumber value - log costs - mfg costs.  Most guys have little control over lumber value from the standpoint of setting price.  It is very true on the commercial side as sales go to wholesalers that set price.  But, you do have control over the product you produce.  Some product sounds good in price, but it is very hard to cut a whole log into that product.  When figuring lumber value, you also have to input what your waste material fetches.  If you're burning your slabs, you're burning your profit.

Log costs are another area you have little control on.  If you're buying logs, you have to come to some agreement on price.  Knowing your product market helps quite a bit.  You have to control what logs come into the mill or you will be dumped on by low quality logs at high quality prices.  I've had loggers try to do that.  It wouldn't take too many loads to put a small mill under a lot of pressure.

You have the biggest control on mfg costs.  You can break those down even more.  For example, blade costs is a high cost item on bandmills, from what I can see.  I run a circle mill, and my blade and sharpening costs were substantially below band costs.  Take the cost per minute and put that against how much time it takes to sharpen blades and the associated maintenance.  That has to be added into the cost of that particular item. 

Just like stacking all the extra flooring grade lumber vs ties.  How much extra is the time factor and how much less is the volume?  If you have 44 bf in a tie, you won't get that out cutting it into flooring.  Is the flooring price a delivered price or a FOB price?  You have to factor in trucking. 

The more you know about breaking things down, the better decisions you'll make as a mill owner and a sawyer.  Down time is your biggest enemy.
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Offline beenthere

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Re: hardwood grade mill profitability
« Reply #7 on: August 30, 2014, 12:10:44 AM »
Ron
The data were collected over many years, mostly before WWII. The mills where studies were run were all over the eastern US where hardwoods were milled north and south, and likely some NH mills were surely included.
Log diagrams were made for every log, so the logs could be re-graded if any of the log grading criteria were changed for a log grade. If I recall correctly, there were well over 10,000 logs sawn and data collected and compiled by hand... before computers were available to crunch the numbers.  ::)
I understand that many have tested the validity of the yields and they hold surprisingly close IF the log grades were adhered to as well as the NHLA grades were used.

Most mills buying logs do not use the USFS log grades and have developed their own simpler versions, such as one, two, or three clear faces. In those cases, yes it would be best to do ones own yield studies for the log grades they use. And as you say, best to do the yield studies for a particular mill setup in a particular area.

But these yield figures can give some solid, good average expectations for a log diam, species, and log grade.

south central Wisconsin
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Offline autotomk

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Re: hardwood grade mill profitability
« Reply #8 on: August 30, 2014, 12:42:00 AM »
I now have that publication as well. thanks beenthere, and nice to meet you.  it seems to have the same format of one i got from the old Henry ford Alberta mi mill. In the early 80's or so, they started it up again to research log grade and lumber grade yields from that area.  those are helpful but like Ron said it all depends on what was cut, and from where.  this cut if i remember right was a cull cut heavy on #3 log grades. they are still helpful   

I never believed band costs were higher than circular blade cost till i talked to an area circle mill owner.  he was surprised my blade cost currently are .01 ft.  I don't remember what he said his were but it was lower.

We do cut all grade and flooring a plump 1 1/8.  i have never factored that in to the equation, plus more cuts so higher blade cost per yield i suppose

Down time was a major factor as well . It got to the point we had to wait for payment to pay for more logs.
There is a particular group in our area that have the log prices way up, so when we buy logs some loggers want to bring the stuff thay wont buy for the same price.  we have learned to buy them on the landing so we wont have to turn them down at the mill.  do that a few times and thay dont want to bring you logs any more.  We have since made good relations with a few loggers

Im starting to see the value of breaking things down as far as you can,  this has been very encouraging so far  thanks to all

OK its bed, going to have some more fun, i mean work tomorrow

tom
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Offline Ron Wenrich

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Re: hardwood grade mill profitability
« Reply #9 on: August 30, 2014, 06:49:08 AM »
Beenthere.  When you change your cutting patterns your grade yield will change.  We didn't have Sel grades in our region.  We also always sawed to a piece of blocking.  That changes your grade output, as there isn't as much 2 Com and very little 3 Com.  It also increases your volume.  Its a guideline.

