Timber pricing

[Big J]

I wanted to gauge opinion on timber pricing and market rates here amongst other Arbtalk sawmillers.

 

Like with any other business, the product that I sell (timber) is priced with the market rate in mind. I try to keep to slightly below what others charge if I can. However, I've long felt that British hardwood is often overpriced, and as a result it means that more people will default to imported timber instead of using locally sourced wood.

 

The problem is that it's a chicken and the egg type situation, by which I mean that reducing prices to try to encourage demand might well fail if the reduced prices don't stimulate sales. However, it's something that I want to do, and it's something I feel quite strongly about. Local timber shouldn't be the niche/luxury option, it should be the default option.

 

I think that all of us smaller scale sawmillers here are in a similar boat, in that we can produce a great deal more than we have the market for. Speaking personally, with one labourer, I can cut and put to stack 120-150 cubic foot of timber any day of the week without really breaking a sweat. These production rates should mean lower prices, but it's one hell of a risk dropping them as you cannot easily put them back up.

 

Anyway, what do other sawmillers think? Similarly, woodworkers - would you purchase more locally sourced timber if it was cheaper? Does good quality beech/sycamore/ash sound more attractive at £12 a cubic foot? I think it's the right way to go, but it's a risk. At a business development meeting with other sawmills in my area, it seemed to be the consensus that prices ought to go up, which I thought was madness!

 

Answers on a postcard!

[bella wood]

To me prices will have to come down as i think there is way to much wood available on the market due to people seeing big prices on ebay and having a go sawmilling with chainsaw mills ,, theres a limited market ,,

 

People with kilns have a better chance of keeping price up but i find these days people are wanting all different sizes of timber and i have trouble finding space where i can keep timber that is kilned dry,,

 

Last couple of years have seen 70 % of timber going into things like chopping boards , rusic shelves and fireplace mantes ,, once these trends change im not sure where things are going to go ,,

 

Forgot to say i sell more ramdom pieces than big quantity's ,, nice figured timber big price ,, strait grained boring timber cheap price or cut as firewood,,

Edited January 11, 2014 by bella wood

[Big J]

To me prices will have to come down as i think there is way to much wood available on the market due to people seeing big prices on ebay and having a go sawmilling with chainsaw mills ,, theres a limited market ,,

 

People with kilns have a better chance of keeping price up but i find these days people are wanting all different sizes of timber and i have trouble finding space where i can keep timber that is kilned dry,,

 

Last couple of years have seen 70 % of timber going into things like chopping boards , rusic shelves and fireplace mantes ,, once these trends change im not sure where things are going to go ,,

 

Forgot to say i sell more ramdom pieces than big quantity's ,, nice figured timber big price ,, strait grained boring timber cheap price or cut as firewood,,

 

We don't do any secondary processing really, though last year we did more than previously due to all machinery now being on site with a furniture maker being here.

 

In an ideal world, I'd like to just cut green timber. Log comes in, gets sliced up according to the customers requirements, and goes out on a pallet/trailer/lorry. Kilning is a good way to add value, but adds a lot of time effort and expense when you aren't using the timber yourself.

 

Interestingly, I tend to deal more with larger single orders, with more straight grained stock than heavily figured stuff. I guess it just comes down to customer base.

[Mike Dempsey]

Hi BJ I agree that the price of locally sourced timber is expensive. I broke up my kiln about 18 months ago because it wasn't very efficient and I am still using timber that I had milled and kilned myself. I am now in the process of making another kiln to a better design and therefore be able to kiln dry the wood more cheaply and quicker. The main factor in encouraging me to get my finger out was last year I had to spend over £1k on 65mm sawn square edged oak which came in at £90 a cubic foot. It was beautiful oak with very little waste but expensive. I tried a different yard this year which was cheaper but the quality was pretty poor. Both yards were in Yorkshire as nobody in Scotland can supply oak in this thickness to the standard I want. I will also be needing a lot of KD 2" oak as well. The money saved in milling and drying my own oak more than pays for the kiln in the first run so its a no brainer in buying it. I also enjoy milling up my timber and I have been doing it now for about 15 years and will never tire from seeing the boards as they are milled. My main difficulty will be storing the timber after it is kilned as I have limited space and I cant use it fast enough. There's a limit to how many bookcases and table etc you can have in your own home. Still I might have enough timber to make my own kitchen now, that my wife has always wanted, but I have always refused to pay for from someone else!

[se7enthdevil]

i'd appreciate it if i could have that price for my beech Jonathon...

 

this is an interesting point and have to agree that local timber should be cheaper than imported stock. I would happily buy my beech and sycamore for skittle production from this country if it was cheaper that overseas stock. I've tried to get as much as i can from our shores but it's been difficult because no one is interested in cutting over 4" wood anymore as they seem more interested in turnover than letting it air dry for however long it takes.

