Blogging Logging 3 – Profitability and production capacity

For both 2003 and 2010, loggers were asked to qualitatively assess their company’s profitability.  Possible responses ranged from “very poor” to “excellent” with a mid-point indicating “average/broke even” (“good” and “excellent” are combined for analysis). In both 2003 and 2010 approximately 10% of businesses reported “very poor” profits.  Also in both reporting years, over two-thirds of firms report “average”, “good”, or “excellent” profitability.  However, there appears to be a drop in terms of those reporting “good” or ‘excellent” profitability for 2010 compared to 2003.

self-reported-profits

One aspect that might affect profitability is “unused logging capacity1” . Understanding how much production is lost is one measure of productivity. Logging businesses reporting “very poor” or “poor” profits had median unused logging capacities greater than 1,500 cords, while those reporting better profits, had less than 1,500 cords. Of note, though, is 2010 where the median unused logging capacity for businesses with “good” or “excellent” profits was 1,454 cords.

1 We calculated “unused logging capacity” by subtracting total annual production (reported last week) from what businesses reported they could have produced. As such, our measure does not reflect the sources of unused capacity, such as weather conditions, lack of sales, equipment, etc. More technical and detailed measure of logging capacity are available, but were beyond the scope of this study.

unused-capacity-by-profits

In seeking to further understand the relationship between production and profitability, we calculated a simple measure of “productivity2“. Below we report productivity by profitability. In this case, we see the expected trend: productivity and profitability rise together. When comparing 2003 and 2010, the data show show lower productivity across all profitability ratings in 2010.

2 For our purposes, “productivity” equals total annual production divided by what businesses reported they could have produced (i.e., full production) in that year. We express this as a percentage. This is the inverse of the unused logging capacity as a percentage of full production. Again, more technical and detailed measures of production are available, but were beyond the scope of this study.

productivity-by-profits

Moving away from profitability and looking at unused logging capacity by harvest system, we see little change or difference in the cordwood volume of unused logging capacity by system between 2003 and 2010. The exception is for multiple systems with an increase of over 1,000 cords. However, recall from last week that multiple system median volume increased by nearly 2,000 cords from 2003 to 2010.

unused-capacity-by-system

Comparing productivity by harvest system, our data indicate that feller-buncher based harvest systems had the lowest percentage (< 60% in both 2003 and 2010) and clearly stands out compared to the other systems, particularly in 2010.

productivity-by-system

Complete index for this series:

Week/Topic

  1. Introduction
  2. Harvest systems & production volumes
  3. Profitability & production capacity
  4. Factors affecting profitability
  5. Business demographics
  6. Employees and contractors
  7. Capital investment
  8. Distance and hauling
  9. Certification
  10. Timber sales
  11. Source of timber supply
  12. Timber products and buyers
  13. Interest in biomass harvesting
  14. Survey methods and response
  15. Summary

Authors: Mark Rickenbach (UW-Madison/Extension) and Melinda Vokoun (UW-Stevens Point) [contact info at links]

The Wisconsin Bioenergy Initiative, which is now part of the Wisconsin Energy Institute, provided initial funding for 2011 logging sector survey. Additional support was provided through the Renewable Resources Extension Act and the McIntire-Stennis Cooperative Forestry Research Program, both of the USDA National Institute of Food & Agriculture. We appreciate the assistance of Tom Steele, Grace Maples, and Sarah Traver in helping bring this project to completion.

 

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