United States

Department of

Agriculture

Forest Service

Forest

Products

Laboratory

Research

Paper

FPL 432

Economics of

Manufacturing

Structural Lumber

from Low- to

Medium-Density

Hardwoods
Abstract

Researchers at the Forest Products Laboratory have found

that straight structural lumber can be manufactured from

low- to medium-density hardwoods using the Saw-Dry-Rip

(SDR) process. Economic analysis indicates that by using

the SDR process about 50 percent of the SDR sawmill’s

roundwood input can be recovered as lumber at a cost of

about $171 per thousand board feet (MBF) (1981 dollars).

By combining the SDR process with the Edge-Glue-and-Rip

(EGAR) process, about 57 percent of roundwood input can

be recovered at a cost of about $191/MBF. Corresponding

free on board (f.o.b.) mill values for each mill’s product mix

are $237/MBF for the SDR sawmill and at least $270/MBF

for the EGAR sawmill.

Keywords: Economics, hardwood utilization, lumber

manufacture.
United States

Department of

Agriculture

Forest Service

Forest

Products

Laboratory1

Research

Paper

FPL 432

March 1983

Economics of

Manufacturing

Structural Lumber

from Low- to

Medium-Density

Hardwoods

BY

GEORGE B. HARPOLE, Research Forester

introduction

This paper presents an economic assessment and

comparison of two hypothetical sawmills for potential

location in the Northeastern or Southeastern United States.

The mills are designed to make structural lumber from lowto medium-density hardwoods using innovative processing

techniques developed at the Forest Products Laboratory

(FPL). Both sawmills use commercially available equipment

suited for processing structural lumber from domestic

softwood of about the same density as low-density

hardwoods (5). 2

Both sawmills utilize Best Opening Face (BOF) sawing

techniques (7), via log scanning and computer-controlled

sawing at the head rig. The first mill uses a process called

Saw-Dry-Rip (SDR). The SDR process is innovative in that

it enables the manufacture of quality structural lumber from

low- to medium-density hardwoods by eliminating the

traditional problem of warp. The logs are live sawn on the

same plane into 7/4 (1-3/4-in.-thick) flitches. The flitches are

rough edged to make compact kiln loads, dried at 235°F to

an average moisture content of 12 ± 3 percent (dry basis),

and then ripped to width and dressed for use. Studies

support SDR as a viable way for manufacturing straight

structural lumber from low- to medium-density hardwoods

(3,4,8,11).

The second sawmill also uses the SDR process as well as

another FPL process called Edge-Glue-and-Rip (EGAR).

EGAR enables the manufacture of any width of structural

lumber (2,5,6) even when using small logs (5-15 in.

diameter). Logs are live sawn into full width flitches, dried,

and then edge-glued into wide blanks from which desired

1

 Maintained at Madison, Wis., in cooperation with the University of

Wisconsin.

2

 Italicized numbers in parentheses refer to literature cited at end of report.

widths of structural lumber may be ripped. An EGAR mill

can produce both narrow lumber and wide lumber as

desired. Such processing techniques are significant because

they rely upon a largely underutilized supply of about 68

billion cubic feet of hardwoods now growing on U.S.

commercial forest lands east of the Rocky Mountains (12).

The SDR sawmill is estimated to be capable of producing

about 60 million board feet of lumber per year, and the

EGAR sawmill about 68 million board feet of lumber per

year. These estimates are based on producing structural

lumber 8 to 20 feet long, and on a two-shift 250-day-peryear operating basis. A more realistic mill size for many

circumstances in the hardwood regions would probably be

for sawmills designed to produce 6 to 12 million board feet

per year. Smaller concentrations of timber and geographic

barriers will often limit mill size. For this reason, FPL

researchers plan further analyses of mills in the 6 to 12

million board feet per year range. Also, new studies at FPL

will include evaluations of the strength characteristics of

long-length structural lumber (10 ft and longer) produced via

the EGAR process.

Investment, Processing, and Manufacturing Costs

The EGAR sawmill is more efficient than the SDR mill. The

EGAR process should recover about 57 percent of trimmed

log volume as dry lumber-somewhat above the expected

SDR recovery of about 50 percent. The reduction of residue

volumes for the EGAR process indicates an equal increase

in the volume of dry lumber production (table 1).

Cost for the EGAR sawmill in 1981 is estimated to be about

$17.5 million, or about $4.6 million more than an SDR

sawmill of similar capacity. The additional investment in the

EGAR sawmill is in the buildings, processing, and mobile

equipment required for edge gluing and ripping (table 2).

