X L I B RARY OF THE U N IVERSITY OF 1LLI NOIS 630.7 U6b 7)0.676-700 NOTICE: Return or renew all Library Materials! The Minimum Fee for each Lost Book is $50.00. The person charging this material is responsible for its return to the library from which it was withdrawn on or before the Latest Date stamped below. Theft, mutilation, and underlining of books are reasons for discipli- nary action and may result in dismissal from the University. To renew call Telephone Center, 333-8400 UNIVERSITY OF ILLINOIS LIBRARY AT URBANA-CHAMPAIGN L161 O-I096 30.7 TIMBER PRODUCTS MARKETING in the Claypan Region of Illinois I. I. Holland Bulletin 689 University of Illinois Agricultural Experiment Station CONTENTS The Concept of Marketing 3 Objectives and Scope of the Study % 4 Conducting the Study 6 The Forest Resources of the Claypan Region 8 Lumber Production 10 Lumber Distribution 12 Raw Material Concentration 15 Manufacture and Marketing of Other Forest Products 29 Evaluation and Conclusions 36 Summary 40 The author wishes to acknowledge his indebtedness to the many people who cooperated in the conduct of this study. He washes to express special thanks to James M. Clayton, who conducted the field work in 1960, and James R. Wiltjer and Raymond M. Urbanski, who conducted the field work in 1961. Urbana, Illinois December, 1962 Publications in the Bulletin series report the results of investigations made or sponsored by the Experiment Station TIMBER PRODUCTS MARKETING in the Claypan Region of Illinois By I. I. HOLLAND, Associate Professor of Forest Economics CROP PRODUCTION AND CROP MARKETING ARE SUBJECTS THAT HAVE received much study in Illinois over the years. Without doubt both producers and marketing agents have benefited greatly from this re- search. The people of the state generally have benefited also, for better agricultural crop production, processing, and marketing have con- tributed significantly to higher wages, salaries, and earnings in this sector of the economy. Timber growing, processing, and marketing, on the other hand, are areas of the state's economy that have not been well studied. In spite of the fact that 89 percent of all w r oodland owners in Illinois are farm- ers, the state's forests do not contribute greatly to either farm or industry earnings. There is no simple explanation for this state of affairs. Forest management is not yet widely practiced on Illinois woodlands, and for this reason neither existing nor potential markets for woodland products can be well supplied. On the other hand, be- cause there are no extensive markets in Illinois for the kinds of prod- ucts that can be made from native timbers, few forest land owners are encouraged to undertake better forest management practices. Yet the potentials for timber growing, processing, and marketing appear to be large. How to break what seems to be a vicious circle through improving market potentials for native timber products and encouraging better forest management on the state's numerous farm and other woodlands is an engaging question. It is probable that over time both problems will have to be solved together. One good way to begin working in this direction is to learn something about the extent and functioning of the present woodland products marketing systems of the state. The Concept of Marketing Marketing is frequently thought to be an activity associated only with the exchange of commodities between producers and consumers, an activity quite separate from basic production of the commodities themselves. Such a concept is unduly restrictive. The marketing process may include price determination, market reporting, advertising, risk bearing, the provision of transportation, and other services such as 4 BULLETIN 689 [December, credit, commodity measurement, storage, concentration, and dispersion, as well as exchange facilities. Furthermore, it is not even easy to determine where basic production ends and marketing begins. The prime purpose of marketing is, indeed, to help bring about the exchange of a commodity between its producer and the consumer. Presumably, consumers buy particular commodities because they satisfy certain wants. Part of the usefulness of a commodity is provided in its actual manufacture; the rest is provided for in its marketing. Mar- keting can make a commodity more useful by changing its form to one more desired by consumers and by making it available where and when consumers want it. We say that the utility or usefulness of the com- modity is increased by marketing. Thus, in a sense, the marketing process is also a production process. Marketing in forestry is a particularly important activity because, before it can be truly useful, wood must ordinarily pass through nu- merous stages between the tree and the final product. These stages are frequently handled by different people or firms, and the way the ex- changes between these firms are made determines to a considerable degree the smoothness and efficiency of the whole forestry process. Finally, because wood must be handled by so many different firms, and because the ultimate consumers are usually separated by long distances from primary producers and raw material supplies, marketing costs make up a significant part of the total price paid by the consumer. Objectives and Scope of the Study This study has two primary objectives: 1. To describe, as a first step in the study of forest products market- ing, the structure and the working of the prevailing forest products marketing system in a particular but relatively large area of Illinois the claypan region. 2. To uncover, as far as possible in a descriptive study, any major problems which adversely affect the marketing of forest products from this area. Available time and funds did not permit a forest products market- ing study covering all of Illinois, despite the desirability of such an undertaking. The claypan region was one of several areas chosen to insure geographical representation in a regional forest products market- ing study of the North Central Region. 1 1 Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Ohio, and Wisconsin as well as Illinois participated in the North Central Regional Marketing study, 1962} TIMBER PRODUCTS MARKETING IN THE CLAY PAN REGION LEGEND WOOD PRESERVING PLANTS ffey PULP 8 FIBER MILLS COOPERAGE MILLS A VENEER MILLS SAWMILLS Location of the primary wood processing industries of the claypan region. (Fig. 1) Within the claypan region (Fig. 1) not all wood processors and handlers are known. Thus although the locations of the important sawmills and all stave mills, veneer, and pulp and paper plants were known and visited, there are no accurate and complete lists of timber buyers and sellers, or producers of logs. It was impossible to sample intermediate agents and producers statistically. (See page 6 for definitions of these market agents.) This means that conclusions reached in this study apply to the sample only. Furthermore, even though one may draw inferences from this study that might apply in other areas of Illinois, the study results actually apply only to the claypan region. "Marketing Timber Products in the North Central Region" (NCM-27). This cooperative study was supported by regional funds provided under Title I, Section 9, of the Bankhead-Jones Act as amended in 1946, which authorizes cooperative research by state agricultural experiment stations, and the Hatch Act as amended in 1955. The claypan region consists of the following counties of Illinois: Bond, Calhoun, Clark, Clay, Clinton, Crawford, Cumberland, Ed- wards, Effingham, Fayette, Greene, Jasper, Jefferson, Jersey, Lawrence, Macoupin, Madison, Marion, Monroe, Montgomery, Richland, St. Clair, Shelby, Wabash, Washington, and Wayne. 6 BULLETIN 689 [December, Conducting the Study The basic information for the study was collected through 128 detailed field interviews during the summer months of 1960 and 1961. Information on the manufacture and marketing of veneer, cooperage stock, pulp and paper, and wood preservation products was collected in 1960, and the data refer to 1959. The sawmill industry was examined during 1961, and these data refer to 1960. Table 1 shows how the 128 field interviews were distributed among the several forest industries and their related market agents. The several market agents referred to throughout this report are defined as follows: Primary manufacturer. A firm which uses or processes round- wood such as logs, pulpwood, stave bolts, posts, poles, and piling. Intermediate marketing agent. A firm or person who buys and sells round timber products (such as bolts and logs) without sub- stantially changing their form. Commission men or brokers would be included in this category. Contractors who do logging or hauling are not intermediate agents if they do not take title to the material. Timber producer. A firm or person who converts standing tim- ber to a round cut product (such as logs) and sells this product. A producer may contract out the logging or hauling but retains title to the material until it is sold. Primary manufacturers who do their own logging and retain title to the timber from stumpage through the mill are actually acting as producers and intermediate agents, but in this study are considered primary manufacturers. All wood preservation plants and mills producing veneer were con- Table 1. Distribution of Sample Interviews Among the Forest Industries of the Claypan Region Industry Primary manu- facturers Timber producers Inter- mediate agent Total Sawmill 28 32 60 Pulp and paper 8 2 7 1 10 Cooperage stock 7 21 28 Commercial veneer 10 10 Container veneer 1 15 16 Wood preservation 3 1 4 Total 41 86 1 128 There are actually three pulp and paper manufacturers in the claypan region ; it was possible to interview only two of these firms. In addition the only true intermediate market agent (a pulpwood contractor) operated in the pulp and paper industry. 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION Table 2. United States Sawmills by Production Size-Class Source: Bureau of the Census 19 47 19 54 19 58 Production size-class, board feet, per year Number of mills Percent of total lumber produced Number of mills Percent of total lumber produced Number of establish- ments* Percent of total lumber produced 50,000,000 43 11.0 60 13 4 67 18 1 25,000,000 to 50,000,000. . 15,000,000 to 25,000,000. . 10,000,000 to 15,000,000. . 5,000,000 to 10,000,000. . 1,000, 000 to 5,000,000.. 500,000 to 1,000,000] 50,000 to 500, 000 [. 1,000 to SO.OOOJ All mills 122 150 181 608 . 4,467 . 