 

i now have to buy my wood wet and factor in times for it to season in to my production process. i should be getting 100-150ft3 of beech from one big old tree that big j is cutting for me but i wont use it until at least 2016 when it should be dry enough for skittles.

 

i was forced to get some kiln dried 4" squares from a company that got it from Germany or Italy because including VAT and delivery it only came to £21ft3, i would happily give that to someone who milled a dried it over here if it was a quid less...

[agg221]

I agree that the use of home-grown timber is only to be encouraged, however I think there are a number of variables which come into play, the ones which spring to mind being target market (supply/demand), sawlog prices, labour rates and, external costs and capital investment. The balancing of these factors is too complex to put in a post (it's basically a business plan with a set of sweet spot options) but the relationship between them is probably simple enough to try to explore. I'll have a first stab below (but it won't fit on a postcard!). Numbers below are all crude approximations, subject to debate - some are deliberately provocative.

 

For simplicity, all of the above can be reduced to financial terms, which at least allows them to be compared.

 

Starting from the easy ones - how much do you want to take out of the business annually (gross), taking into account a living wage and protection against a rainy day/retirement fund? I'll stick a figure up - £50k. This could be considered high, but I'm taking it as aspirational, and as a reward for taking the up-front financial risk in capital investment. Also, think about the real hours worked (factor in doing the books, marketing, dealing with customers, suppliers etc and any unpaid effort from partners etc). Factor in the above indirect costs and it won't work out as a particularly high hourly rate in real terms. Also, it is challenging to increase in line with inflation - it only improves when you put your prices up which is lumpy, so you either always undershoot, always overshoot or swing between the two. You can take the coarseness out of the number by more frequent small increases, but most businesses prefer to do occasional more significant rises, so I'm assuming multiples of either £3/cu.ft or £5/cu.ft are required, on a 3yr or 5yr basis, so you need to aim high.

 

For simplicity, I'm going to ignore any financial sweet spots which may arise based on very high investment/high productivity models, and assume it's a one man band operation with a bit of ad-hoc labour, or perhaps one p/t labourer employee. I'm guessing capital costs of £60k (mill+vehicle+trailer+milling shed+kiln+some on-processing kit such as a planer/thicknesser to add value), depreciating over 5yrs.

 

I'm going to assume annual external costs (site rent+services+consumables+accountant+some labour) to be £30k. This could be a conservative estimate by the time you've factored in phone costs and legitimate vehicle fuel, or haulage on some lots, plus stickers etc.

 

So, this says you need to be looking at a way to generate £86k annual turnover (more if you make capital investment against loans and need to cover the interest).

 

Assume you are paying an average of £4/Hoppus, getting a 75% yield against cu.ft product and selling at £20/cu.ft. This gives you a gross return of £14.66/cu.ft

 

Based on the above, you would need be selling about 5,900cu.ft/year. Your figures suggest you could mill this in around 40 days effort so yes, you could increase the number of working days, decrease the price per cu.ft and make more overall profit.

 

However, this is where supply and demand comes in. Is there more supply of the type of material you are milling available (at the same price), and is there more demand than you are satisfying?

 

Moving to other proven markets, eg construction or cheap and nasty shed/pallet stuff, you would be competing with the big mills. You would still make a profit but the margin would go down - you would probably not be able to buy as cheaply as they can (smaller parcels with higher extraction costs) and you would not be able to price higher than them, probably having to slightly undercut them without the benefit of economy of scale.

 

That pretty much leaves, as you have identified, the lower value hardwoods. If you consider the difference between, say, oak and beech. Typically similar sizes, typically similar yield, so you would hope to make the same margin. The difference in price in the sawlog is probably about £1-2/Hoppus, so if you are selling oak at £25/cu.ft seasoned you want to be selling beech at £23/cu.ft but you can't. This is consistent with the general view that these are less popular options, which inherently calls demand into question. Don't forget, the timber is not the end product. Just as the sawmill adds value to the tree (for which it is renumerated), the same is true of whoever is using the timber. OK, there is the odd hobby craftsman buying timber for their own use which suits their personal taste, but for anyone making product to sell, they will reduce their margin too by using a less popular timber, and just as the sawlog is a minor component of the cost of milled timber, the milled timber is a minor component of the cost of the finished article. This doesn't even take into account fitness for purpose (eg species for exterior durability/structural strength etc).

 

At the lower price end, you also have to take into account competing demand. A tree surgeon with fluctuating workload can fill in slack periods by taking that nice beech/ash sawlog and converting it into high quality firewood, which will leave them significantly better off than selling it to you and spending the day sat on their hands. A related point, if you grow an acre of standard oak you will make a gross return averaged over the 120year cycle of about £60 per annum if you are lucky! Not much incentive there and rising fuel costs/increased use of biomass will only cause this to become more challenging. Conclusion, I think sawlogs are probably underpriced if you want access to greater quantities, and if prices rise, you really don't want to have decreased the margin from the sale price end!