I tried to build log prices around the data in those tables.  I didn't buy many logs at the price that they came to.  Grade yields were much higher in the area I was in.  It was a prime cherry area.  Also had outstanding red oak.  Even in my area, the black oak and yellow poplar saws out better than what is in the tables. 
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Offline Ianab

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Re: hardwood grade mill profitability
« Reply #10 on: August 30, 2014, 07:21:15 AM »
I would think that analysing mill production would be a whole science in itself?

Cost and grade of the logs
Varying costs of sawing them in different ways.
Returns on the various products produced.

So many variables that need to be considered in that spreadsheet.

But when a large commercial mill might operate on a 10% profit margin, gaining or loosing just 5% is a big deal. Worth a bit of stopwatch / clipboard / spreadsheet work to figure out what the best options actually are for each class of log.

Ian
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Offline stavebuyer

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Re: hardwood grade mill profitability
« Reply #11 on: August 30, 2014, 08:18:44 AM »
Ron gave you a good summary. Wholesale lumber prices have about doubled since 2011. Higher prices leave room for potential profit.

You already noted that you get a 30% increase in production when your sawing ties. Two reasons for that. Less lines per log versus sawing it down and higher yield. Even with a band your losing 1/4" per board(1/8" kerf and another 1/8 sawing plump) so there is no way your coming out sawing flooring that's bringing $.69 if your tie brings $.61. You also need to consider what I call "opportunity cost". Sawing the 7x9 all the way down takes you 6 more lines. Six lines would just about cut another 12-13" log into tie at maybe $2 per line. The lumber really needs to grade FAS if your log cost is reasonable in order to justify cutting a 7x9 into lumber.
 
We are getting $30 for a 7x9. I know many mills closer to the "oil patch" focus on timbers for matts. Add some length to what you are cutting on a band-mill and it will give you yet another production gain. We get 3000+ bd/ft per man per day when we cut R.Oak switch ties. Cutting small walnut all the way down we do well to get a 1000'. So per unit production costs vary a great deal and daily operating costs are pretty constant and you need to know both. Lets say it costs me $1000 a day to run my operation. At 10,000' per day cutting switch ties my sawing costs would be $.10 but at 3000' per day cutting walnut that more than triples to $.33. In our market, log pricing generally leaves .$15 to $.20 between wholesale log and lumber pricing. Yield and over-run is a big deal. The higher the value of the product being sawn the easier it becomes for a band mill to over come higher per unit costs. Going back to the walnut example my sawing cost was $.33per/ft. The logs cost me $1.50 and the lumber averages $1.75. At first glance I would be losing $.08. But in reality it would look like this;

3000' walnut lumber sales @$1.75 = $5250
production costs $1000(fixed)          -$1000
log costs(3000'/140)=2150'(Doyle)x$1.50    -$3225 
net profit                                         $1025

In this example the profit is in the over-run of small diameter logs bought on Doyle. International scale might be closer to 10% over run.

As a general rule large margins in any business won't last very long unless you hold a patent. You have to have a certain amount of production/sales to make a living. Competing in a wholesale market it would be hard to sustain more than 10% on the very bottom line.


Offline Ron Wenrich

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Re: hardwood grade mill profitability
« Reply #12 on: August 30, 2014, 03:00:11 PM »
One thing that any mill should have is some sort of a niche.  I always had a reputation of giving good quality lumber, sawn to spec.  I made sure that boards were well edged and well trimmed.  I didn't crowd my grade.  If they asked for F1F and btr, that's what they got.  I didn't crowd my thickness.  I cut stock plump, even blocking.  That brought buyers to me.  I didn't want my customers to get material they couldn't use.  An extra 1/8" on pallet cants will give them an extra board.  When markets started to go flat, my business picked up.  That's because the marginal mills went under, and I was able to pick their production.

When bridge timbers were hot, I got a good deal of the market.  We could easily find timber large enough to make them.  Sizes would range from 8x8 to 9x17.  Premium dollars.  We sold casket lumber.  It was graded on the best side, so that nice looking 2 Com had a home at a higher price.  I had a market for 8/4 ash, birch and hard maple.  They paid top dollar for log run and it went into butcher block countertops.  Quick production.  I also sawed some 4x4 FAS quartersawn delivered to New York City.  We started that one at over $5/bf during the recession.

Its one of those things that if you choose to cut the numbers too fine, it may also effect your bottom line.  I always tried to be in it for the long haul, and looked at the over size and higher quality as an insurance premium.  You don't want to be jumping over dollars to save dimes.
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