47,533 53,109 12.0 8.0 6.1 11.8 25.4 25.7 100 142 226 268 636 3,537 41,060 45,929 13.0 11.8 8.8 12.2 19.7 21.1 100 169 219 326 564 3,235 27,065 31,645 18.3 12.9 8.7 12.1 20.1 9.8 100 Practically synonymous with number of mills. tacted; two of the three pulp and paper plants were covered. The sampling of sawmills on the other hand presented a difficult problem because of the lack of up-to-date sawmill lists. Actually, no survey of sawmills has been made in Illinois since 1947, although there are available estimates of sawmill numbers for the nation as a whole for 1954 and 1958, as well as 1947. Table 2 shows how the number and importance of different size of sawmills in the United States have been changing during the postwar period. It is immediately evident that the total number of mills decreased more than one-third between 1947 and 1958. Also, over this period the larger mills now account for a much greater percentage of total lumber output. Smaller mills have become much less important since 1947. In view of these trends, it was necessary to compile new sawmill lists for Illinois and the claypan region. In 1960, county agents and state district foresters who were familiar with mills in their areas cooperated with the Department of Forestry of the University of Illinois in the compilation of the new sawmill lists. Only those mills which produced 100,000 board feet or more of lumber in 1959 were included. Thus, the large number of inactive and very small mills were omitted. A large percentage of these very small mills operate only intermittently and engage primarily in custom-sawing for farm lumber needs; their output, which ordinarily accounts for no more than 12 to 15 percent of total lumber production, does not contribute significantly to the volume of commercially marketed lumber. In the claypan region, 61 mills were listed as having produced 100,000 board feet or more of lumber in 1959. By 1960, because of weak lumber prices and depressed lumber markets in general, all but 8 BULLETIN 689 [December, 36 of these mills, mostly the smaller ones, had suspended operations. It was possible to secure 28 interviews from these 36 mills. The number of sawmill interviews by production size-class was distributed as fol- lows (using a classification agreed upon by members of the North Central Regional Marketing Committee for the purposes of this study) : Class I mills (100,000 to 499,000 board feet) 14 Class II mills (500,000 to 1,000,000 board feet) 3 Class III mills (over 1,000,000 board feet) U_ Total number of sawmill interviews (1960) 28 Intermediate agent and producer lists for each industry were built up from the primary manufacturing interviews; respondents were asked to list their principle raw material suppliers. Only one true intermediate agent (as defined in this study) was found operating in the pulp and paper industry, although a number of the sawmills acted as small-scale intermediate agents when they separated high-quality logs for resale to cooperage and veneer mills. The Forest Resources of the Claypan Region The forest resources of Illinois and the claypan region do not contribute as much as they might to the economic development and growth of the state's economy. As mentioned earlier, part of the diffi- culty lies in the relatively undeveloped state of forest products market- ing, although as we have remarked, this is related back to the condition of the state's forest resources. Illinois has no softwood timber resources and must import from the west and south such woods as Douglas fir, southern pine, and ponderosa pine to satisfy very large demands for construction lumber and for this type of material in other uses. Illinois' wood-using industries consume over 2 billion board feet of lumber yearly, of which three-fourths is softwood. All the softwood lumber is imported, as is most of the hardwood lumber requirement. At the same time, the state's very substantial hardwood timber resource is badly under- utilized. Practically all of the 11.7 billion board feet of timber in Illinois is hardwood. Of this, 88 percent is in sawtimber stands. Annual net growth in Illinois forests amounts to 135 million cubic feet, including 500 million board feet. Annual cut, however, amounts to only about 40 million cubic feet, including about 110 million board feet. The claypan region with 8,487,000 acres accounts for roughly one- 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 9 fifth of the total land area of the state. Of this total, 1,356,000 acres, or 16 percent, is forest land. This region contains over one-third of all the state's total forest land. Practically all the forest land in this region carries hardwood forest of some kind. The most prevalent forest type is oak-hickory, comprising almost 49 percent of the forest area; bottomland hardwoods cover about 20 percent. Pin oak flats, mixed hardwoods, and the white oak type each account for about 10 percent of the forest land cover. Timber stands presently occur on rougher land, on bottomlands along rivers and streams, and in nu- merous small woodlands most often connected with farms. The region is characterized by nearly level to gently rolling terrain, except in limited areas along waterways where steeper slopes are found. The soil on level to rolling terrain developed from loess over strongly weathered glacial till and is of medium to low productivity. The soil on slopes or on better drained areas was developed under hard- wood forest. Most of the region is underlain by a relatively im- permeable subsoil or claypan which restricts subsurface drainage. Forest land is fairly evenly distributed over the region as a whole. All but three of the 26 counties are from 10 to 19 percent forested. Of these three, Monroe and Jersey counties are 20 to 29 percent forested; Calhoun County is 30 percent forested. These three counties lie along the Mississippi River at the western edge of the claypan region. Ninety-nine percent of all the forest land and timber volume in the claypan region is privately owned. Detailed data on forest land owner- ship in the region are not available, but some generalizations may be drawn from an examination of these data on a state basis. There are no private forest land ownerships as large as 5,000 acres. Actually, the average size of woodland is only about 35 acres, and most holdings are less than 100 acres. On a statewide basis almost 90 percent of all woodland owners are farmers; the rest are nonfarm resident or non- resident owners. By and large, the production and marketing of pri- mary forest products in the claypan region, as well as in the state, are conditioned by a complex and dispersed forest land ownership pattern. Some of the marketing problems to be found in the claypan region are directly related to this ownership pattern. The total volume of timber on claypan forest lands is estimated to be 1.3 billion cubic feet, including 3.5 billion board feet in sawtimber trees, about one-third the total sawtimber volume of the state. Of the sawtimber volume, about 72 percent is in trees 16 inches or larger in 10 BULLETIN 689 [December, diameter. Almost 55 percent of this volume is in the oaks (20 percent white oak and 30 percent other oaks). The remainder is in hickory, elm, soft maple, sycamore, ash, bass wood, cotton wood, walnut, and other species. Judging from these figures, woodland conditions would appear quite favorable for expanded woodland management and forest products marketing. In fact, average stand, volume per acre, and tree size may be quite favorably compared with neighboring central states. However, an examination of the following tabulation indicates that much of the sawtimber volume in the claypan region is of poor quality. Furthermore, most of the considerable excess of annual growth over cut is occurring on poor-quality timber. Volume Percent in log quality class 2 Species MBF 1 No. 1 No. 2 No. 3 White oak 1,013 3.5 28.0 68.5 Red oak 903 5.8 21.4 72.8 Other hardwoods 1,566 13.4 27.2 59.4 Total 3,482 8.0 25.8 66.2 The commercially important timber species have been cut more or less indiscriminately for many years. The resulting stands now contain many low-quality trees and cull trees which cannot produce high-quality lumber or other wood products. This situation, if not remedied, will hinder the development of an efficient timber products marketing system in the claypan region as well as elsewhere in Illinois. Lumber Production An official (Bureau of the Census) estimate of lumber production in Illinois for 1960 is not available, but in 1958 the state produced al- most 111 million board feet. Virtually all of this was hardwood lumber. An examination of other data, however, indicates that production of hardwood lumber in the central hardwood region (including Illinois) was the same in 1960 as in 1958. Thus it is likely that lumber produc- tion in Illinois was also roughly the same in 1960 as in 1958, or about 110 million board feet. The 1960 lumber output of the 28 mills sampled in the claypan region is shown in Table 3. Without question the sample mills pro- duced most of the lumber sawed in the claypan region during 1960. 1 Thousand board feet. *Log grades determined by specifications set forth in Forest Survey Release Number 7, Forest Resources of Illinois, U.S. Forest Service, Central States Experiment Station. 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 11 Table 3. Lumber Production in 28 Sample Mills by Mill Size-Class, 1960 Mill size-class Number of mills Production (board feet) Percent of production I.. . 14 3,060,000 13 II 3 2,560,000 11 Ill 11 18,055,000 76 Total 28 23,675,000 100 How much lumber was sawed in the smallest but unsampled mill size- class is unknown, but based on earlier estimates over the whole state, these mills probably account, at most, for only about IS percent of total production. Production of the eight mills not interviewed, most of them Class II and III mills, was probably about 5 million board feet. If so, total production in the claypan region in 1960 could easily have been in the neighborhood of 35 million board feet, or roughly one-third of all lumber produced in the state. Sawmilling in the claypan region is carried out in mills which by size-class appear to be equipped and maintained about like mills over the state as a whole. Mills which produce annually less than about 100,000 board feet of lumber (not sampled in this study) are generally poorly equipped, often with make-shift or worn equipment capable of producing only low-quality lumber, much of which is used on farms. Over the state these mills account for 12 to 15 percent of total produc- tion. Class I mills, 14 of which were sampled in this study, are also frequently underpowered, poorly equipped, and often operated only intermittently. Over the state as a whole, this class of mill has in the past accounted for as much as 50 percent of total lumber production. In the claypan region this class accounted for only 13 percent of the lumber produced by all the mills in the sample. Sawmills which produce 500,000 to 1,000,000 board feet of lumber annually accounted for about 20 percent of all production, according to the 1947 sawmill survey covering the whole state. Except for the smaller mills at the lower end of the class, these mills are better equipped, operate more steadily and efficiently, and produce better quality lumber. In the claypan region the three sample mills in this class accounted for only 11 percent of production. The largest mill size-class included mills producing over 1,000,000 board feet of lumber annually. More frequently these mills are per- manently located, well equipped, and produce lumber properly sea- soned and graded as to quality. In 1947, over the state as a whole, 12 BULLETIN 689 [December, such mills accounted for only 15 to 20 percent of total lumber produc- tion. In the claypan region 11 out of the 28 mills sampled fell into this class and accounted for fully 76 percent of the lumber produced by the mills. In general the national trends in mill numbers and realign- ment of the importance of different size mills shown in the data of Table 2 appear also to have carried into Illinois and the claypan region. The larger, more efficient mills are accounting for more production than was the case earlier; conversely, small mills are becoming