A|)lil 25. 1»21 



HARDWOOD RECORD 



19 



jimr flgures are inisk'aiUnt'. fm- the reasDii that the pi-DiliK-tion nf Is ami ;;s 

 represents only a very small percentage of the total, ami that this per- 

 centage is constantly decreasing because of the lower quality of tiniUer 

 that must be manufaotureii. 



We do not know whether or not you have included gum lumber in your 

 calculation, but wish to state that the consumption of this species exceeds 

 that of any other hardwood ; in fact it is our belief that there is as mui'h 

 gum lumber used as all other species combined, and probably three times 

 as much of this kind as any other one kind. You will understand that 

 thi' grades of reil gum are produceii from the same log that produces sap 

 gum, and that in the aggregate the total production of red will not exceed 

 10 per cent, of which probably not more than one-fourth constitutes the 

 grade of Is and 2s. The balance of llie pro<luction consists of the graili' 

 of Is and 2s sap and lower. We nlenti(^n this to show you the small 

 influence that the prices on the red grades liave on the average prici' 

 of the product. 



As you are aware, the jjroBt or Inss of the lumber manufacturer depends 

 on the average price realized irom this product. He cannot confine his 

 manufacture to specific grades, as ali grades are produced from the same 

 log. and he must produce the lower priced grades in order to obtain the 

 higher priced grades. At the present time the prices on Is and 2s are 

 relatively higher than on the lower grades, due to the fact that the produc- 

 tion of the lower grades has been constantly increasing in volume, while 

 the higher grades have been decreasing. The present high transportation 

 coats are also an important contributing factor to this condition, as the 

 cost per M' of shipping low grade is exactly the same as shipping bigh 

 grade, and, of course, the percentage of transportation cost is relatively 

 greater on the lower grades. 



There has been a radical readjustment of labor costs in southern lumber 

 manufacturing centers. Common labor is now available at as low a rate 

 as $1.50 per day. and there is a marked increase in the efflciency of both 

 common and skilled labor. Mill supplies and other factors entering into 

 production costs have shown a slight decline, although this decline has 

 been much less than the general run of commodities. Even with the 

 considerable decrease that is attained in production costs, however, there 

 are some woods, such as gum, which cannot be produced and sold on the 

 present marRet prices, and the value ^)f the stumpage returned, much less 

 an operating profit realized, and as most mills of necessity oi>erate on 

 mixed woods, as produced by the forest, it is not possible to carry on an 

 operation at a profit, as the woods on which a loss would be sustained will 

 more than offset those woods on which a profit could be realized. While 

 we anticipate some further reductions in the price of mill supplies, oil, etc.. 

 we do not believe that labor will be held at the present low rate, as it is 

 hardly receiving a living wage at this time, so that we feel that in an 

 efficient organization the cost of production is now at low ebb, with no 

 chance of further reductions, and the probability of some slight increase 

 in costs. 



Misleading Comparisons 

 We wish to call your attention to the fact that a comparison of prices 

 on specific grades is apt to be niisleailing. and it seems to us that the 

 correct basis of comparison is the average price of the log run product. 

 As we have stated, the average quality of hardwood lumber produced is 

 constantly becoming lower, because of the difference in quality of the timber 

 that the operator must utilize. You will observe, therefore, that even 

 with a stationary cost for the log run product, the operator would of 

 necessity be obliged to realize a higher price on some specific grades in 

 order to return the same profit, because of the reduction in the percentage 

 of the higher grades, so that what might on the face appear to be an 

 advance, when a comparison of prices on specific grades is made, would in 

 reality not be an advance when considered from the standpoint of the 

 average yield to the proiiucer. To put the matter before you in more 

 concrete shape, let us consider the folhiwing situation : 



Assume that the cost of production in 1917 and in 1921 is 

 $40.00 per M', i. e., exactly the same in both years. 

 Ijet's assume that the product of the two years, however, shows the 

 following difference in the percentage of grades : 



1917 1921 



25% 1st and 2s 10% 



30% No. 1 common 30% 



40% No. 2 common 45% 



5% No. 3 common 15% 



It is probable under such a situation, unless there is a radical change 



in the consuming requirenu^nts. that the price of the lower grades for 



1921 would be less than 1917, on account of the greater production of 



these grades, and that in order to realize the same average price, it would 



be necessary to obtain a greater price for the higher grades. Even if the 



price on the lower grades were nmintained at the same basis it would still 



be necessary to obtain more money for the higher grades because of the 



smaller percentage produced of these grades, and if one made a comparison 



of the prices of these grades their conclusion would be that there had 



been au advance, while in reality such would not be the case, as it is the 



average price that must be considered and compared. 



