Demand, supply and price of hardwood lumber: an econometric study

Historically, the quantity of hardwood lumber supplied and demanded has fluctuated from year to year while the price of hardwood lumber has trended with the wholesale price index. During the 1970's, production and usage of hardwood lumber trended downward while price increased by over 100 percent. The series of events which occurred during the 1970's, caused industrial users of hardwood lumber to express concern over current and future availability and price of higher grade lumber.

Currently, little economic information is available which can explain the behavior of the hardwood lumber market. Furthermore, the lack of such information inhibits the optimal allocation of capital, labor and other resources employed by producers and users of hardwood lumber. The general objective of this study was to provide economic information concerning the production, usage and price of hardwood lumber.

Three specific objectives were undertaken in this study: (1) To identify factors affecting hardwood lumber production usage and price, and to measure the impacts of changes in these factors; (2) To identify factors affecting wood furniture manufacturers' demands for hardwood lumber of various species, and to measure the impacts of changes in these factors; and (3) To predict future production, usage and price of hardwood lumber under four different scenarios.

Major implications resulting from fulfillment of the first objective were that wage rates and price of output of lumber demanders are the most influential factors in the production and usage of hardwood lumber. Exports of domestically produced lumber were found to influence hardwood lumber price, however, the long-run affects of a change in exports is smaller than the short-run affects. The price of hardwood stumpage was also found to affect the production, usage and price of hardwood lumber; but, the magnitude which stumpage price affects the hardwood lumber market is small when compared to the affects of wage rates and output prices.

A major implication of the analysis of wood furniture manufacturers lumber demands was that these manufacturers have a very inelastic demand for lumber as a whole but, their demands for lumber of individual species are much more price elastic. Demand for open grained lumber such as oak and hickory appeared to be more price elastic than the demand for closed grained lumber such as cherry and mahogany. One exception to this rule was the demand for maple lumber which appears to be more price elastic than the demand for any other lumber.

Projections revealed little change in production and usage hardwood lumber relative to traditional levels, if the moderate inflation which existed during the mid 1960's and early 1970's is experienced over the next 25 years. Projections also indicate that lumber production and usage will decrease by 50 percent, if the high rate of inflation experienced in 1980 continues over the next 25 years.