less important, at least as far as market lumber is concerned. A word of caution is in order at this point regarding the classifica- tion of the sample mills by volume of production and the implication drawn therefrom. It was possible for a Class I mill containing typical small mill equipment and producing a large percentage of rough, low- grade lumber to be classed as a Class II or even a Class III mill simply because it happened to be operated for a large number of days in 1960. This problem could have been avoided had it been possible to classify the sample mills by some system that took into account capacity, type of milling and handling equipment, and plant layout. There are some basic reasons for the trend to larger mills. Labor could be substituted for machinery in small mills in earlier years be- cause of low wage rates. This is not so easy any more. Labor is expensive and is becoming more so. Labor costs per thousand board feet of lumber are rising, and a mill owner must purchase labor-saving machinery if he is to cut down on his labor costs. Rising stumpage or log costs in the postwar period also have added to the millman's troubles. A more expensive raw material must be more efficiently utilized if rising costs are to be countered; more and better machinery can help do this. Finally, lumber must be marketed in stiff competition with an increasing number of substitute materials, some of which cost less and can be put in place or used and maintained more cheaply than lumber. In order to compete, lumber needs to be well manufactured at the lowest possible cost. Larger, better equipped mills are in a more favorable position to do this than are the small mills. Lumber Distribution Over one-half of all the sample mills cut grade lumber. As one might expect, the larger mills cut grade lumber more often than did smaller ones; only 40 percent of Class I mills cut grade lumber com- pared with over 70 percent of mills in Classes II and III. A common complaint registered by many mill operators was that log quality often limits the amount of grade sawing that can be done, even when the 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 13 necessary conversion equipment is available. It will be recalled that only about 8 percent of all the sawtimber volume in the claypan region would make good-quality sawlogs; fully 60 percent of the volume belongs in the poorest quality class. It would thus appear that upgrading of hard- wood lumber in this area (as in other areas of Illinois) will be limited despite any trend toward large, better equipped mills. The basic re- source itself will have to be improved; how soon this happens depends upon how rapidly Illinois woodlands can be brought under more intensive forest management. About half of all sample mills also cut dimension stock. In this case there does not appear to be any relation between size of mill and the practice of cutting dimension lumber. Only one-third of all mills sampled cut relatively low-grade lumber suitable for rough construction and use on farms, but over 25 percent of the lumber output of mills in Class I was of this quality compared with only about 10 percent of the lumber output of the mills in Classes II and III. Only one mill (Class I) reported some production of mine timbers. Sawmill operators of the claypan region perform an important marketing function in assembling, from scattered sources, logs for manufacture. We shall discuss this activity in more detail later. Beyond the lumber manufacturing stage, sawmillers also participate in the final dispersion or distribution stages of the lumber marketing process. The output of some mills is sold within the immediately sur- rounding area; this is true particularly of very small mills whose out- puts are used almost exclusively on farms or for other local uses. The 1960 production of the 28 mills surveyed in this study was dis- tributed among the several most important first buyers as follows: Volume, Percent of MBF total volume Wholesalers 7,303 31 Manufacturers 5 ,205 22 Industrial users 4,473 19 Farmers 2 ,983 13 Retailers 2,462 10 Others 1,250 5 Total 23,676 TOO Lumber shipped to wholesalers, manufacturers, and industrial users accounted for over 70 percent of all lumber produced. Only 13 percent was sold directly to farmers, and this mostly by very small, numerous, and widely scattered mills. As noted earlier, demand for farm lumber is most frequently met by the smallest mill size-class (production less than 100,000 board feet per year). 14 BULLETIN 689 [December, Grade and dimension lumber accounted for much of the material shipped to wholesalers and manufacturers (for the most part manu- facturers of products incorporating wood as a component). Industrial users, such as steel and machinery manufacturers, purchased most of the blocking material. Although the greatest volume was shipped to wholesalers, where further grading and processing of some of the lum- ber was carried on, fully 10 percent of the total output was apparently of high enough quality to be taken directly to retailers both within and outside of the claypan region; all of this lumber was manufactured and shipped by six of the larger mills in Class III. Roughly, 45 percent of all the lumber manufactured in the study mills was sold within the claypan region; 55 percent was shipped to markets outside the region. Distribution of lumber from the claypan region. (Fig. 2) 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 15 Fig. 2 indicates in general where some of the lumber manufactured in the claypan region goes. Of course, a substantial volume is marketed in and around the claypan region, but much of the lumber shipped to manufacturers, wholesalers, and industrial users leaves the area be- cause the claypan region itself is not heavily industrialized. There are important markets for claypan lumber in and around Chicago, St. Louis, Nashville, and Memphis, and the south-central counties of In- diana. With the exception of relatively small volumes shipped to New York and Massachusetts markets, the lumber produced by the sample mills was marketed primarily within the central states area. Raw Material Concentration One of the most important marketing functions performed by pri- mary wood processors, such as sawmills, is the assembly or concentra- tion of the principal raw material (logs) for manufacture into useful wood products. Organized log or timber markets are practically non- existent, even in relatively heavily timbered regions of the nation. About one-half of the nation's sawtimber volume is privately owned; farmers, together with other nonindustry owners, hold fully 30 percent. As noted earlier almost 100 percent of the forest land and sawtimber volume in the claypan region is privately owned. Woodlots are gen- erally small and badly scattered, averaging around 35 acres in size. When this kind of an ownership pattern prevails, the marketing of logs or sale of standing timber usually is more dependent upon the buying activities of primary wood processors than on the actions of owners of timber who wish to sell. The fact that logs or standing timber are marketed at all frequently depends on the purchasing activities of primary wood processors. Sawmillers purchased most of the logs and standing timber sold in the claypan region during 1960; they constitute the most important group of wood raw material concentrators in the region. This section of the report examines the concentrating activities of the sawmill industry. The 28 study mills purchased an estimated 22.8 million board feet of sawlogs in 1960, as measured by the Doyle log rule. Not all mills kept a record of sawlog purchases by kind of timber, but it was possible to separate almost three- fourths of the volume (16.7 million board feet) by species: 16 BULLETIN 689 [December, Volume, Percent Species MBF of total Oaks 8,378 50 Maple (mostly soft) 4,273 26 Cottonwood 1 ,548 9 Elm 598 4 Sycamore 550 3 All others 1,365 8 Total 16,712 100 The oaks, especially white oak, and maple (almost entirely soft maple) were the most important species purchased. Together, these species accounted for over three-fourths of the total log volume receipts. Sawlog purchases appear to be keyed to the rate of production (Fig. 3) ; both activities show a seasonal pattern for most mills. Many mills, particularly the mills in Class I, do not keep detailed records, and therefore data on lumber production, sawlog or timber purchases, and inventory volumes were generally unavailable. However, most mill operators were readily able to distinguish high operating months from those of lower activity. The upper part of Fig. 3 shows a seasonal pattern for major sawlog receipts and greatest lumber production. Un- fortunately, the data are in terms of number of mills, not in volume of logs or lumber, but the implications are much the same. Most reporting mills considered July, August, September, and October as the months when most lumber was produced and sawlog receipts were the heaviest. Very few mills sustained high production into the winter and early spring months. A few mills operated at about the same level all year round. Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Sawlog receipts and inventories, claypan region. (Fig. 3) 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 17 The lower half of Fig. 3 shows a similar seasonal pattern of sawlog inventory build-up. Actually, many mill operators purchased sawlogs only for short storage according to lumber production activity and built up log inventories only to sustain lumber production at some level during the winter and early spring months. Sawlog receipts and inven- tory build-up are thus pretty much keyed to timber harvesting and hauling conditions; these in turn are governed by weather conditions which are not often favorable during the winter and spring months. Lumber production is thus seasonal for most mills. Actually, many mills could operate at higher levels during the winter and spring months if inventories could be built up high enough during the fall months. However, most log purchases are governed by anticipated production of lumber which can be marketed within a short period after manufacture. Apparently not many mills in the claypan region can afford to carry large inventories of logs. Nine mills acted as intermediate agents in that they segregated out of their regular sawlog receipts particular logs of high veneer or stave-bolt quality. These logs were held for later resale to veneer mills and plants producing cooperage stock. Only about 265,000 board feet of logs were resold in this way during 1960. In some marketing regions the role of the independent intermediate agent is important in the marketing chain. In the claypan region no such agents were found. Although some sawmills of the region apparently operate as inter- mediate agents occasionally, the practice is not widespread and the volumes involved are not important. Sawlog Sources and Procurement Methods The study mills of the claypan region draw their sawlog supplies almost entirely from the woodlands of the region; no out-of-state receipts were recorded, and almost no purchases were made outside the region during 1960. In general sawlog sources are found from 10 to 100 miles from the mill locations, depending on mill size. There appears to be the usual relationship between size of mill and maximum radius of sawlog procurement areas as