FEATURED NEWS www.wvfa.org Spring 24 | West Virginia Forestry Association Mountain State Forestry 15 railroad tie option accomplishes two things: increases overrun by over 22 percent from 44.0 percent to 66.2 percent and applies a significantly higher price to the tie than to the pallet cant (almost double from $440 per mbf to $854 per mbf). On the other hand, the production of Select & Better lumber is higher for the pallet cant/board option (13.6 percent) than the railroad tie option (8.8 percent). However, this difference does little to offset the increase in overrun and the accompanying price of railroad ties. In this particular market scenario, it is always better to saw a railroad tie than to saw a pallet cant and boards. For all the red oak options summarized in Table 3, it is more profitable to saw a railroad tie than a pallet cant and boards. It is important to note that as log diameter and the number of clear faces increases, the margins in favor of the railroad tie option decreases. For instance, the 15 inch, 4 clear face difference in breakeven prices shrinks to $140 per mbf. This is primarily due to the increased percentage of higher grade lumber. In the case of white oak, (while the grade yields and overrun are the same as red oak, the AHMI grading system, like individual mill grading systems, treats logs of a given diameter and clear faces the same in terms of lumber grade yields and overrun and differentiates based on species and price), lumber pricing has a much greater impact on breakeven pricing and therefore the return to the mill. Thus, Table 3 presents a somewhat different picture for white oak. For the 2 clear face and poorer logs, the outcome is the same as with red oak; the best option is to saw and market a railroad tie. However, for the 14-inch, 3 clear face and 15-inch 4 clear face logs the better option is to saw a pallet cant and boards. For these two diameter/ clear face combinations (highlighted in Table 3), the production of Select & Better lumber offsets any advantage in overrun and tie price, as the Common and Better lumber pricing dominates. SAWING COST It is important to provide a caveat with respect to sawing cost. Because this analysis uses cost/mbf to develop breakeven costs, one should be aware of the impact this has. The sawing cost in this analysis is calculated from the board footage produced from one thousand board feet of logs (Doyle scale). Therefore, the railroad tie option results in a higher sawing cost because of the higher overrun, when in fact the cost should be lower because the number of sawlines is fewer and the time to process through the mill is less. The more accurate sawing cost would be based on the time it takes to process a log through the mill times the cost per unit time. Of course, this requires more detailed analysis of sawing times, which few mills have undertaken. The upshot of this anomaly is that the railroad tie option is penalized, resulting in a lower breakeven price. The impact can be illustrated with the 14-inch, 3 clear face, white oak logs. The difference in breakeven price is $33 per mbf ($1,615 vs. $1,582). While it is not necessarily an accurate assumption, using the sawing cost difference between the two options and adding it to the breakeven price of the railroad tie option results in an additional $39 per mbf to the tie option, bringing the BE price to $1,621 per mbf vs. $1,615 per mbf, essentially a toss-up in terms of choice. CONCLUSION Obviously, the selection of sawing strategies should be a dynamic process where all the factors are routinely updated, in order to maximize revenue to the mill. As lumber and cant/tie prices change mills should revisit their sawing strategies. From an historic perspective, railroad tie production has been a reasonable option for mills, especially when grade lumber markets are depressed and even when grade markets are stable because of the impact of railroad tie vs. pallet pricing, combined with superior overruns with railroad ties. Table 3. Breakeven pricing for red oak logs of varying scaling diameters and clear faces when producing pallet cants and boards versus railroad ties. Diameter/ Clear Faces Pallet Cant or Railroad Tie Produced Sel & Better Yield (%) Overrun (%) Red Oak Breakeven Price per mbf White Oak Breakeven Price per mbf 13 in. & 0 CF* Pallet Cant 5.2 42.1 $354 $595 Railroad Tie 1.2 56.0 $796 $923 12 in. & 1 CF Pallet Cant 7.9 48.4 $402 $736 Railroad Tie 3.5 79.9 $973 $1,219 13 in. & 2 CF Pallet Cant 13.6 44.0 $493 $1,056 Railroad Tie 8.8 66.2 $923 $1,328 14 in. & 3 CF Pallet Cant 32.2 39.4 $599 $1,615 Railroad Tie 20.0 55.0 $906 $1,582 15 in. & 4 CF Pallet Cant 52.7 38.6 $737 $2,238 Railroad Tie 25.1 44.4 $877 $1,659 *CF = Clear faces.
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