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TECHNOLOGY 45
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Table 8. Effect of Lumber Price Changes on Annual Profit Table 9. Best/Worse-case Scenario – Total Effect on Annual
and Value for 12, 8, and 4 MMBF Capacity Sawmills Sawmill Profitability if Log and Operating Cost Change
Opposite of Lumber Prices

Combined Leverage While interesting to consider, a situation as described
The increases/decreases in annual profits described in Tables in Table 9 is unlikely to happen (with the same percentage
6, 7, and 8 show the volatility of the sawmill business. This changes to operating cost, log cost, and lumber prices

volatility is amplified when changes in operating costs, log occurring simultaneously).
costs, and lumber prices are combined. In addition, while a 25 percent cost/price change is quite
In a worst-case scenario, operating cost and log costs a large swing in costs/price, even small changes, such as
increase while lumber prices decrease, a situation not far from +/- 0.25 percent, can change the profit/loss of a sawmill
what has happened over much of 2024. considerably as can be seen in Table 10.
While the actual percentage increase/decrease will not In the best case, with a decrease of 0.25 percent for
be so simply distributed as in the example in Table 9, the operating and log cost (highlighted green in Table 10) and
Table shows the volatility with which sawmills have to cope. an increase of the lumber price of 0.25 percent (highlighted
In the sawmill business, the downside potential is large, green), the profit of the mill increases by $30,946, as shown

but so is the upside. Today, with a lacklustre housing market, in Table 10 (second row). The reverse, where operating cost
export markets not performing well, and operating costs and log cost increase by 0.25 percent (highlighted red) and
increasing due to inflation, sawmills have a difficult time lumber prices (highlighted red) decrease by 0.25 percent,
generating a profit. yields a $30,909 loss (last row in Table 10).
This is a different setting than during and after the ‘Covid-19’ Losing nearly $31,000 due to a combined 0.25 percent
disruption of 2020, when people started buying new homes increase in operating and log costs and a 0.25 percent
or remodelling existing homes, thereby increasing demand decrease in lumber prices shows the volatility with which

for hardwood lumber while only a limited supply reached sawmills must cope.
the market. However, the reader must keep in mind that a) the model