Costs Constantly Advance 



The above is. of course, based im the assumption that the cost for the 

 two years will be the same. It is. of course, impossible to maintain the 

 same average cost of production in the manufacture of lumber : this cost 



under normal conditions must constantly advance, if labor, supplies and 

 all "tiler factors entering into cost renuiined stationary for all time there 

 would be a steady increase in the ctjst of production, due to conditions 

 «iver which th*' operator has no control, and among which we might men- 

 tion the following : 



(a) In the beginning lumber was manufactured from the choicest tracts 

 of timber, and that that was most accessible, and could be handled at the 

 lower cost. The demands of business have utilized all timber of this 

 character, and it is necessary each year to go into more imiccessible places 

 to obtain the timber supply, and to operate on" lighter stands of timber, 

 which materially increases the logging costs. These costs must necessarily 

 increase from year to year, even though there is no increase in the price 

 of labor, supplies, etc. 



(b) Whej-e it is necessary to employ the use of common carriers to 

 transpcjrt logs to the mills (fully 80 per cent of the logs handled are so 

 transported in hardwoods) the total cost is affected by the Increase in the 

 cost of transportation. The average increase in this cost since 1917 is in 

 excess of 100 i>er cent. 



(c) The average size of the logs handled grows smaller each year, 

 which increases the milling cost and handling of the i)roduct, as it is 

 possible to nuuuifacture lumber from larger logs at a lower cost than from 

 small logs. 



We feel, therefore, that over a long period of time there must neces- 

 sarily be an increase in the average value of lumber, and that this increase 

 must be greater on some specific grades than on the average value, in onler 

 to realize the increased average value that a profitable oiieration necessi- 

 tates. All of this, of course, is entirely aside from any increase in labor, 

 etc. Increases from such sources as might be encountered would have to 

 be realized through a still greater iui'rease in prices. 



Mill Price Must Govern 



In a comparison of prices l)et\veen various perioils, it seems to us that 

 the f. o. b. mill price must govern, because the varying costs of transpor- 

 tation enter into the delivered price. Especially is this true at the present 

 time, on account of the great increases in transportation costs during the 

 past few years. We have for instance just booked an order tor a ship- 

 ment to the Pacific Coast, the transportation cost to which point has 

 Increased since 191G $22 per thousand. The net amount realized for this 

 specific grade, f. o. b. shipping point, is less than we obtaine<l for the 

 same grade in 1912 and 1913, although the delivered price is somewhat 

 in excess of the delivered price obtained at that time. 



We do not know whether or not the facts that we have outlineil herein 

 have been considered by you in reaching your conclusion. We feel cer^tain 

 that if you are basing your opinion on the comparison of prices that you 

 make, whi<'b show practically the same value for .Tanuary. 1920, as for 

 January, 1921, the basis of your calculation is not correctly established. 

 You doubtless realize the tremendous effect fif your predictions and 

 opinions on those lines of business concerning which same are expressed. 

 If you take the position that the prices on certain commodities are too 

 high, and that further reductions are necessary, that opinion will be 

 accepted by your clients, who will govern their purchases accordingly. In 

 the event that you have based your conclusions on the wrong foundation, 

 this would artificially depress that particular business, and bring prices 

 to an unwarrantedty low level, and this condition would necessarily be 

 followed by an abnormal advance. 



It has been our opini(»n that hardwood lumber, as a whole, is today 

 basically sound so far as values are concerned. Considered from the 

 standpoint of cost of production, we are certain that the present prices 

 on many kinds do not return the cost, and in our opinion when condi- 

 tions become stabilized, and the present perioil of adjustment comes to an 

 end, prices on the whole will settle somewhat above present levels. Y'ou 

 are probably basing your opinions that further reducti<)ns are necessary on 

 the price comparison which you publish, and which sbt>ws practically no 

 decline as compared with .Tanuary, 1920. If you are incorrect in these 

 figures, and if instead there has i)een a decline on an average of over 60 

 per cent, as is indicated by our actual sales and experience, we presume 

 .vou would reach an entirely different conclusion. It has been our opinion 

 that the future prices of hardwoods would be determined entirely by the 

 general business conditions. If the present light demand continues for any 

 great period of time, further recessions are probable, irrespective of pro- 

 duction costs, but if this does come about, hardwood lumber will yield 

 considerably below its intrinsic value, as considered from the standpoint 

 of cost. 



Used Chicago Prices 



We observe that your prices are based f. o. b. Chicago, which, of course, 

 involves transportation cost from the mill to that point. The advance 

 in this rate on gum lumber since 1916 has been approximately $7..tO per 

 thousand, of which $3.50 per thousand has taken place since -August 25. 

 1920. These flgures are tiased on our rate, which is slightly less than 

 the average rate to Chicago on this kind of lumber. 



As we anticipated, your composite is maile up entirely of Is and 2s, which 

 grade represents the smallest percentage of the log product. You include 

 in your composite birch and hard maple, which are almost exclusively 

 northern hanlwoods. We have no U'-tual •■xperience in these woods, f>ut in 

 a general way we imderstand tluit tlie decline in same has Iieen materially 

 less than in southern hartiwoods, especially in the various grades of gum. 

 In the southern hardwoods .vou select Is and 2s red gum. and Is and 2s 