Investment is required for working capital as well as for

facilities.
Table 1.— Estimates of roundwood input and product outputs

for SDR and EGAR sawmills

Roundwood input’

Bark and log trim

Trimmed logs

Total

Type of sawmill

SDR EGAR

– – – –Ovendry ton – – – –

14,552.7 14,552.7

97,019.2 97,019.2

111,571.9 111,571.9

Product outputs

Dry lumber2

Wood chips2

Dry sawdust and shavings2

Hogged fuel2

Fuel for dry kilns4

Total

3

48,651.4 355,422.7

27,728.8 20,228.8

10,408.5 11,137.2

2,867.4 2,867.4

21.915.8 21,915.8

111571.9 111,571.9

1

 Assumes an average ovendry weight of 28.8 pcf, at green

volume.

2

 Marketable output.

3

 Assumes 56.6 ft3/MBF, or 1.630 ovendry Ib/MBF of lumber, or

about 68,000 MBF of lumber output for the EGAR mill and about

60,000 MBF from the SDR sawmill.

4

 Assumes drying from 85 pct to 10 pct moisture content, dry

basis; ovendry weight at green volume of 30.14 Ib/ft3 and 2,700

Btu/lb of H2O removed. Heat energy to steam assumed to be 6,150

Btu/ovendry lb of wood/bark fuel.

Table 2.—Estimates of investment costs for hypothetical SDR

and EGAR sawmills (1981 basis)

SDR mill EGAR mill

– – – – – 1,000 dol – – – – –

Facilities investment costs

Land ($3,500 per acre, 25 acres) $ 87.5 $ 87.5

Site preparation 371.7 371.7

Buildings 2.842.9 3,899.5

Processing equipment’ 8,562.2 11,969.4

Mobile equipment 592.3 640.7

Subtotal 12,456.6 16,942.6

Working capital 411.5 548.9

Total $12,868.1 $17,491.5

1

 Processing equipment costs include engineering, installation, and

contingency costs (10 pct of total).

Discounted cash flow methods were used to estimate

processing costs. Processing costs are expressed as the

average distribution of revenues required to cover all

costs-including capital recovery, taxes on profits (48 pct),

and after-tax profit (20 pct to provide a reasonably

attractive return on investment). An inflation rate of 7

percent is assumed.

Processing costs are different from manufacturing costs in

that they do not include costs of roundwood. Manufacturing

costs include processing and roundwood costs. Fixed

overhead costs of the EGAR sawmill include $15,000 per

year for the first 3 years of operation to cover abnormal

promotional costs associated with initial marketing of

EGAR-type products. Both the SDR and EGAR mills are

assumed to have 10-year economic lives.

Estimated processing costs for the SDR mill are about $6.9

million per year (1981 basis), or about $115 per thousand

board feet (MBF), based on a two-shift 250-day operating

Table 3.—Summary of processing costs1 for SDR and EGAR

sawmills (1981 basis)

SDR mill EGAR mill

– – – – –Dol/MBF – – – – –

Variable costs

Resin (37¢/lb, solids) $ 0 $ 2.88

Electricity (2.5¢/kWh) 2

1.74 1.64

Shipping ($3/MBF) 3.00 3.00

Mobile equipment operations 1.00 1.00

Operating labor 20.60 24.62

Subtotal $ 26.34 $ 33.14

Fixed costs

Overhead $ 28.52 $ 31.26

Depreciation 14.27 14.06

Subtotal $ 42.79 $ 45.32

Other costs

Tax costs (48 pct) $ 21.12 $ 26.92

After-tax profit (20 pct) 25.02 31.78

Subtotal $ 46.14 $ 58.70

Total $115.27 $137.16

1

 Processing costs do not include roundwood costs.

2

 EGAR has lower electric cost assuming less ripping is done to

manufacture wide width dimension.

year (table 3). Processing costs for the EGAR mill are

estimated to be about $9.3 million per year (1981 basis), or

about $137/MBF, again based on a two-shift 250-day

operating year. On this basis, processing costs for the

EGAR process are only $22/MBF higher than the SDR

process.

As mentioned, manufacturing costs include roundwood

costs (less revenues from marketable residues) and

processing costs. Manufacturing costs for the SDR sawmill

are estimated to be about $171/MBF (table 4).

Manufacturing costs for the EGAR sawmill are estimated to

be about $191/MBF. Including wood costs, the cost

difference between SDR and EGAR decreases by $2/MBF

to a difference of $20/MBF. This is because the EGAR

process recovers more lumber from the same volume of log

input. Revenues per MBF, however, are somewhat reduced

by reductions in residues produced.

For both estimates of manufacturing costs, roundwood was

estimated to cost $40 per ovendry ton (ODT); and revenues

from residues to be about $40/ODT for wood chips, $12/

ODT for dry sawdust and planer shavings, and $8/ODT for

hogged fuel. Roundwood costs increase working capital

requirements and therefore increase the amount of financing

required for operation. Increases in after-tax returns (20 pct)

to financing requirements and profit-associated tax costs

(48 pct) add about 5¢/MBF to manufacturing costs for each

dollar of increase in variable costs (e.g. roundwood) per

MBF.

