1. A Regional Overview Jan Wiedenbeck, NRS Al Schuler, NRS What are the Market Trends Impacting the Sawmill Industry?

2. U.S. Graded Hardwood Lumber Consumption Trends (BBF) 19622005 Source: Bill Luppold, USDA Total 1962=4.60 BBF, 2005=6.6 BBF Total: 6.6 BBF Total consumption up 2 BBF (44%) between 1962 and 2005, but dramatic changes in where the lumber is consumed Source: Bill Luppold, USDA

3. Many Secondary Manufacturers are Very Dependent on Housing Markets Source: Buehlmann et al. 2008, Modern Woodworking

4. U.S. Hardwood Flooring Imports Housing’s Impact is Huge Customs value (million $) Source: USDA, FAS 2007 Imports $143 million Exports 92 million Deficit $ 51 million U.S. Housing Decline

5. Components in building materials interior trim, moldings, stair parts, flooring blanks Source: WCMA

6. Changing Hardwood Component Markets 19842008 Furniture65%22% Cabinetry16%27% Building Products * 10%42% Decorative/Specialty 4% 7% Industrial Products5%3% Source: 2008 WCMA Market Study * residential and commercial, both new construction and remodeling

7. World Trade In Temperate Hardwood Logs -- Share (Value-Basis) of Top Importers and Exporters in 2006 ImportersExporters Source: Global Trade Atlas

8. Structural Change in International Log Markets 1) Russia is world’s largest exporter (volume basis) of both hardwood and softwood logs 2) Softwood tax increases from 6.5% today to 80% by Jan 2009 3) Hardwood sawlogs (oak, beech, ash) tax increases from 20% today to 40% by Jan 2009

9. U.S. Hardwood Lumber and Log Exports to China: A Comparison Million $ Source: FAS Log exports increase 35% in 2007 Lumber exports decrease 19% in 2007

10. With many of today’s wood products (e.g., EWPs and OSB), fiber requirements are less quality based and more quantity based – Plantations contribute between 25% to 40% of global industrial wood supply – in 20 years, could exceed 50%

11. Source: FAO – State of Word’s Forests - 2007 Plantations Contribution to Global Industrial* Wood Production Is approaching 50% according to FAO * Excludes firewood

12. Per Capita Wood Consumption Source: China Timber Import Export Co/Hardwoodmarkets.com 2003 cubic meters per capita Lots of potential to export more wood products to China Affluent population today ~13 million ~$40,000 income (PPP) By 2025, upper middle class ~ 520 million people ~ $25,000

13. China and US Consumption of Wood Products – What will China’s Share be in the Future and where will it come from? World Consumption Share Source: FAO

14. International Exports, 2007 Indiana is: 9 th most important state in terms of ash lumber exports 12 th in maple lumber exports (OH is #11) 9 th in cherry lumber exports (OH is #3) 10 th in oak lumber exports (OH is #7) 17 th in beech lumber exports 13 th in log exports (OH is #9, TN is #12) Source: Global Trade Atlas

15. You Can Strengthen Your Competitive Position with Information that is at Hand

16. Potential Profit Margins are Slim to Begin With Value Ratio (lumber value ÷ log cost) Sawmills Studied (35 total)

17. Log Value Ratio for Different Log Grades Value Ratio (lumber value ÷ log cost) FS Log Grade

18. Potential Profit Margins by Diameter Class for Grade 3, Red Oak Logs Value Ratio (lumber value ÷ log cost) Small-End Diameter (inches)

19. Doyle Overrun by Diameter Class for Grade 3, Red Oak Logs Doyle Overrun (board feet) Small-End Diameter (inches)

20. LRF by Diameter Class for Grade 3, Red Oak Logs LRF Small-End Diameter (inches)

21. Operating Costs Have Dramatic Influence on Profitability of Sawing Individual Logs Operating Cost Average Value Ratio, 4,857 logs Percent with VR < 1.00 Percent with VR < 2.00 Percent with VR ≥ 2.00 $0/min1.3830%54%16% $5/min1.1142%54%4% $10/min0.9658%41%1% $20/min0.7780%20%0%