is shown by the following tabulation: Mill Radius of operations size-class (in miles) Class 1 10-50 (average 22) Class II 20-45 (average 30) Class III 20-100 (average 49) 18 BULLETIN 689 [December, Larger mills can and do reach out further for sawlogs than do the smaller mills in order to meet their larger raw material needs. Of interest is the fact that all but two mills in Class III have noted a decline in available timber in their more immediate supply areas over the last five years. For this reason they need to go further for sawlogs. Of the 17 mills in the two smaller size classes, only one mill reported the need to extend its supply line distance. Longer hauls mean higher transportation costs per thousand board feet of logs. Higher costs can mean less net return for the mill or producer, or lower returns to the timber owner when he sells his timber on the stump or as logs. Ninety percent of all logs came from farm woodlands, 3 percent from lands owned by the mills themselves, and 7 percent from other privately owned woodlands. With very few exceptions, there have been no changes in this pattern over the past five years. Because of a relatively stable land ownership pattern in the region, it is likely that the ownership of sawlog sources will change only slowly over time. Sawmillers must continue to depend upon timber from farm woodlands, and the growth, indeed the very survival, of the lumber industry in this area will depend to a major extent upon the management of timber on these woodlands. A small percentage (3 percent) of the total volume of logs received at the 28 study mills during 1960 was produced by mill labor on mill- owned woodlands. Over a third (36 percent) was produced by mill labor, but the logging was done on other private woodland; 61 percent was purchased from independent producers (mostly farmers). The following tabulation shows that the smaller mills did more of their own logging, while the larger mills apparently found it more practicable to purchase the major part of their log supplies outright from producers. Where mills did their own logging, they almost invariably also did their own hauling of the logs to the mill. Logging by mill Logging by Logs pur- Mill labor on mill labor on chased from size-class nonmill lands mill-owned lands producers Percent of total mill receipts 1 64 2 34 II 37 63 III 32 2 66 A later section of this report will deal with the problems of pro- ducers in more detail, but it may be noted here that this group of market agents apparently depends upon the larger mills for log sales to a major degree. Of the total volume of wood receipts at all mills 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 19 in the study, 57 percent (13,911,000 board feet) was purchased in the form of logs delivered to the mill or at roadside; 43 percent (9,985,000 board feet) was purchased as stumpage (standing timber). What happens to the large-mill sector will govern to a significant degree the outlook for expanded harvesting and marketing of timber from farm woodlands by farmers themselves. The difference in returns to the woodland owner between the sale of his timber as stumpage or as cut products (logs) at roadside can be as much as 10 or 15 dollars per thousand board feet. Where the woodland owner utilizes his own or family labor to do the logging, presumably during slack farming periods, the returns to labor can be attractive. Furthermore, the oppor- tunity to market timber, preferably as cut products where this can be done, contributes to higher total farm income and will often be an inducement to practice more intensive forest management. Judging from the sawlog purchasing practices of the study mills, between 55 and 60 percent of sawlog purchases were made without contractual agreement in any form. Only about 5 percent of the total sawlog volume involved was purchased under written contract; almost 35 percent was covered by oral contract. To a considerable extent this pattern was followed by both large and small mills, although the rea- sons may be different in each case. The sawlog purchases made by small mills are frequently arranged within the mill "neighborhood," so to speak, and on a casual basis. Contracts, either oral or written, are not deemed necessary or even desirable by either the buyer or the seller of the logs in many cases. In the case of larger mills, purchases are frequently made at the mill when logs are delivered. A number of operators of larger mills expressed satisfaction in buying logs without prior arrangement because it allowed them considerable latitude and independence so far as log volumes, species, and qualities were con- cerned. In some cases sellers brought logs to mills because they under- stood the mills were buying. Such sales, of course, are made on the spot without prior agreement of any kind. Log purchasing contracts, whether oral or written, are quite definite as to method of payment, usually specifying cash, and time of payment. In other respects such as species, amount, and time of delivery, some contracts were specific, but others were indefinite. Although quality specifications appeared in almost all contracts, in only one instance was the use of a specific log-grading system (Purdue) required; more fre- quently, quality specifications are based on some system devised by the buyer himself. The development and use of informal log-grading sys- tems which are much less strict in their specifications may very well 20 BULLETIN 689 [December, stem from the over-all quality of available logs; Illinois timber stands are in great need of up-grading from the quality as well as the volume standpoint. Small mills appeared to be more willing to accept smaller diameter logs (12 inches or larger) than the mills in the larger size-class (logs 14 inches or larger). Of all mills using contracts, whether written or oral, only one stated that the contracts negotiated by his firm were binding on both parties. All the others stated that contracts were not binding. It is questionable whether vaguely worded, nonbinding con- tracts add much to orderly and efficient marketing of sawlogs. Because misunderstandings of one kind or another can arise in connection with logging operations on private lands, mill owners, both large and small, attempt to cover their stumpage purchases and logging plans by a contract of some kind. On a volume basis fully 78 percent of the stumpage purchased by all mills in the study was covered by written contract and 22 percent by oral contract. The following tabula- tion indicates that the larger mills, which, of course, also account for the major portion of stumpage purchases, negotiated written contracts more often than did the smaller mills: Mill size-class I Percent of stumpage volume covered by written contract 38 Percent of stumpage volume covered by oral contract 62 II 100 III.. 86 14 In contrast to sawlog purchase contracts, contracts to cover stump- age purchases and logging operations tend to be more specific, although not necessarily any more binding. The species of timber and volumes to be harvested are almost always specified. Mills, regardless of size, usually wish to restrict their cutting operations to the larger, more valuable trees (unless a lump-sum sale is involved) ; minimum diameter limits from 14 to 16 inches measured at a stump height of one foot are usually specified. It is interesting to note that timber buyers and log producers in the claypan region are almost universally unfamiliar with the common practice of measuring tree diameter at breast height (DBH). Instead, measurements are made at stump height, usually one foot above the ground, the reasoning being that the cut which severs the tree is made at this point. Unfortunately, because of butt swell and other lower-trunk irregularities, diameter measurements made at stump height may not reflect very accurately tree volumes. In some cases 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 21 adherence to stump diameters of 14 or 16 inches can work to the dis- advantage of both the woodland owner and the timber buyer, for even though a tree may be over the accepable minimum diameter limit at stump height, it may be considerably smaller at breast height. Adherence to a minimum diameter limit frequently results in removal of only the very best trees in the stand. Other trees that should also be removed at the time of logging to improve stand com- position and stocking are left. Stand quality tends to fall in time, and procedures of this kind in the past account to a large degree for the low quality and poor species composition of many Illinois woodlands today. Almost all of the mills in the study purchased stumpage in varying amounts during 1960, and these purchases were covered by either oral or written contracts. About 40 percent of the mills in Classes I and II used mostly oral contracts covering lump sum sales; about 30 percent contracted orally to pay for the timber on a log scale basis. The re- mainder used both oral and written contracts to purchase some timber on a lump sum basis and some on a mill scale basis. Eighty percent of the mills in Class III purchased timber under written contract; 20 per- cent used both written and oral contracts. Only 20 percent of these larger mills purchased timber on a lump sum basis, all the others pre- ferring to pay for their timber according to scale, size, and quality. Where timber is purchased on a lump sum basis, the buyer may or may not make an accurate cruise to determine timber volume, grade, size, and hence some estimate of the value involved; in many cases he makes no cruise at all, merely estimating the volume in the stand. In these cases the woodland owner may not receive an equitable return from the sale of his timber; indeed, it is all but impossible to determine the price received per unit of volume. Where timber is paid for at the mill after the stumpage has been cut and made into logs, the woodland owner is in a better position to receive a fair return because he can check the log scale. When stumpage buyers accurately measure the volume of timber to be purchased before cutting and both buyer and seller under- stand the details and specifications of the transaction, lump sum sales relieve the seller of having to check species, grades, and volumes cut as the logging progresses. Contractual agreements between woodland owners and timber buy- ers in mill size-classes I and II rarely made provision for safeguarding young trees in logging, disposal of slash after logging, or other impor- tant management practices. However, where woodland owners insisted, loggers supposedly attempted to keep out of muddy fields, were careful of reproduction, and kept roads and streams clear of logging slash. 