Value-Added Example

(Example developed by Dr. Gene Wengert, The WoodDoctor's Rx, and based upon his knowledge and experience, prevailing lumber values, and data provided by Wood-Mizer.)

Purchase seven No. 2 grade red oak logs-1000 board feet (Doyle Scale).
Price is $400 delivered to the sawmill site.
(Details: Logs are 16" diameter small end inside the bark. The logs are 16' long. This would be 1,120 BF Scribner scale, 1,260 BF International 1/4-Inch scale, and 182 cubic feet. The U.S. Forest Service log grading system is used.)

Value-Adding . Step 1

Sawmilling Saw the logs using a thin-kerf band mill, maximizing the volume of upper-grade lumber by using "Grade Sawing" techniques. This will produce 1,300 BF of rough, green 4/4 lumber worth $1,154.

Gain or value-added from sawing is $754

Profit=Lumber value - log costs - sawing costs = $1,154 - $400 - $61 = $693.

Details: Sawing costs, including equipment costs, operating costs, maintenance costs are $47 per MBF of lumber produced. A custom sawing operation might charge a higher rate in order to include profit, general sales and overhead expenses, special site location expenses, and other miscellaneous costs. Rough, green lumber produced will be 294 BF of Selects and FAS worth $406; 470 BF of No.1 Common, $446; 323 BF of No.2 Common, $210; and 213 BF of No.3 Common, $92.

Dry the No. 2 Common and Better grades of lumber using a small dry kiln. Dried lumber at 6% to 8% moisture content will be available in approximately 30 days. The dried lumber value will be $1,438.

Gain or value-added from drying is $1,438 - $1,154 = $284.

Total value-added from sawing and drying is $754 + 284 = $1,038.

Profit=Lumber value - log costs - sawing costs - drying costs = $1,438 - $400 - $61 - $109 = $868.

Details: The No. 3 Common lumber is sold green for $92. Drying costs for the 1087 BF of No.2 Common and Better lumber are $109. These costs, equivalent to $0.10 per green BF, including stacking, inventory costs, equipment, energy, other processing costs, and maintenance. Custom kiln-drying would charge a higher rate to include profit, overhead, and other costs. Shrinkage is 6%. Quality losses due to uncontrollable splits, warp and other degrade is 4% of the green volume dropping one grade. Therefore, including shrinkage and degrade losses, kiln-dried lumber produced will be 265 BF of Selects and FAS worth $477; 435 BF of No.1 Common, $579; 309 BF of No.2 Common, $284; and 13 BF of No.2 Common that degraded to No.3 Common, $6. Total lumber value is $477 + $579 + $284 + $6 + $92 = $1438. Note that the profit in drying is $175.)

Process the 1,009 BF of No. 2 Common and Better kiln-dried lumber into higher-valued products, including S4S lumber, furniture and cabinet parts, and flooring. The total lumber and part value, including the No.3 Common lumber values, is $2,367.

Gain or value-added from cutting and moulding is $2,367 - $1438 = $929.

Total value-added from sawing, drying and moulding is $754 + 284 + 929 = $1,967.

Profit=Lumber and part value - log costs - sawing costs - drying costs - processing costs = $2,367 - $400 - $61 - $109 - $373 = $1,424.

Details: The cut-up operation would consist of cross-cut and rip saws and a moulder, plus a heated building with dust and wood waste conveyors and other necessary wood handling and safety equipment. The 265 BF of Select and FAS lumber will, after allowances for edging losses and cutting to improve appearance, produce 209 BF of S4S nearly clear lumber worth $940. No.1 and No.2 Common lumber can be processed into furniture and cabinet parts, often called hardwood dimension, and into flooring, with appropriate yield allowances of 75% and 60% for No.1 and No.2 Common respectively, to produce 511 BF of moulded dimension parts and flooring worth $1,329 (or $2,600 per MBF of product); this is a conservative estimate as some custom manufacturing can develop products that are worth as much as 50% more. Processing costs are $.37 per BF of raw material; this does not include sales costs, special packaging, or finished goods inventory. The total lumber and part value including the No.3 Common lumber values, is $940 + $1,329 + $6 + $92 = $2,367.)