operation is then dependent upon three factors : * ( 1 ) the price of lum- 

 ber reflecting mill revenue, (2) the price of raw materials, or stumpage, 

 and (3) the margin between the previous two factors composed of total 

 operating costs and profit. Information is not available on operating 

 costs and advantages gained by efficiency. It is assumed for individual 

 units that operating costs are known. 



The upper limits of the margin over costs are set by the market prices. 

 Thus the individual mill has a set margin; and if that margin becomes 

 increasingly narrower, operating costs and profits must be lowered or 

 compressed. Advantages in mill efficiency immediately become obvious. 

 If a point is to be reached where operating costs exclude profits, this 

 point should be reached first by the least efficient mills. It follows that 

 the narrower the margin becomes, the greater is the possibility of in- 

 efficient sawmills moving out of production. 



Lumber prices in general have steadily increased. The greatest rela- 

 tive change came in number 1, 2 and 3 common grades. D select and 

 better has shown a slight leveling trend in comparison to number 1, 

 2 and 3 common grades over the past few years. Number 4 common, 

 although still showing a rise in price, has been almost level compared 

 to the other grades. It rose rapidly to a price of approximately 90 dol- 

 lars per M b.f. in 1951 and has remained at about this level since that 

 time. The wholesale price of lumber adjusted to average quality of 

 stumpage is well above number 4 common but below number 3 com- 

 mon grade. 



There has been a steady increase in the price of stumpage since 1946 

 amounting to well over 100 percent. The midpoint of the price range 

 offered for stumpage in New Hampshire in 1961 was approximately 18 

 dollars per M b.f. as compared with the O.P.A. price of 8 dollars per 

 M b.f. in 1946. The change in the price of stumpage has been faster and 

 the price is relatively higher, when comjiared on an index basis, than 

 lumber prices. 



In effect, for the majority of sawmills in New Hampshire, the margin 

 between the cost of raw material and the revenue from lumber produc- 

 tion has steadily decreased. This has been caused by a greater increase 

 in the price of stumpage relative to the rate of increase in the adjusted 

 price of lumber. It is important to note that the higher grades of lum- 

 ber have shown strong price increases, and it is the lower grades that 

 do not show significant increases. The adjusted price, then, has been 

 reduced by the large percentage of low grade lumber produced and sold 

 at a low price (Wallace and Amidon, 1958) . 



The decline of the sawmill industry in New Hampshire, in both pro- 

 ducing units and production over the past several years, has occurred 

 during a period when the margin between stumpage prices and lumber 

 prices has declined. The effect of operating costs, efficiency, and the 

 availability of markets is not known. It is felt, however, that these factors 



* Two other related factors and their effect must be noted at this point. These are 

 the availability of stumpage and the size of the market for eastern white pine lumber.. 

 The relative scarcity or abundance of these two factors within the industry will be 

 reflected by price and hence is pertinent to this paper. Absolute scarcity of stumpage 

 or lack of markets for lumber, however, is not covered in this paper and their effect 

 on sawmill operation or production is not considered. It is entirely possible that this 

 could be responsible in part for the decline in the lumber industry. 



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