22 BULLETIN 689 [December, In contrast, contractual arrangements between owners and timber buyers associated with the mills in Class III almost always stipulated in addition to prices, volumes, tree sizes, and species, certain provisions to safeguard young trees, removal of large cull trees, slash disposal, and clearing of roads and streams of logging slash. Producers of cut products frequently initiate sawlog sales. This was found to be true also in the claypan region during 1960. Fully 85 percent of mill receipts purchased as logs delivered to the mill in- volved sales initiated by sellers; only 15 percent of such purchases were initiated by the mills. In this regard there appeared to be no difference between sellers dealing with the smaller mills and those dealing with the larger mills. As was pointed out earlier, owners of small woodlands frequently assume a passive role as far as stumpage sales are concerned; the mills very often initiate timber sale negotiations. Of the total wood volume purchased during 1960, however, only about 40 percent involved sales initiated by the mills and fully 60 percent involved sales initiated by woodland owners themselves. With only the record of 1960 to examine, it is not possible to say whether or not this pattern is typical of stump- age sales in the claypan region. Lumber production in the region was lower in 1960 than in the years immediately preceding. It is possible that both sellers of cut products and owners of stumpage faced a "buyer's" market. If so, persons owning merchantable timber probably sought buyers (mills or producers) more often than usual. In more highly developed forest marketing areas, primary proc- essors of forest products frequently assist their raw material suppliers by extending credit, providing equipment, offering forest management assistance, or in other ways. None of the study mills in Class I ex- tended credit to their producer suppliers; one mill in Class II offered this service occasionally, as did about one-half the mills (7) in Class III. Similarly only 4 mills (all large) of the 28 interviewed ever offered their producer suppliers the loan or temporary use of hauling or logging equipment. One mill offered to sell their suppliers chain saws at reduced prices and provided repair service for this equipment. None of the mills provided direct forest management assistance to their stumpage suppliers. Prices and Costs of Raw Materials Prices paid to producers for logs delivered to the mill are shown in Table 4. Actually some of these mills reported a range of prices paid for each kind of log. In order to avoid confusion, only maximum prices paid are shown. These data do not permit precise price com- 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 23 Table 4. Maximum Prices Paid for Logs Delivered to the Mill by Selected Sawmills of the Clapyan Region, 1960 Price pei thousand aoard feet Mill Number Oak Cotton- wood Soft maple Syca- more E 1m 1 #50 $35 #50 #35 2 25 25 3 35 25 60 4 40 5 50 6 . 40 7 . 30 35 65 8 45 35 45 9 40 40 50 35 $: i5 10 35 35 11 75 50 60 55 * ts 12 . . . . 30 30 40 (0 13 35 45 35 : 55 14 . 75 50 70 50 \ 50 15 45 40 70 40 parisons between species or computation of price averages. However, it is possible to examine price variation by mills. Prices paid for soft maple appear to be generally higher than prices paid for any other species; prices paid for oak are next highest. Variations in prices paid for elm, cottonwood, and sycamore logs appear to be about the same among the several mills studied. It is not likely that price variation among mills for any given species arises because of price competition, although timber is more available in some areas than in others. Of all the mills studied, only two said that log prices were established on the basis of negotiation between the mill and producers. In all other cases purchases were made at mill-offered prices. Log price variations can be attributed more logically to differ- ences in log size and quality, or to other reasons such as whether or not mills paid producers in advance of delivery or loaned equipment to the producer. Some mills appeared to pay higher log prices for all species (note Mills 11, 14, and 15 in Table 4). These were mills in Class III, where log quality and size considerations were more impor- tant, and only better grade logs were purchased. Mill operators in the claypan region apparently do not consider long-haul costs in the prices they offer for delivered logs, paying only an over-all price premium to cover hauling costs regardless of distance. It was noted earlier that log-haul distances can vary from 10 to 100 miles. Mills doing their own logging, however, estimated minimum hauling costs to be $10 per thousand board feet of logs; estimated 24 BULLETIN 689 [December, Table 5. Maximum Prices Paid for Stumpage by Selected Sawmills of the Claypan Region, 1960 Price per thousand board feet Mill Number Oak Cotton- wood Soft maple Syca- more Elm 1 ... 315 310 10 10 io is 8 is 20 15 10 13 10 20 13 10 35 25 25 310 10 io 25 20 15 10 io 20 15 2 10 3. . 20 4. . 10 5 10 6 . 20 7 ... 10 8. 15 9 25 10 11 20 12 10 13 30 14 15 50 16... .20 maximum costs ran as high as $16 per thousand if logs were hauled long distances. On the average, hauling costs were estimated to be $11 per thousand board feet, or about 75 cents per thousand board feet per mile. Log producers may or may not consider hauling costs specifically in deciding where to sell their logs. When they do, the tendency is to sell logs to mills which are not too distant from timber sources; when they do not, costs of hauling must be absorbed elsewhere, as in stumpage prices. Table 5 shows for the same species listed in Table 4 the average stumpage prices paid by sawmills doing their own logging. As with logs delivered to the mill, soft maple and oak appear to bring the higher prices. Also as before, the larger mills generally paid more than the smaller mills for any particular species. Differences in stumpage prices paid by mills are more difficult to explain than differences in delivered log prices for any particular kind of timber. Some of the principal factors affecting the price paid for stumpage at any particular time and place are: 1. Volume per acre of standing timber. 2. Timber size and quality. 3. Expected logging and hauling costs. 4. Expected costs of milling. 5. Anticipated price of lumber. 6. Bargaining position of the buyer and seller. 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 25 Stumpage price for any particular kind and quality of timber tends to be residually determined, i.e., it is the difference between the selling price of lumber (if this is the principal processed product) and the costs of logging, milling, and hauling, plus the mill operator's margin for profit and risk. This residual may or may not compensate the owner of the timber for any production costs involved in growing timber or in holding it if no production costs are involved. Logically, unless stumpage price covers such costs over the long run, timber owners will not grow or hold timber. There is no evidence that these costs influence the prices paid for stumpage in the claypan region. Although timber-growing costs are not applicable in the majority of cases, hold- ing costs in the form of taxes are. Of the two important factors (1) expected selling price of lumber which can be made from the timber, and (2) the relative bargaining position of buyer and seller, the latter is very often the most important in determining stumpage price. Of the study mills contacted in the claypan region, only 45 percent said stumpage sale prices were the result of negotiation between the mill and seller most of the time; 55 percent said that sale prices as offered by the mill were accepted without negotiation most of the time. These data also indicate that the larger mills negotiate timber prices with timber sellers more often than did the smaller mills. This may indicate that some timber owners are aware of the value of their better quality trees, are generally better informed on marketing possibilities, and insist on negotiation with buyers seeking such timber; these are usually the larger mills. Mills doing their own logging (including felling, limbing, bucking, and skidding) reported logging costs from $6 to $25 per thousand board feet; average cost among all the mills was about $12.25. Such large variation is indicative of the wide differences in timber stand con- ditions to be found in the claypan region. The major factors which contribute to differences in logging costs in this region are ( 1 ) number of trees per acre or stand density, (2) tree size and degree of limbiness, (3) volume of timber per acre, and (4) species composition. Topog- raphy probably does not influence logging costs in this region except in limited areas near streams where the land may become steep or broken. Because of the small size of most woodland areas, costs of building roads and other logging development and overhead costs are very low or nonexistent. Sawlog Producers As noted earlier, over 60 percent of study mill sawlog receipts in 1960 originated with independent sawlog producers; the importance of 26 BULLETIN 689 [December, these agents in the marketing of timber products in the claypan region is self-evident. A producer may cut logs under contract with one or more mills, or he may produce logs for sale without prior contractual arrangement. He most frequently takes care of the logging and hauling services connected with the primary marketing phase of timber prod- ucts manufacture. In the claypan region most producers apparently perform all logging and hauling services, but in some other regions one or more of these functions is often contracted out. The total number of producers operating in the claypan region is actually unknown. Thirty-two producers were interviewed in this study, but undoubtedly this does not cover even all of the major pro- ducers who sold logs in 1960. Producers' names were secured from sawmill operators. There may have been a tendency for mill owners to list only their larger or more reliable producers. For various reasons, not all listed producers could be located, and probably those who made only one sale or a small sale were not listed at all. Just how large a bias is introduced because of these difficulties is hard to estimate. The compilation of complete and up-to-date log-producer lists which could be used as a reliable source of information is probably impractical if not impossible except at great expense. Whereas some producers, particularly the larger ones, operate more or less continuously, many consider log production as a part-time endeavor and are transient opera- tors. It is believed that the producers interviewed for this study were the larger, more active ones; their efforts probably accounted for the major part of all logs not produced by the sawmills themselves in 1960. Of the 32 producers interviewed, 15 stated they were in the log- producing business full time; 17 were part-time producers who farmed or earned wages elsewhere in addition to making logs. By 1960, 19 producers had been operating for 10 years or less, 8 for a period of 10 to 15 years, 3 for 15 to 20 years, and 2 for over 20 years. One producer had been in business for 30 years. Sawlogs were by far the most important primary forest product produced. All 32 producers cut sawlogs, but in addition 9 cut veneer logs and 11 cut stave bolts. Six producers cut all three products. In addition to sawlogs, two producers cut piling and one cut pulpwood. The sawlog producer in the claypan region is typically a small operator, using for the most part only his own labor and sometimes one or two others; often additional help is recruited from the operator's family. Every sawlog producer but two purchased and cut timber on private farm woodlands other than his own in 1960. Seven producers cut tim- ber on nonfarm as well as farm woodland. Despite the fact that the 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 27 Table 6. Maximum Prices Paid for Stumpage by Producers in the Claypan Region, 1960 Price per thousand board feet Producer Cotton- Soft Syca- No. Oak wood maple more Elm 1.. . #10 $10 #20 2 10 10 10 $10 #10 3 8 4 10 15 10 10 10 5 10 15 10 6 15 15 15 15 7 13 13 8 10 10 9 10 8 10 10 15 15 11 10 12 10 10 13 8 8 8 8 8 14 10 10 10 10 10 15 10 10 10 10 10 16 10 10 10 10 10 17 10 10 10 10 18 70 20 20 30 19 40 18 18 20 20 20 21 10 20 22 8 8 23 20 20 20 20 20 24 .... 