Toward Top Quartile: Southern Pine Sawmill Cost Increases
by Bryan Beck, President, The Beck Group Consulting
Southern Pine Economics Series Blog #2
Our observation of Southern pine sawmill benchmarking studies began in the mid-1990s. Until the past decade, we saw Southern pine cost increases trailing inflation due to incremental operating efficiency improvements at most sawmills. The Great Recession kept its boot on lumber prices for the period 2007-2011, which had most of the timber industry cutting and capping costs. In the nine years leading up to the global pandemic, however, costs rose by about 4% per year while U.S. inflation hovered around an annual rate of 1.6%.
Manufacturing costs (including depreciation but excluding log costs) increased by over 6% per year from 2019-2023, with a notable jump from 2020-2021 due to pandemic-related labor and supply chain issues affecting all parts of the economy. And while inflation in the overall US economy took a steep drop from 2022-2023, Southern pine mills’ manufacturing costs continued to rise. Consider the chart:
Labor and depreciation costs are both key drivers of this increase in operating costs. During the lumber market doldrums around the time of the Great Recession, sawmill wage rates were suppressed, and capital investment was limited for several years. This all began to change as investment poured into the Southern pine lumber industry over the past decade, with numerous new greenfield mills and major expansion at existing mills driving up depreciation costs and creating more demand for experienced sawmill workers. Wage rates and labor considerations are addressed in more detail in another post here.
A related trend is that Southern pine mills’ manufacturing costs have also reversed historical norms by exceeding log costs (lumber basis). Specifically, manufacturing costs rose by more than 4.7% per year from 2012-2023, while average log costs increased by only 1.2% per year. In 2012, Southern pine log costs constituted 57% of the total cost of producing lumber; in 2023 that had fallen to just 46%.
How can Southern pine mill operators remain competitive in such an environment? The Beck Group Consulting can help. We continually work to improve our benchmarking services to be the most complete, accurate, and timely information available to sawmillers. Sawmill TQ is offered in partnership with Forest2Market on their SilvaStat360 online platform, where you can also find complementary benchmarking services for log, lumber, pellet, and wood fiber values.
We conduct regular timber industry workshops, including our upcoming training on Sawmill Management (December 3-4, 2024) and Business of Forest Products (January 23, 2025).
Our Southern pine benchmarking work keeps mill operators in the know on where they stand relative to peers; just contact info@beckgroupconsulting.com and we will route you to the proper consultant.
And if you want to engage our experience more directly, please call (503)684-3406 and our staff will help guide you.
The Beck Group, Inc.
Forest Products Planning and Consulting Services
Telephone (503) 684-3406
Email: info@beckgroupconsulting.com