A Business Model for a Red Oak Small Diameter Timber Processing Facility in Southwest Virginia

The conversion of red oak small diameter timber (SDT) into solid wood products was investigated. The objectives of this research were to

1. determine the yield of lumber, pallet and container parts, and residues from SDT and the market potential for these products;
2. determine the economic feasibility of a SDT sawmill and pallet part mill located in Southwest Virginia;
3. develop a business plan for a SDT sawmill and pallet part mill located in Southwest Virginia.

The methods for this research consisted of resource, yield and economic analyses, and the development of a business model. The resource analysis indicated an ample supply of red oak SDT available in Southwest Virginia. The yield analysis used red oak SDT logs, which were manufactured into lumber, container parts and wood residues. The yield of 3" wide container parts from cants varied from 63% to 66%. The 1" nominal lumber produced was mainly 2A and 3A, 74%, and 24% was 1 common. The economic analysis utilized break even, net present value and internal rate of return analyses to determine the economic feasibility of utilizing red oak SDT.

The results of the study indicated that the sawmill-only processing level scenario is not economically feasible given the specified conditions and assumptions. However, the results showed that the sawmill and pallet part mill, actual yield scenario at $35/ton delivered log cost is economically feasible. The hypothetical business model for Southwest Custom Hardwoods was economically feasible. The final net present value was calculated to be over $750,000 and the final internal rate of return was 11%. Future yield studies should weigh logs so that the yield of residues and solid wood products can be directly compared. Future research into the utilization of hardwood SDT should include yield studies of other species and other product mixes.