10 20 25 13 26 10 27 28 20 15 29 15 20 15 30 30 31 10 10 32 .10 farm woodland is the principal source of sawlogs in the claypan region, only a relatively few of the owners of these woodlands seem to avail themselves of the returns which can be secured from these lands; this activity is left pretty much to the sawlog producer. Table 6 shows, for the same kinds of timber listed in Table 5, reported maximum prices paid for stumpage by producers in 1960. In general these prices appear to be a little less than those paid by mill operators for the same species. The very high prices paid for white oak by a few producers were most likely for oak timber suitable for veneer or stave bolts rather than for ordinary sawlogs. Producers estimated their hauling costs to be somewhat lower (about 50 cents per thousand board feet per mile) than those incurred by mill operators 28 BULLETIN 689 [December, who engage in logging; their logging costs show much less variation but averaged several dollars more per thousand board feet. Assuming that producers and sawmill operators log timber of similar density and stand composition, average differences in logging costs are probably related to differences in equipment size and efficiency. Sawmills which do their own logging are apt to own better equipment than producers who log only small woodlands or work intermittently. All but 2 producers contracted for their 1960 stumpage purchases; 20 producers made oral contracts exclusively, 3 made only written contracts, and 7 purchased timber under both written and oral con- tracts. Fully three-quarters of all oral contracts were not binding. Written contracts could be either binding legally or not. In general, contractual arrangements made by producers resemble fairly closely those made by mills in the smaller size classes so far as legal obligations and specific logging procedures are concerned. Generally, producers do not wait for mill contracts before contract- ing to purchase timber. A few of the producers interviewed knew they could sell logs whenever the logging could be done. However, most often producers contracted for the purchase of timber hoping to sell the logs when the timber was cut. Under such an indefinite sales situa- tion, it is not surprising that stumpage contracts are seldom very spe- cific or binding. Apparently most producers are able to sell the logs they cut one way or another, although it is questionable whether some- thing approaching a fair value for the logs is received in some cases where sales to mills have not been arranged prior to timber purchase. It was noted earlier that in stumpage sales to mills, land owners were responsible for initiating sales negotiations covering 60 percent of the total volume of timber purchased. In the case of producer pur- chases of stumpage, this relationship is almost exactly reversed. Pro- ducers made the initial contacts involving just over 60 percent of the volume purchased; land owners initiated stumpage sales to producers covering about 40 percent of the volume. This greater initiative shown by producers in the claypan region is consistent with the generally acknowledged action of these market agents in many other marketing areas. The failure of prices of delivered logs to reflect the cost of truck haul can work to the disadvantage of producers and in some cases contribute to poor cutting practices on woodlands. As long as the average price received per thousand board feet appears higher than out-of-pocket costs (principally stumpage, equipment operating, and hired labor costs where applicable), a producer may be more or less 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 29 satisfied. He may or may not realize that absorption of hauling charges means lower return for his own or family labor. In a number of cases producers attempt to compensate for such losses by offering lower prices for stumpage. In this case woodland owners who are not fairly well informed are placed at a further disadvantage and do not receive a fair value for their timber. Finally, there is a tendency for producers to cut more heavily than necessary those woodlands which are located close to the mill, or cut only high-grade timber, or only the more attrac- tive distant stands. Manufacture and Marketing of Other Forest Products Now we shall deal with the manufacture and marketing of forest products other than lumber. These products include staves and head- ing for cooperage, hardwood veneers for containers, pulp for manu- facture into fiber products, and preservative treated roundwood products such as poles, posts, and piling. There were no commercial or face veneer mills operating in the claypan region in 1959. The following tabulation shows the kind and number of plants that were operating that year: Number Number operating interviewed Type of plant in 1959 in 1960 Stave mills 7 7 Wood preservation plants 3 3 Pulp and fiber mills 3 2 Container veneer mills 1 1 Total T4 "13 Four of the seven stave mills operating in 1959 are located well within the claypan region ( see Fig. 1 ) ; the others are located in the eastern counties along with the only veneer mill of the region. Wood preservation is concentrated around St. Louis primarily because this area represents a large and growing market for treated wood and be- cause St. Louis is an important railroad and river transport center. The fiber mills of the claypan region are located in Madison, St. Clair, and Wabash counties close to the plentiful supplies of water necessary in the manufacture of pulp. It is difficult to compare the size and relative importance of the several kinds of mills under consideration because their products are of different form and value. However, some implications of importance 30 BULLETIN 689 [December, Table 7. Estimated Production of Forest Products Other Than Lumber by Mills in the Claypan Region, 1959 Type of firm Number of firms Production Wood preservation plants 3 2,740,000 cubic feet (treated) Pulp and fiber mills 2 45,500 tons dry weight Stave mills 7 4,713,000 staves Container veneer mills* 1 1,134,000 heading staves ( b ) Total 13 a No commercial or face veneer mills operating in claypan region in 1959. b Production figures withheld to avoid disclosures of figures for individual mill. Table 8. Number of Persons Employed in Production of Nonlumber Forest Products in the Claypan Region, 1959 Type of firm Number of firms Number employed Wood preservation plants 3 177 Pulp and fiber mills . . 2 135 Stave mills 7 213 Container veneer mills" 1 ( b ) Total 13 525 a No commercial or face veneer mills operating in b Employment figures withheld to avoid disclosure claypan region in 1959. of figures for individual mill. can be surmised from the data in Tables 7 and 8. Not counting pulp and fiber, which were used in the paper and fiber product manufactur- ing processes and not sold as such, the value of gross sales from the several wood-using industries in the claypan region (other than saw- milling) was estimated to be about 5.5 million dollars in 1960. Staves and heading material produced in claypan stave mills are sold mainly to cooperage mills in Louisville, Kentucky; Memphis, Tennessee; and Cincinnati, Ohio; only one stave mill sold all its out- put to an Illinois parent cooperage plant. Dry roofing felt, the principal product manufactured by the two pulp and fiber mills in the region, was sold to buyers in Kansas City, Missouri, and East St. Louis and Chicago, Illinois. The wood preservation industry of the claypan region sells its products over a wide area. Railroad ties are shipped to all states. The sales area for posts and poles is limited roughly to a six- state area surrounding Illinois. Wire-bound crates and veneer baskets, the principal products of the one veneer plant in the region, are sold in Illinois, Indiana, Ohio, Kentucky, and Tennessee; small amounts were shipped to Delaware, Maryland, Nebraska, Wisconsin, and Michi- gan in 1960. 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 31 Raw Material Sources Five of the seven operating stave mills kept records and reported raw material receipts of about 790,000 stave bolt feet (roughly 7.9 million board feet equivalent). Only white and burr oak stave bolts are acceptable for cooperage manufacture, and these two species are the only ones purchased by stave mills. Stave mill operators generally stated that they bought stave and head bolts according to grade. How- ever, such terms as "sound," "usable," and "free from defect" were used more often than formal grade numbers in raw material quality specifications. Actually, three of the seven stave mill operators said they bought bolts by Grades 1, 2, and 3, but indicated that personal judgment formed the basis for the grading system. Stave bolts proc- essed in the claypan region came from Illinois, Indiana, and Missouri. In general stave bolt supply areas were located 50 to 100 miles from the mills. Much of the raw material purchased by wood preservation plants is made up of other than roundwood, primary forest products. The three plants of the claypan region treated almost 530,000 cubic feet of posts, poles, and piling, but also 22.6 million board feet of sawn cross and switch ties, 3.9 million board feet of lumber, and about 49,000 board feet of mine timbers. Posts, poles, and piling are mostly pine; ties were mostly oak, but other hardwood species were also pur- chased. Both softwood (pine and Douglas fir) and hardwood (mostly oak) lumber were purchased for treatment. The wood preservation industry had the most extensive supply areas of any of the primary wood-processing industries in the claypan region. States listed as supply sources were Illinois, Indiana, Kentucky, Tennessee, Missouri, Mississippi, Arkansas, and Alabama; some of the lumber came from west coast sawmills. As with a number of secondary wood-using industries in Illinois, the wood preservation industry has had to depend on out-of-state supplies of raw materials; Illinois forests do not provide pine products in significant volume, and steady supplies of high-quality hardwood lumber, ties, and mine tim- bers are also hard to locate within the state. Posts, poles, and piling come mostly from the pine-growing states of Tennessee, Mississippi, Missouri, Arkansas, and Alabama. Whereas Illinois forests once sup- plied much of the tie stock, wood preservation plants are now making substantial tie purchases in Missouri, Kentucky, Tennessee, and Arkansas. The two claypan pulp and fiber mills contacted in this study pur- chased almost 20,000 cords of pulpwood in 1959; this was about 20 32 BULLETIN 689 [December, percent of all pulpwood consumed in Illinois in that year. Of the total volume purchased, almost 95 percent was hardwood pulpwood; the remainder was pine. Hardwoods most commonly used include bass- wood, yellow poplar, cotton wood, willow, soft maple (the soft hard- woods), oak, ash, and hard maple (the hard hardwoods). Pulp and fiber mills in the claypan region import part of their raw material needs from Indiana and Missouri. In general some hardwood pulpwood supply areas are located as far as 60 miles from the mill; pine pulp- wood sources can be as far as 100 miles away. One study mill purchased its pulpwood by weight; the other by the standard cord. Pulp yields are measured in tons. At the same time the weight of a cord of pulpwood varies, depending on wood density (which varies by species) and moisture content. More and more pulp mills are buying pulpwood by the ton rather than by the cord in order to better control raw material acquisition and insure wood fiber receipts for the money spent. The principal species purchased for container veneer in the claypan region is cottonwood, although there are others including sycamore, sweet gum, yellow poplar, elm, and soft maple. 