Estimates of Free on Board (F.O.B) Mill Realization

Both the SDR and EGAR sawmills appear to be viable

investment opportunities based on the comparison of

manufacturing costs to likely revenues. Manufacturing costs

include a 20 percent return on investment. Consequently

2
returns that exceed the manufacturing costs would improve

the expected return on investment.

To provide estimates of the f.o.b. mill value of lumber

output, southern pine framing lumber prices for sawmills

located in the Southeastern United States were taken from

Random Lengths price reporter (10). Prices were observed

between January 1979 and December 1981. High prices

were taken from the October 5, 1979 price report; low

prices were taken from the April 25, 1980 price report; and

average prices are the average of these high and low

prices.

Southern pine framing lumber prices were used because

they reflect competitive market prices with which low- to

medium-density hardwood lumber is likely to compete. The

shipping distances from primary market centers are also

comparable and shipping weights about equal. Low- to

medium-density hardwoods (specific gravity of .45 or less)

cannot be expected to compete with southern pine for

engineered uses on a one-to-one basis because of lower

strength properties. Such species as yellow-poplar and

sweetgum, however, can be used in truss fabrication where

their strength properties will satisfy design specifications.

Price differentials that may result from use limitations are

not speculated upon here.

Using the BOF program—a computerized sawing model

(7)—and a sample of actual southern pine logs ranging in

diameter from 5 to 12 inches from four Sawmill

Improvement Project (SIP) studies, lumber recovery was

found to run about 25 percent 2 by 4, 19 percent 2 by 6, 40

percent 2 by 8, 13 percent 2 by 10, and 3 percent 2 by 12.

Lengths were about 85 percent 10 feet and longer with

about 30 percent to 16-foot lengths. Assuming 2 by 4’s will

run about 30 percent to truss framing grades, 60 percent

Standard and Better, and 10 percent Utility; and, assuming

2 by 6 and wider will run 90 percent No. 2 and Better and

10 percent No. 3, the average f.o.b. mill value of the SDR

product mix will be about $237/MBF—based on the

average high and low values (table 5). On the same basis,

an EGAR mill would average from $270 to $340/MBF,

depending on whether 2 by 10’s or 2 by 12’s are produced.

On this basis, an EGAR mill might average from $33 to

$103/MBF more than an SDR sawmill. This assumes that

about the same demand and scarcity of supply will continue

for wide dimension (2 by 10’s and 2 by 12’s). Floor trusses

manufactured from 2 by 3’s and 2 by 4’s have been

replacing wide widths in many applications. To continue this

replacement, inplace costs for fabricated trusses will, of

course, have to be at least price competitive with wide

width lumber. Potential investors in new sawmills should

consider this factor.

Conclusions

Using the EGAR processing concept, a sawmill can recover

about 57 percent of roundwood input as dry finished lumber

at a processing cost of about $137/MBF. About 50 percent

of the SDR sawmill’s roundwood input can be recovered as

lumber at a processing cost of about $115/MBF, $22/MBF

less than for the EGAR process. Wood costs, assumed to

Table 4.—Total manufacturing costs for SDR and EGAR

sawmills

costs

SDR mill EGAR mill

– – – – –Dol/MBF – – – – –

Processing costs $115.27 $137.16

Roundwood costs ($40/ODT)1 74.38 65.63

Subtotal $189.65 $202.79

Less residue revenues

Wood chips ($40/ODT) $ 18.49 $ 11.90

Sawdust and shavings ($12/ODT) 2.08 1.96

Hogged fuel ($8/ODT) .34 .34

Subtotal $ 20.91 $ 14.20

Plus profit and tax costs for increase

in working capital2 $ 2.57 $ 2.47

Total $171.31 $191.06

1

 ODT is ovendry ton.

2

 Increases in working capital are an increase in investment that

requires corresponding profit and taxes, increasing costs by about

5¢/MBF for each $1/MBF increase in variable costs.

Table 5.—High, low, and average f.o.b. mill values for southern

pine lumber from the Southeastern United States

since January 19791

Dimension size Average High Low

In. – – – – – – –Dol/MBF – – – – – – –

2 by 4’s 227 290 165

2 by 6’s 236 298 174

2 by 8’s 225 265 185

2 by 10’s 270 327 214

2 by 12’s 342 402 282

SDR mill average2 237 290 185

1

 Assumes 2 by 4’s run 30 pct truss-framing grade, 60 pct

Standard and Better, and 10 pct Utility; and 2 by 6 and wider run

90 pct No. 2 and Better and 10 pct No. 3. High prices are from

Random Lengths October 5, 1979 price report. Low prices are from

Random Lengths April 25, 1980 price report. Average values are

the average of high and low prices.