22. COST, a Cost Accounting Tool, Gives a Fresh Look at Your Cost Picture

23. COST Cost of Sawing Timber A Manufacturing Cost Analysis Program for Sawmills Jeff Palmer & Jan Wiedenbeck USDA Forest Service Northern Research Station 241 Mercer Springs Road Princeton, West Virginia 24740 Bob Mayer Consulting Forester in Indiana

24. What is COST? It is a computer program that calculates a sawmill’s annual and per-minute operating cost The per-minute cost figure is calculated based on information provided by the user that can be more or less specific It is a companion to the SOLVE sawmill analysis application (a sawmill operations performance analyst)

25. Simply stated… COST provides you with a good estimate of the total annual and per minute costs of operating YOUR sawmill.

26. What are the required inputs? Production information (annual log consumption and lumber / byproduct production) Weekly work schedules, annual wages and salaries Downtime, planned shutdown days and annual overhead costs

27. What information does COST provide? Work shift summaries Annual wage and salary costs Non-payroll operating costs Annual procurement costs Annual sawmill operating cost, cost per mbf of logs processed and cost per mbf of lumber produced

29. What If… All wage employees given a 5% increase?

30. What If… Offering a $2,000/employee wage incentive increased production by 5%?

31. What If… 1 more material handling employee is needed and 1% greater downtime occurs when processing small diameter logs? Cost per mbf increases $3

32. What If… 1 more material handling employee is needed and 1% greater downtime occurs when processing small diameter logs? Cost per mbf increases $3

33. SOLVE The Performance Analyst for Hardwood Sawmills Jeff Palmer, Jan Wiedenbeck and Elizabeth Porterfield USDA Forest Service Northern Research Station 241 Mercer Springs Road Princeton, West Virginia 24740

34. Additional Software Tools that You Should Find Useful Hardwood Quality CD Hardwood Log Defect CD Hardwood Lumber Edging and Trimming SAWFEAS and other Wisconsin Extension Programs ROMI-3

42. The Hardwood Edging and Trimming Trainer For Windows 95, 98, 2000 and XP Developed by the Southern Research Station, Blacksburg, VA Phil Araman

43. The Hardwood Edging and Trimming Trainer is designed to help hardwood sawmill edger and trim saw operators improve their processing performance.

44. Hardwood Edging & Trimming Trainer

45. Zoom screen

46. Hardwood Edging & Trimming Trainer Lumber price editor

47. Hardwood Edging & Trimming Trainer Graded board

52. ROMI-3: Rough Mill Simulator Version 3.0 Ed Thomas Joel Weiss USDA Forest Service Princeton, WV

54. What If…  I process a different grade mix?  I had a wider arbor?  I used more part grades?  I can cut more lengths at a time?  I process more narrow or short lumber?  I can use a narrow min. width in my panels?  I bid on this job… what yield can I expect?  I bid on this job… how much lumber and processing will this order require?

55. Lumber Data Banks 3,483 kiln-dried red oak boards totalling over 20,000 board feet, graded to 1998 NHLA rules 655 FAS boards 350 F1F boards 278 Select boards 1,040 1 Common boards 925 2A Common boards 235 3A Common boards

56. Lumber Data… the foundation The data banks consist of actual boards whose length, width, defect size, location, and type information were recorded.

57. Least Cost Grade Mix Determines the grade-mix that has the lowest combined lumber and processing cost for a given cutting bill: –Older programs such as Optigrami were limited: Based on chop-first yield studies from the 60’s and 70’s. Developed by Urs Buehlmann and Xiaoqiu Zuo at NCSU

58. COST & SOLVE Jeff Palmer, Jan Wiedenbeck and Elizabeth Porterfield USDA Forest Service Northern Research Station 241 Mercer Springs Road Princeton, West Virginia 24740 304-431-2700 or jpalmer@fs.fed.us