Tag Archives: Blackwood timber price list

Blackwood pricing and the forest industry #2

In the previous blog on blackwood prices I discussed some of the issues around blackwood pricing and markets using an actual blackwood price list “from hell”.

https://blackwoodgrowers.com.au/2015/10/19/blackwood-pricing-and-the-forest-industry-1/

Here I present some better examples of timber price lists including another real blackwood price list, but this one should definitely stir some interest from existing and potential growers.

This retail blackwood price list exhibits both excellent overall prices from a grower and sawmillers viewpoint, but also includes allowance for the cost of time it takes to grow bigger trees to produce the larger size boards. Hence the 5.8% “step-up” in the price per cubic metre for the 38mm and 50mm thick boards. I’m assuming of course that this pricing structure reflects in some degree what was paid to the growers, with larger logs attracting better prices than smaller logs.

Remember that Tasmanian blackwood is Australia’s premium appearance grade timber species.

BPL2

By way of comparison here is a price list for American Cherry (Prunus serotina) from the same retailer. American Cherry is regarded as the number one premium appearance timber in the USA. Almost all American Cherry is grown in native forest by a vast number of small private forest growers, so the markets are very competitive. These prices therefore are likely to accurately reflect real market conditions, including grower profitability. The same certainly can’t be said for Tasmanian blackwood.

I’ve made both the blackwood and the cherry charts are on the same scales to allow for easy comparison.

ACPL

Notice the cherry price list has two step-ups in the cubic metre price (4.9 and 8.8%, with the over increase of 14.1%) to reflect the three timber thickness grades, and the cost of time needed to grow larger trees to produce the bigger boards.

By way of comparison Premium clear grade Radiata pine retails for about $2,500 per cubic metre.

So if retailers and sawmillers (but not the growers) are making money selling blackwood at $2,500 per cubic metre, surely at $7,000+ per cubic metre there is plenty of potential for growers to be rewarded sufficiently to consider commercial blackwood as a profitable investment.

Much more than any other primary industry, forestry relies upon growers getting a fair deal and a good price, otherwise the forest industry has no future. A 30+ year investment to grow trees involves an exceptional amount of goodwill, trust and fair play in the marketplace. So far the forest industry does not have a good reputation in this regard.

The only other option is for growers to do the harvesting, sawmilling, and selling themselves. A Growers Cooperative then becomes the natural result of this outcome. But this still requires the marketplace to provide price and demand signals.

Both the blackwood and cherry price lists potentially provide incentive and reward/profit to forest growers to produce these beautiful premium timbers, as well as recognise and encourage the growing of large trees to produce the large wide boards that the market demands. These are the just rewards of time, patience, good forest/plantation management and a forest industry/marketplace working together to build a future.

The private American Cherry growers keep managing their native forest and growing and selling their Cherry timber.

But what about the growers of Tasmanian blackwood?

 

It is an interesting footnote that Tasmanian taxpayers pay to have public native blackwood forest logged (Forestry Tasmania deliberately makes a loss) in order that approximately $40,000,000 worth of blackwood timber and veneer is sold every year. Why does blackwood need to be subsidised?

 

Blackwood pricing and the forest industry #1

Having had a few discussions recently about blackwood prices and price lists I have begun to investigate this aspect of the forest industry and the marketplace. Pricing a commodity that takes 20-100+ years to grow requires stepping outside the realms of normal economic theory. And when you are a retailer and not a grower, are you rewarding and motivating the grower, or are you killing the forest industry?

What the market is prepared to pay, product substitution and technology become critical issues. This is particularly true in the wood commodity markets such as pulp, paper and construction which accounts for the lion’s share of the wood market.

But what about the premium end of the wood market where wood quality and appearance are fundamental aspects of the market? This market exhibits a significant degree of inelasticity (with a high capacity to pay), and a resistance to product substitution, as well as technological change. This is the market that Tasmanian blackwood inhabits.