1 Veneer log quality is important in veneer production; hence, most veneer producers buy logs according to some kind of grading system. Although the mill interviewed for this study used the Purdue Log Grading system, 2 this is probably not the common procedure. Most veneer log purchasers judge grade on the basis of past experience and knowledge of what kind of raw material is required in their particular veneer manufactur- ing operations. Log size is also more important in veneer manufacture than in other primary wood manufacturing processes. Veneer manufacturers prefer larger logs which will yield more clear veneer. In general, logs must 1 For a description of the veneer container industry, see C. S. Walters, The Illinois Veneer Container Industry, University of Illinois Agricultural Experi- ment Station Bulletin 534, October 1949. 'The rules for the Purdue Log Grading system are briefly stated as follows: Prime Grade. Practically (90 percent) surface clear on three visible faces. Must be 16 inches or larger in diameter inside the bark. No. 1 Grade. At least three-fourths (75 percent) of length on three visible faces must be surface clear in one cutting. Must be at least 14 inches in diameter inside the bark. No. 2 Grade. At least one-half (50 percent) of length on three visible faces must be surface clear in two cuttings, neither of which is less than three feet long. Must be at least 10 inches in diameter inside the bark. No. 3 Grade. Will not meet No. 2 specifications. Source: A. M. Herrick, How to Grade Hardwood Sawlogs, Purdue Uni- versity Extension Bulletin No. 346, 1949. 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 33 be at least 16 inches in diameter at the small end and 10 feet or more in length. Because large quality logs are not found locally in quantity, veneer log sources tend to be scattered and located sometimes as far as 100 miles from the mill. It was noted earlier that sawlogs come mostly from the farm wood- lands of the claypan region. This is also the case for pulpwood, veneer logs, and stave bolts. Only one percent of the staves produced in 1959 came from mill-owned lands, 93 percent from farm woodlands, and 6 percent from other private woodlands. Ninety percent of all veneer logs and bolts came from farm woodlands; 10 percent originated on other private woodlands. Eighty-three percent of all pulpwood purchased by the study mills originated on farm woodlands, 16 percent on public lands, and the remaining one percent on nonfarm private woodland holdings. The pulpwood coming from public forest land was pine, presumably from national forest lands in southern Indiana. Fully 38 percent of wood treated in claypan wood preservation plants came from public lands outside the state. Thirty-two percent originated on nonfarm private woodlands, 29 percent on farm wood- lands, and only one percent on lands owned by the plants themselves. Raw Material Procurement Methods The following tabulation shows the relative importance of the several raw material procurement methods used by the nonsawmilling industries in 1959: Logged off own Industry lands Stave mills Pulp and fiber mills Wood preservation plants 6 Veneer mills The importance of independent producers is again readily apparent. As with the sawmilling industry very little logging is done on mill-owned lands (probably because most firms do not own timberland). In other regions where pulpwood marketing is more highly developed, the pulp- wood dealer is frequently the principal agent between the mill and the pulpwood producer. It is interesting to note that in the claypan region, Pur- Pur- .ogged chased Pur- chased off Hher ands from pro- ducers chased from dealers from other agents Percent 60 40 39 61 61 2 31 100 34 BULLETIN 689 [December, also, one of two mills purchased almost two-thirds of its pulp wood through a pulpwood dealer. This dealer handled pulpwood on prac- tically a full-time basis. As denned in this study, he was the only true intermediate marketing agent found in the region. Wood preservation plants secure a sizeable portion of their raw material needs through other agents; these are principally sawmills located within as well as outside the claypan region. Mills purchasing cut products (from producers, dealers, or other agents) usually did so under either oral or written contracts. Stave mills made oral contractual arrangement exclusively; wood preservation plants used oral contracts about as frequently as written ones; pulp and fiber mill purchases were completely covered by written contracts. Only stave mills engaged in logging to any considerable degree. Stump- age purchases were always covered by written contracts. In general, contracts covering cut products were specific as to prices, size, and quality, depending upon the particular industry con- cerned. Cash payment for products on delivery was specified in nearly all cases. Written contracts for stumpage purchases usually made additional provisions for safeguarding young trees in logging, slash disposal, protection of fences and cropland, and for the clearing of roads and streams after logging. Prices and Costs Pulpwood is purchased by the cord or by weight. In the claypan region mixed hardwood pulpwood brought $15 to $16 per cord de- livered to the mill; pine pulpwood cost $18.50 per cord on the average. Pine pulpwood has to be hauled a considerable distance (Indiana sources) and the flat $3 premium over the hardwood pulpwood price is meant to cover this cost. Whether or not it does so in every case could not be determined. The price paid for hardwood pulpwood apparently includes some cost of hauling but remains the same regard- less of the hauling distances involved. Pulpwood purchased by weight costs about $5.50 per ton. Assuming a cord of mixed hardwoods weighs about 5,000 pounds (2.5 tons), this amounts to about $13.75 per cord. Thus, where hauling distance is ignored, it would appear that some saving in pulpwood costs could be affected at the mill level by purchasing wood by the ton rather than the cord. Price information for veneer logs is of little value because it was derived from the records of only one mill. The price paid for stave bolts also varied by grades. Grade 1 bolts brought $1.50 per stave foot delivered to the mill; Grade 2, 70 cents to $1.00; Grade 3, 40 to 65 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 35 cents. Again, no adjustment in delivered price is made for the longer hauls. Stave bolts are quality products, and suitable raw material tends to be scarce and scattered over a wide area; some of this material is hauled as far as 100 miles. Only one stave mill operator paid an addi- tional 5 cents per stave foot for stave bolts hauled over 50 miles. Stave mill operators who purchased suitable timber and did their own logging paid 50 to 60 cents per stave foot for stumpage expected to yield clear bolts. A few operators purchased stumpage varying from $40 to $150 per thousand board feet. Probably these operators convert to stave bolts that material which is suitable for staves and resell the rest to sawmills or veneer mills. Stave mill operators (the only group purchasing timber and doing their own logging and hauling to a significant degree) estimated their logging costs to be 20 to 25 cents per stave foot. Average hauling costs were also 20 to 25 cents per stave foot. In all cases these costs included loading charges; hauling costs sometimes ran as low as 23 cents per stave foot and as high as 80 cents, depending upon length of haul. Producers In general what has been reported concerning claypan region pro- ducers associated with the sawmilling industry is also applicable here. Eighty-six producers were interviewed concerning their activities dur- ing 1959; 21 associated themselves more or less closely with stave mills, 10 sold material to the one operating container veneer mill, 15 sold face or commercial veneer stock to mills outside the claypan region, 7 cut and sold pulpwood, and one sold roundwood material to wood preservation plants. As with the sawmilling industry, producer re- spondents were sampled from names supplied by veneer, stave, and pulp and fiber manufacturers and from wood treating plants. None of the pulpwood producers interviewed cut or sold any round- wood products other than pulpwood. However, some producers asso- ciated with the stave industry acted as intermediate agents in sorting out for resale veneer logs and bolts; some veneer log producers sold stave bolts to stave mills and some sawlogs to sawmills. Firms producing roundwood for the nonsawmilling wood-using industries of the claypan region also depend almost exclusively upon farm woodland timber. Only producers for the wood preservation in- dustry purchased and logged a significant volume of timber (about 40 percent of their total purchases in 1959) on nonfarm woodlands. Al- most 60 percent of the volume of timber purchased by stave bolt pro- ducers and all timber purchases of treating plant producers were 36 BULLETIN 689 [December, covered by written contract; only oral contracts were negotiated by pulpwood and veneer log producers. Whether written or oral, contracts were not always binding. About one-half of all contracts negotiated between timber owners and stave bolt and veneer log producers specified the protective measures to be followed in logging; pulpwood producers seldom took account of such measures in their contractual arrangement with timber owners. Producers of stave bolts paid about as much for stumpage as did stave mills doing their own logging. Their logging costs were some- what higher (20 to 55 cents per stave foot) than those paid by the mills, probably because they were willing to operate on less attractive logging sites. Also, some were probably less efficiently equipped than the mills. Stave producers estimated hauling costs between 20 and 30 cents per stave foot, about the same as the mills. Most pulpwood producers interviewed sold to a number of mills (including those in the claypan region). In most instances these pro- ducers sold pulpwood by the ton; with one exception pulpwood brought $5.50 per ton, the same price quoted by mills purchasing pulpwood delivered to the mill. Producers paid 50 cents to $1.00 per ton for pulpwood stumpage and estimated logging costs to be $2.00 to $2.50 per ton when this operation was subcontracted; when producers did their own logging, costs were estimated to run from 50 cents to $1.00 per ton, depending on logging conditions. All but one producer esti- mated hauling costs at $2.50 per ton for hauling distances up to 45 miles. Unless pulpwood producers can purchase stumpage at low cost and do their own logging and hauling, it is