TIMBER DEPLETION, PRICES, EXPORTS, AND OWNERSHIP. 



53 



panies and profits shown. In the case of a representative com- 

 pany which operates a line of some 40 or 50 yards the net 

 profit, including gain on inventory after income taxes had been 

 paid, was about $4.75 per 1,000 feet. A portion of the manu- 

 facturers' increase was likewise absorbed by increased costs of 

 production and operations. 



As previously shown, average retail selling prices for the 

 Middle West, which were from $30 to $32 in 1912-1915, advanced 

 to about $56 in 1919 and to about $86 in March, 1920. Buying 

 prices averaged about $25 in 1912-1915, advanced to about $40 in 

 1919, and in March, 1920, were still higher. Retail operating 

 costs increased from about $4.50 in 1912-1915 to about $7.85 in 

 1919, and to about $8 in March, 1920. 



LUMBER PRICES UNJUSTIFIED BY PRODUCTION AND DISTRIBU- 

 TION COSTS. 



A study of prices and increased production and distribution 

 costs during the prewar and postwar periods substantiates the 

 statements made by many lumbermen that prices during the 

 end of 1919 and the beginning of 1920 reached points unjus- 

 tified by production and distributing costs. While present 

 prices are somewhat below the March level they are still in 

 excess of prices justified by increased production costs and fair 

 profits. The following is believed to be a liberal approxima- 

 tion of costs entering into the average retail price of lumber 

 as determined for March, 1920, in the country trade in the 

 Middle West. The lumbermen's figures on production costs, 

 which may be considered outside costs, are accepted as a basis. 

 The production cost is a weighted average computed from the 

 relative per cents of various species in the retail stocks handled. 



TABLE 25. Approximate production and distributing cost, 

 March, 1920, per thousand feet of lumber. 



Lumber production (stumpage and selling costs in- 

 cluded) , $26.50 



Transportation (mill to retail yards) 12.00 



Retail distribution 8.00 



Total . 46. 50 



Distribution of price increase. As has been pointed out, 

 the average retail price of lumber in 1919 in the country trade 

 of the Prairie States was about $25 higher than in the period 

 1912-1915. For the yards covered in Minnesota the exact in- 

 crease was $23.17. Of this increase the manufacturer and 

 wholesaler took $11.34, or approximately 50 per cent, the rail- 

 roads $4.75, or 20 per cent, and the retailers $7.08, or approxi- 

 mately 30 per cent. Of the retailers' portion, $2.91, or 12 per 

 cent of the total increase, was absorbed in increased cost of 

 retail distribution. 



Retail profits. From Table 23 it will be noted that retail 

 operating expenses and net profits figured on percentage of 

 business done had not changed greatly over those shown for 

 the period 1912 to 1915. In that period the gross profit was 

 close to 23 per cent in the region covered, while in 1919 the 

 average gross profit centered around 25 per cent of sales. Com- 

 puted on a thousand-foot basis, however, there has been a very 

 decided change in margin of net profit and operating expenses. 

 In 1912 to 1915, for example, the average net profit shown by 

 country yards in Minnesota was $3.01 per 1,000 feet, and the 

 total operating cost was $4.24 per 1,000 feet. In 1919 the aver- 

 age net profit shown by over 100 yards in the same region 

 amounted to $7.18 and the operating costs to $7.15, or a margin 

 of gross profit of $14.33. 



It should be borne in mind that the net profit shown includes 

 a certain percentage of book profit, or gain on inventory, due 

 to the rising prices during 1919. Actual cash profits are fur- 

 ther reduced by the income taxes, which are not figured in as 

 operating expenses. These taxes, of course, vary with the corn- 



Average retail selling price March, 1920 86. 00 



Margin of profit (includes interest on investment) 39.50 



The margin of profit indicated exceeds by $8 to $10 the total 

 average retail selling price for the lumber sold in the same 

 region during the 1912-1915 period, which included all costs 

 and profits of manufacture and distribution. Irrespective of 

 the distribution of this excessive profit, which, by and large, 

 has unquestionably varied with relative advantages held and 

 with relative abilities to dominate situations, lumber prices 

 are excessive and yield profits bearing no reasonable relation 

 to increased costs of lumber production and distribution. 



That prices went unreasonably and unfortunately high is 

 readily admitted by many of the more responsible and far- 

 seeing men in the trade, and is concretely evidenced by the 

 efforts of numerous large companies to stabilize prices during 

 December, 1919, and January and February of 1920, by action 

 on the part of retail lumber dealers calling upon manufacturers 

 to stabilize lumber prices, and by editorial comment in lumber 

 journals. The following is an extract from a published letter, 

 written by the secretary-manager of a large lumbermen's asso- 

 ciation in response to a letter from the secretary of a retailers' 

 association, suggesting that prices be stabilized until July 1 

 at least: 



I am not violating any confidence when I say to you that the situa- 

 tion has given the lumber manufacturers much concern, many having 

 expressed themselves as deploring the fact that prices have been bid 

 up to present figures by the buyers themselves. It is a little too much 

 of a strain on human nature to expect that producers shall refute 

 to accept the highest prices offered for their goods. 