From a blackwood growers viewpoint, how does pricing affect grower behaviour? Most premium timbers around the world come from (public and private) native forests. Few premium timbers are grown in plantations. Economic management and performance of native forests is quite different to growing timber in plantations. Compared to native forests plantations have high establishment and management costs, with little or no income from the investment until harvest in 20-30+ years time. As a straight investment this requires careful planning and management in order to achieve a reasonable profit from the investment (not to mention a great deal of passion and patience).

So what does the marketplace tell us about the economics of growing trees for premium quality wood production?

Here’s an example of a real blackwood price list of dimensions and prices per linear metre. I then calculated the price per cubic metre for each of the dimensions and made a chart of the results. The prices are for kiln-dried rough-sawn (KDRS) clear-grade blackwood.

I was horrified!

This pricing and pricing structure will kill the blackwood industry stone dead!!

Firstly I don’t know too much about the costs of regulation, harvesting, transport and sawmilling, but I suspect the growers of this blackwood got bugger all for their trees.

If the retailer is selling blackwood for $AU2,500 per cubic metre regardless of size, what did they pay the sawmiller? And after paying the costs of planning, harvesting, transport and sawmilling, what did the sawmiller pay the poor growers? I reckon the growers got the clear message that growing commercial blackwood is for mugs and losers!

Instead of providing incentive and reward for their blackwood growing efforts the marketplace punished these growers.

So do we want the forest industry to have a future?

It won’t have a future with this retail pricing!

Do we want to be able to buy blackwood timber in the future?

There wont be any to harvest if these prices continue?

I don’t know where in Tasmania the blackwood timber came from but it wasn’t plantation grown. It could be public or private native forest; meaning these trees were between 40 and 80 years old when harvested.

BPL1

The second failing of this price list is the complete absence of the cost of “time”.

Time costs money. That’s what interest rates are all about. They represent the cost of money over time – for either loans or investments.

In general the price of timber reflects the volume/size of the piece of wood. The greater the dimensions and length the greater the price. The above pricing structure would be fine IF blackwood was produced in a factory where the ingredients were fed into one end of a machine and the various sizes and lengths came out the other end, with little time involved in production.

Unfortunately blackwood timber grows on trees and trees take time to grow, and time costs money. The bigger the piece of timber the bigger the tree required, and the longer it takes to grow, and greater the cost to the grower/investor.

But the above pricing list says that size (and hence time) has no cost. Wrong!!

The above list says that a cubic metre of 25x25mm costs the same to grow/produce as a cubic metre of 125x125mm. Wrong!!

You can cut 25x25mm timber from young 30 cm diameter trees, but you need much older 60+ cm diameter trees to produce 200×50 mm or 125x125mm blackwood.

A common complaint in the premium timber market is the scarcity of wide boards. However the above price list fails to provide any incentive/reward to the grower to grow bigger older trees.

A common caveat in the premium timber market goes something like:

Availability of specific sizes and lengths cannot be guaranteed.

This is largely due to the wood being sourced from native forest where tree size and supply are relatively random. In forestry lingo it’s called “run of the bush” – whatever turns up.

Plantations however are highly controlled and managed, so that (if things work out) size and supply can be better managed. A bit of tree selection and breeding and wood quality and supply is more assured. No caveats required.

So if you want to contribute to the destruction of Tasmania’s iconic blackwood industry here’s the place to buy your timber. It’s a double whammy for the industry!

But if you want to support a profitable, sustainable forest industry then understand that time (and big trees) costs money!

Alternatively this price list may just reflect the fact that in Tasmania growing blackwood is according to Government policy a (taxpayer-funded if you are a public grower) community service not a business. These may just be community service prices, not real prices reflecting the cost of production let alone building and growing the industry.

In my next blog on blackwood pricing I’ll show an example of a better timber pricing structure together with much more realistic prices.

When will Tasmania get a fully commercial profitable forest industry?

Comments and ideas welcome!!