difficult to see how they can operate profitably (i.e., receive a reasonable return on their labor and invested capital) where pulpwood sells for $5.50 per ton. As was the case in the sawmilling industry, delivered pulpwood prices failed to adequately cover hauling distance, woods labor charges, returns to invested capital, and out-of-pocket costs. This will continue to work a hardship on some producers most likely in the form of low labor returns. Stumpage, logging, and hauling costs for veneer log producers and producers of round wood for treating plants were fragmentary and not subjected to analysis. Evaluation and Conclusions The marketing of timber products in the claypan region of Illinois is not a highly organized or developed system. Because of this, round- wood primary forest products do not move efficiently from the stump 1962} TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 37 to the processor. Timber owners and producers may not always be fully compensated for their products or efforts, and in some cases mill operators operate in less than the most efficient manner because of the present structure of the marketing system. Furthermore, the ultimate user of wood products originating in the claypan region may be penalized by way of higher processing costs because of poor marketing practices. Finally, the adoption by private woodland owners of long- term management of the region's forest resource, which should be directed toward continuous and expanding production of forest prod- ucts, is severely retarded by poorly organized marketing. Efficient marketing is more easily carried out under an organized system characterized by standardized procedures. Such a system does not prevail in the claypan region for several reasons. Some of these reasons involve the characteristics of w r oodland owners and their wood- land possessions. These charateristics were not specifically investigated in this study but are of major importance and must be taken into account in any future detailed studies of particular forest products marketing systems. For example, woodlands in the claypan region tend to be small, scattered over a wide area, and possessed of much low- quality timber. Many woodland owners are poorly informed of mar- keting opportunities, prices, and the availability of marketing assistances. Many owners ignore their woodlands altogether because of nonforest interests which take up most of their time. The result of this situation (which is to be found in many areas of the United States) is that the woodland owner tends to assume a passive role in timber marketing, especially if he has held his woodland under short tenure or with expectation of movement elsewhere in the near future. For these reasons, timber products marketing transactions in the claypan region take on unique characteristics. Since woodland owners generally assume a passive role and timber buyers an active role, each transaction tends to be negotiated by itself. Under these conditions no standardized system is developed which might perform the market- ing functions more efficiently. Of course, even if the various agents utilized all the best marketing techniques available to them, they would still encounter difficulty standardizing procedures. No two sales are the same. Timber is a difficult product to define; logging conditions and costs vary greatly from sale to sale. It is also difficult to judge product yield from an examination of standing trees and to estimate appro- priate timber price. Many timber buyers are transient processors poorly equipped to manufacture anything but a lower quality, hence 38 BULLETIN 689 [December, cheaper, product, thus conditioning at once the assets they have avail- able for raw material purchases and the marketing practices they will follow. As long as such a situation persists, marketing practices tend toward diversity instead of homogeneity. If one grants that the physical character of marketable timber in the claypan region will change only slowly, even under more intensive management, and that timber sales will always need to be handled more or less on an individual basis, then improvement in timber marketing must rest primarily on modifying present market practices. The question arises as to which of the present practices should be modified. Probably the greatest need is for more participation by the woodland owner in the negotiation, preparation, and administration of his timber sales. However, before he can do this, he must be better informed as to timber measurement, logging procedures, and the con- sequences of transferring his timber rights to the buyer. Timber volume should be measured as consistently as possible with the chosen log rule on all sales; lump sum sales where the volume is not measured, but only estimated, should be discouraged. Both buyer and seller should be familiar with the measurement rule and procedure to be used. Prices paid per unit of volume should also reflect log grade. If measurement and grading could be standardized and widely used, some of the in- equities which crop up along the marketing chain could be eliminated. As was pointed out earlier, both volume and grade estimating rules are presently available; what is needed is the encouragement of their wide- spread use. Timber owners making sales need to be better informed of logging procedures to be used, and to insist upon adherence to provisions for protecting the residual stand. Whether this can be done better under an oral or written contract is not as important as the careful specifica- tion of the logging provisions and recourse procedures if the contract is not carried out; adequate supervision of the logging is strongly implied. If the owner expects to continue in the business of growing timber, trees should be marked for sale with an eye toward growth of the residual stand. Minimum diameter limit specifications which often lead to the selection of only high-grade trees should be avoided. For a long time woodland owners have been able to secure helpful woodland marketing and management advice from extension foresters, state service foresters, county extension personnel, and some industrial foresters who have organized Tree Farm families. The fact that few woodland owners have utilized such services, which would go a long way toward insuring more satisfactory sales experiences and improve 1962] TIMBER PRODUCTS MARKETING IN THE CLAYPAN REGION 39 forest management, indicates that the problem is much more complex than heretofore supposed. Present extension programs directed toward assisting woodland owners are apparently reaching only certain wood- land owners. Before we can tailor our extension efforts to reach other groups of woodland owners, we will need to learn much more about behavioral patterns and how these are related to woodland management and market attitudes. Major extension efforts have not been directed toward assisting log producers and smaller sawmillers; the general attitude has been that these operators can very well look out for themselves. Operators of pulp and fiber plants, stave mills, wood preservation plants, and larger sawmills seldom are in need of marketing advice; the same cannot be said for small sawmillers or log producers, however. Many of the smaller operators are ill informed, and their marketing actions contribute to the over-all problem of marketing inefficiency. It is this group of marketing agents who are frequently lax in their sales negotia- tions and other measurement, pricing, and logging procedures. Where woodland owners also assume a passive role in woodland sales, the detrimental effects upon the marketing participants as well as upon the forests are amplified. How rapidly marketing efficiency in the claypan region can be im- proved is presently unknown. Over a sufficiently long period, it is likely that considerable improvement will be effected naturally. That is, as the forest economy grows under the impacts of increased demands for wood products, manufacturing efficiency will tend to improve; those firms who manage to keep costs within manageable limits will survive. With a growth in manufacturing efficiency will come an im- provement in marketing efficiency. However, the structure and func- tioning of the future forest products marketing system in the claypan region can be modified to the extent that more woodland owners and market agents become better informed and learn to conduct their marketing activities on a sounder basis. Present extension efforts must be intensified to reach heretofore unapproachable forest woodland owners. It would also seem that more effort needs to be expended in assisting small sawmillers and log producers. 40 BULLETIN 689 Summary The marketing of timber products in the claypan region of Illinois is not a highly organized and developed system for a number of reasons. Perhaps most important is the prevailing land ownership pattern in the area. While the claypan region occupies one-fifth of the total area of the state, and contains one-third of the state's forest land, the forested property is largely in the hands of owners whose primary concern is not with the development of this property, and whose income is derived chiefly from other sources. Of the total volume of sawlogs received at sawmills in the claypan region, 61 percent was obtained from inde- pendent producers (mostly farmers), 36 percent was produced by mill labor on other private woodland, while only 3 percent was produced by mill labor on mill-owned land. Because of this pattern of forest ownership and lumber production (the figures on raw material receipts for processors of other than lumber wood products are very similar to those mentioned above), the initiative in the marketing process is largely in the hands of the pro- ducers and mill operators. Many owners are poorly informed of mar- keting opportunities, prices, and the availability of marketing assistance. Some owners indeed ignore their woodlands altogether because of non- forest interests which take up most of their time. For this reason it is not hard to understand why the woodland owner tends to assume a passive role in timber marketing and why the active role. goes by default to the producer or mill operator. When situations of this kind prevail, the tendency^ is for timber marketing transactions to take on characteristics that they would not have in areas where forest ownership and production is a highly profit- able "big business." Standardized systems- which might perform the marketing functions more efficiently are not developed. Market prac- tices move toward diversity rather than homogeneity to the ultimate disadvantage of both land owner and timber producer. Timber owners in areas like the claypan region need to be informed of logging procedures, and should be taught to insist on adherence to provisions for protecting the stand. Extension efforts also need to be directed toward assisting and educating log producers and small pri- mary processors, especially sawmillers. The attitude has often been that these operators can look out for themselves, but in areas like the claypan region there are few who can really fail to benefit from a greater understanding of the marketing process. Production and mar- keting practices will have to be improved on all sides if the forested land of the claypan region is to be profitably used in the future. 4M 12-62 77872 UNIVERSITY OF ILLINOIS-URBANA