2

 Assumes an average product mix of 25 pct 2 by 4, 19 pct 2 by 6,

40 pct 2 by 8, 13 pct 2 by 10, and 3 pct 2 by 12.

be $40/ODT, need to be added to processing costs to

obtain manufacturing costs. The manufacturing costs for

the EGAR sawmill are $191/MBF and $171/MBF for the

SDR mill.

Both the SDR and EGAR sawmills appear to be viable

investment opportunities based on returns on investment.

The average f.o.b. mill value of the product mix from the

SDR sawmill is estimated to be about $237/MBF. The

potential f.o.b. mill value of the output from the EGAR

sawmill is estimated to be at least $270/MBF or higher. In

both cases, the average return that might be expected

exceeds the estimated manufacturing costs for both

sawmills. The EGAR sawmill, however, can produce any

exact width of lumber desired, and thus provides a unique

opportunity to increase revenues by manufacturing higher

priced widths of structural lumber.

Literature Cited

1. Boone, R. S.; Maeglin, R. R. High-temperature drying

of 7/4 yellow-poplar flitches for S-D-R studs. U.S. 

3
Dep. Agric. For. Serv. Res. Pap. FPL 365, For. Prod.

Lab., Madison, Wis.; 1980.

2. Bulgrin, E. H.; Harpole, G. B.; Williston, E. Edge, Glue,

and Rip: The EGAR program. In: Proc. 8th Sawmill

Clinic, Modern Sawmill Techniques, Portland, Oreg.,

Miller Freeman Pub.; 1978.

3. Gerhards, C. C. Effect of high temperature drying on

bending strength of yellow-poplar 2 by 4’s. Forest

Prod. J., 33(2):61-67. 1983.

4. Harpole, G. B.; Maeglin, R. R.; Boone, R. S.

Economics of manufacturing straight structural

lumber from hardwoods. In: Proc. Mid-South FPRS

Section Symposium on Utilization of Low-Grade

Southern Hardwoods; 1980; Nashville, Tenn.; Forest

Prod. Res. Soc.; 1981.

5. Harpole, G. B.; Williston, E.; Hallock, H. Investment

opportunity: The FPL EGAR lumber manufacturing

system. U.S. Dep. Agric. For. Serv. Res. Pap.

FPL 310, For. Prod. Lab., Madison, Wis.; 1979.

6. Kling, R. Edge gluing as applied to EGAR lumber. In:

Proc. 8th Sawmill Clinic, Modern Sawmill Techniques,

Portland, Oreg., Miller Freeman Pub.; 1979.

7. Lewis, D. W.; Hallock, Hiram Y. Using computers to

increase lumber yield-Best Opening Face program.

In: Proc. 4th Wood Machining Seminar, University of

California, For. Prod. Lab., Richmond, Calif. p. 233-

242; 1973.

8. Maeglin, R. R. Yellow-poplar studs by S-D-R. South.

Lumberman, Dec. 15, p. 58-60; 1978.

9. Maeglin, R. R.; Boone, R. S. The manufacture of

quality yellow-poplar studs using the Saw-Dry-Rip

concept. Forest Prod. J., 33(3):10-18; 1983.

10. Random Lengths. Published by Random Lengths

Publications, Inc., Eugene, Oreg.; 1979, 1980, 1981.

11. Stumbo, Donald. A. Yellow-poplar framing lumber for

building construction. In: Proc. Mid-South FPRS

Section Symposium on Utilization of Low-Grade

Southern Hardwoods; 1980; Nashville, Tenn.; For.

Prod. Res. Soc.; 1981.

12. U.S. Department of Agriculture, Forest Service. An

analysis of the timber situation in the United States

1952-2030 (review draft). Table 24, 68 p. USDA,

Washington, D.C.; 1980.

2.5–5-4/83

4
U.S. Forest Products Laboratory

Economics of Manufacturing Structural Lumber from Low- to

Medium-Density Hardwoods, by George B. Harpole.

Madison, Wis., FPL 1983.

5 p. (USDA Forest Serv. Res. Pap. FPL 432).

Presents an economic assessment and comparison of two hypothetical

sawmills that process structural lumber from low- to mediumdensity

hardwoods using innovative processing techniques developed at FPL.

One mill uses the Saw-Dry-Rip (SDR) process for manufacturing straight

structural lumber from low- to mediumdensity hardwoods. The second

mill uses SDR combined with the Edge-Glue-and-Rip (EGAR) process that

enables the manufacture of any width of structural lumber even when

using small logs. Both processes appear to be viable investment

opportunities based on returns on investment.

Keywords: Economics, hardwood utilization, lumber manufacture.
U.S. GOVERNMENT PRINTING OFFICE: 1982-544-030/ 32