 

On the flip side, there is always value in increasing the utilisation of fixed assets - it increases operational efficiency since you are dividing your fixed costs by a greater total.

 

So, what does this summarise as?

 

1. To improve profitability, it makes sense to increase the total throughput of a milling operation (make better use of the fixed costs).

2. Different products have different margins, but also different levels of supply/demand.

3. Competing demands for timber are likely to have an impact on the supply price, which will have a knock-on influence on timber price through decreasing the margin.

4. Consequently, if considering profitability, the most effective operation will consider the associated factors for each product, and produce a portfolio of products ranked in decreasing order of yield, with the proportionate volumes of each product being based on projections for the supply/demand position, based on confidence intervals for the above to determine risk.

 

Sorry, epic post and there's more I could say. For what it's worth, I have spent the past 7yrs building up something which is effectively a small business (not arb) from a position of 4 people making a big loss to 30 people making a big profit and a lot of it has been done through very careful analysis of factors directly equivalent to the above.

 

Alec

Edited January 11, 2014 by agg221

[openspaceman]

 

2. Different products have different margins, but also different levels of supply/demand.

 

 

Yes and the shape of the supply demand curve varies with the type of product.

 

Take cigarettes, I consider them a luxury good because I don't smoke, but to a smoker they are a necessity, so if the price doubles the demand only reduces by a fifth. Essentials tend to have an inelastic demand.

 

I suspect home milled hardwood is mostly a luxury good. These tend to have elastic demand curves, double the price and the demand drops to less than half.

 

The corollary is that a price reduction should increase sales by a higher amount than the reduction.

[Big J]

i'd appreciate it if i could have that price for my beech Jonathon...

 

Hehe, I knew you'd pick up on that Steve! That would be the fresh sawn, bang it out on a pallet price. Once you have to further handle and stack it you are getting into additional labour and storage (percentage of site rent) costs.

 

Lots of thoughtful replies, which are much appreciated.

 

Alec, very interesting reading and your numbers aren't far off. That said, the idea of a £50k wage is something that I strive towards but am so far off it's quite funny! All money ever made goes back into the business.

 

I should think that we cut about 3000 cube a year now, maybe a bit more. With my present air drying storage/kilning capacity, I could quite easily handle that just through the kilns without even taking into account fresh sawn sales.

 

I have toyed with the idea of doing lower grade timbers (the 20t of poplar and 15t of spruce in the yard at the moment are testiment to that) but I just don't think that they are profitable on my level. I use them here are there for the construction of new sheds at the yard, as well as some fencing but when the price from the big mills is so so low, there is little margin to be made. I did put out a line on enquiry about cutting pallet wood, but the price is less than £4 a cubic foot delivered to the factory that makes the pallets.

 

The eye opener for me was visiting a large German sawmill last year. They were primarily dealing in large quantities of beech, which was being sold (kiln dried) from £7/cf. That was there lowest grade stock, which frankly was pretty good compared to a lot of British stuff. I could never afford to sell it at that level (I don't have the economies of scale that they do, as well as the gun barrel stems that come from the continent) but there is a happy medium.

 

I'm starting to pose the same question to furniture makers as well, with mixed responses. A lot of the customers I have are doing such high end work that the price of the timber isn't too important. That said, there are the people in the middle for whom the bottom line can be hugely improved if they aren't paying £48 a cubic foot for bog standard Oak (I should stress that I have an 80cf stack of exquisite QS Oak air drying that will be going out at that rate - Scottish QS grade oak is rare!).

 

Jonathan

[delabodge]

hi johnathan, when I first got into making furniture I used to buy second grade beech from high wycombe area,as there was some big mills locally, and I got a good price, but as most of my work was outside stuff, I needed oak,so used to buy from local estate, when they retired the sawmill, I purchased it(woodmizer lt40),and as agg21 says,when tree work is quiet then i mill, stack the timber and let it air dry, I`allways think ahead by a couple of yrs and am lucky to have enough stuff to keep me going,

Things like elm(that I love) dont grow here anymore so I sourse from you , buy green sometimes and sometimes kiln dried, ,

I mill because I love the process from felling to making the end product, and I hoard wood! hence my latest order from you lol,

[agrimog]

the biggest problem with trying to price the timber is to many know-it-alls down the pub or wherever telling would be buyers" thats to pricey, I've seen it cheaper at so-and-so -aplace" I set my prices at a reasonable price, enough to cover my costs and a little bit of profit, knowing your market place and what folk can, and are willing , to pay dictates the price. I cant ask london prices and get them up here in the west of scotland