|GUIDELINES for||. . .|
|Developing Stand Density Management Regimes|
The price of lumber is determined by the interaction of international lumber supply and demand forces. The market for lumber is relatively competitive and includes many buyers and sellers, with firms acting as price takers. The demand for lumber is considered a derived demand since the product is not directly consumed by households, but rather it is consumed indirectly in the production of housing and other products. Thus, the demand for lumber is derived from the demand for finished goods such as housing.
The U.S. is the major market for lumber in North America, so lumber prices are in U.S. dollars. The price Canadian producers receive is therefore determined by international market factors plus the current Canada/U.S. exchange rate. The difference in the exchange rate tends to amplify changes in U.S prices. For example, Figure A1-1 illustrates the general trend for rising lumber prices over the period 1960 to 19958 relative to changes in the Canada/U.S. exchange rate.
Figure A1-1. Trends in lumber prices (western spruce-pine-fir, kiln dried, standard and better, 2x4, random length lumber).
The effects of inflation must be removed in order to determine if a real price increase has occurred. This can be done by expressing real prices in constant dollars for a selected year (the base year), to which the prices in other years are adjusted using a suitable price index.
The prices in Figure A1-1 were therefore converted to Canadian $/thousand board feet (MBF), and adjusted using the consumer price index (CPI) for Canada to reflect constant 1995 dollars. The results of the conversion are shown in Figure A1-2. Note that real price fluctuated between $226-594/MBF with an average of $380/MBF over the period shown. No obvious trend is indicated by the diagram although it does show the extreme volatility of lumber prices over time. This volatility would be even greater if monthly prices were graphed. The lack of any trend in the graph indicates that although, on average over the period shown, the nominal prices have increased with inflation, there has been little or no change in real prices.
Figure A1-2. Trends in real lumber prices in constant 1995 Canadian dollars (western spruce-pine-fir, kiln dried, standard and better, 2x4, random length lumber).
Figure A1-3 shows the fluctuations in the price of structural dimension lumber in constant 1995 Canadian $/MBF for western spruce-pine-fir (SPF) kiln dried, standard and better, random lengths lumber. Not surprisingly, the price trend for each dimension tracks one another quite closely. This is more clearly demonstrated in Figure A1-4 which shows the variation in the ratio of the price of western spruce-pine-fir for each dimension relative to the price of 2x4s.
The ratio for 2x6 and 2x8 lumber fluctuated around 1.0 and averaged 0.97 and 0.99 respectively over the period shown. The ratio for 2x10 lumber varied between 1.1 and 1.3 with an average of 1.19 over the period shown.
Figure A1-3. Trends in lumber prices by dimension (1995 Canadian $/MBF).
Figure A1-4. Ratio of price of western SPF kiln dried dimension lumber relative to the price of 2x4 lumber.
Copyright 1999 Province of British Columbia