Return To Log: What Wood Products Manufacturing Process Generates the Highest RTL Values?

Authors: Roy Anderson, Steve Courtney, John K Kelley

Return To Log, or RTL, is an analytical tool for assessing how much economic value a manufacturing process returns to the wood fiber used as raw material. The RTL process involves tracking the total sales value of the products generated from a given volume of wood fiber and then subtracting the cost of manufacturing those products. If the difference in the sales value and the manufacturing cost is positive, the amount of that difference is the “break-even” value of the wood fiber delivered to the manufacturing facility, or the “return” to the raw material.

Many forest products businesses use RTL analysis as a tool to identify which diameter, length, quality, or species of log offers the best value in their operations. It might sound simple, but it’s a little deeper than one might think—especially when the intent of the RTL analysis is not to identify the “best log” for a certain mill, but rather to compare RTL values across different forest products manufacturing processes to see which process produces the highest RTL value.

The Beck Group is often asked to identify the most feasible forest products manufacturing process in a given region. There’s a lot to consider in answering that question, but comparing RTL values among different forest products businesses is one tool that can help. However, what makes that kind of RTL analysis tricky is that almost every forest products business uses different units of measurement for the incoming raw materials and the finished products; see the different units of measurement shown in Figure 1. This means that if the goal is comparing RTL values between businesses, all the different units of measurement for raw material volumes and costs, yields, and finished products for each manufacturing process must be converted to a common unit of measurement.

Figure 1—Each Manufacturing Process Uses Different Units of Measurement

In the following analysis, RTL values are compared among 10 different forest products manufacturing processes. For each process it was assumed that the starting volume of raw material was 1 bone dry ton (BDT)[1]. From that raw material input amount, BECK staff estimated the amount of finished products and by-products produced and their sales value. We also estimated the cost of converting that raw material into the products. Figure 2 shows the RTL results. Note all values shown in the table are on a dollar per bone dry ton basis. The product sales prices used in the analysis were from early March 2024. As the data in the figure indicate, plywood manufacturing in the US West and US South generates the largest RTL values. Surprisingly, OSB manufacturing generated the third highest RTL value. The key driver in that finding is that OSB prices are currently high, especially relative to lumber prices.

[1] A bone dry ton is a way of expressing the weight of wood after subtracting out the weight of the water contained in the wood. For example, suppose a truckload of logs weighs 25 tons. A rule of thumb is that about 50% of the weight of freshly cut trees is water. This means that the 25 tons of logs on the truck would have a bone dry weight (of the wood only) at 12.5 tons.

Sawmilling in the US West generated the fourth highest RTL value while sawmilling Southern yellow pine lumber was considerably lower. Key drivers in the lumber RTL values are that lumber market prices are relatively weak while lumber manufacturing costs, especially labor, have risen significantly since the COVID pandemic. The figure also shows that several of the other technologies generate high sales values, but also have high manufacturing costs, resulting in lower net RTL values. These include bundled firewood and bagged shavings. Western whole log chipping (WLC) and export pellets are estimated to have the lowest RTL values.

Figure 2—Estimated RTL Values Among 10 Forest Products

Manufacturing Technologies as of March 2024

Similarly, Figure 3 shows another scenario—the RTL results for lumber, plywood, and OSB based on market prices during the market spikes experienced during COVID (Q2 2021). The modeling assumptions about yields and costs were left unchanged. As the data in the figure indicate, during the COVID market price spike period, these businesses generated extremely high RTL values. It also shows that during that period, the RTL values for SYP lumber were much higher than they were in March of 2024. Thus, it is important to note that changes in market prices, yields, and costs can have a major impact on RTL values.

Figure 3—Estimated RTL Values Among Selected Forest Products Manufacturing Technologies During COVID Market Price Spikes

The analysis demonstrates that calculating RTL values can be a useful tool to identify what type of forest products manufacturing process returns the highest value to the raw materials. Thus, it can be used to aid in the process of deciding what type of forest products manufacturing business may be most feasible at a given location. Of course, many other considerations also come into play, such as amount of capital available to start the business, the availability of the appropriate raw materials in the region, proximity to market, etc.

Another important conclusion is that while many view small diameter roundwood as a low-value material, manufacturing processes exist that can transform it into high value products such as OSB, bundled firewood, bagged shavings, and post-and-pole products. However, for businesses such as firewood bundling and bagged shavings, the costs of manufacturing are also high. Still, those types of businesses are often small-scale, family-owned-and-operated entities. There may be opportunities to lower manufacturing costs for those types of businesses by investing capital to increase yields, reduce labor, and increase productivity. In BECK’s view that is a possibility well worth investigating, since those types of businesses can significantly enhance the ability of forest managers to carry out management treatments aimed at improving forest health and mitigating wildfire risk.

Finally, even if a certain process has a low RTL value relative to other businesses, it could still support a profitable business so long as the market price for that business’s raw material is lower than the RTL value. In other words, suppose a process has an RTL value of $50 per BDT, which would be one of the lowest RTL values among the processes considered here. If that business’s delivered raw material cost were only $15/BDT, it could possibly be a more profitable businesses than some of the other processes considered that have higher RTL values, but that also operate in more competitive raw materials markets.

Do you know where to start determining your operation’s RTL? If you’d like some help, we at The Beck Group do this all the time. Our consulting team can help you implement the most credible and realistic determination of RTL values. Our staff has well over a century of combined industry experience.

Reach out to us at info@beckgroupconsulting.com today, or call (503) 684-3406. We’ll route you to the appropriate consultant and figure out how best to help you achieve your business goals.