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A Comparison of Pallet Cants and Grade Lumber Price Trends
An economist with the U.S. Forest Service looks at the factors that influence the availability and prices of pallet cants and how cant prices have compare to grade lumber price, both historically and at current.

By Bill Luppold
Date Posted: 9/1/2012

An analysis of the price trends for pallet cants and grade lumber reveals contrasting price movements. As the housing sector has retreated, higher grade material had trended downward while pallet cant costs have risen. Depressed pricing for grade material raises concern for the long-term health of the U.S. sawmill industry. The grade and low-grade markets are connected. What impacts one sector affects the other.

While the pallet industry has been the largest consumer of hardwood lumber for 30 years, it receives no respect because pallets are manufactured from interior portions of higher grade sawlogs, low-valued species, or low-quality roundwood. The hardwood material used in pallet production must be sound but usually contains knots and other visual defects which would lower grade value under National Hardwood Lumber Association (NHLA) rules for appearance applications. The most common form of pallet lumber is 4x4 or 4x6 pallet cants. These cants are usually a byproduct of grade hardwood lumber production but also may be manufactured from low-grade roundwood. Historically, pallet cants have been one of the least expensive hardwood products listed in the Hardwood Market Report.

While the price of pallet cants has traditionally been low, they have trended with prices for other hardwood lumber products such as midgrade appearance lumber (No. 1 Common or 1C). This can best be examined by indexing the price of pallet cants and a composite price of 1C lumber for the Appalachian species listed in the Hardwood Market Report (Fig. 1). Since 2005 the price of 1C lumber has trended downward while the price of pallet cants has trended upward. The decline in 1C prices is mirrored by price trends for high-quality grade lumber (First and Seconds or FAS) but lower grade lumber (grade 2A) has decreased at a slower rate (Fig. 2).

The decline in the price of mid- and higher appearance grade hardwood lumber after 2005 is primarily the result of reduced domestic demand for this material. Domestic demand for grade lumber began to decline in 2000 after hitting a post WWII high in 1999. Initially the decline was the result of reduced domestic production of wood household furniture as imports from China, Vietnam, and other East Asian countries increased. This decline was partially offset by increased consumption for other appearance applications associated with home construction including kitchen cabinets, hardwood flooring, and millwork. In 2006, new home construction started to decline and by 2011 new single family home construction was down 75% from the 2005 high point. This series of events caused lumber volumes used in appearance applications also to decline by 75% between 2005 and 2011. By contrast, the volume of lumber used in pallet production only declined by 17% during that time.

A decline in the demand for a product is usually followed by a decline in price of that product. But why has the price of pallet cants increased? One factor is general inflation. The price of industrial commodities less fuel and food has increased by 25% between the first quarter of 2005 and the second quarter of 2012. After accounting for inflation, pallet cants were 16% higher in the fourth quarter of 2005 than they were in the second quarter of 2012. A factor that has kept the price of pallet cants higher than grade lumber is that the reduced production of grade lumber has limited the supply of pallet cants produced from the interior portion of higher grade sawlogs.

Another factor that has influenced pallet cant price and availability is the steady demand for higher value crossties, which are also produced from interior portions of sawlogs. Although the crosstie industry consumes a third as much lumber as the pallet industry, crossties sell for about 35% more per thousand board feet than pallet cants. Since 2005, the reported price of crossties has been trending upward in a manner similar to pallets but inflation adjusted price peaked in 2005.

The relatively high demand for pallet cants and crossties has distorted the hardwood market in terms of domestic consumption for graded lumber used in appearance applications versus industrial lumber consumption (primarily pallet cants and crossties). Between 1982 and 2005 industrial consumption accounted for between 40% and 45% of domestic hardwood lumber consumption. Since 2005 this percentage has been increasing and in 2011 industrial consumption exceeded 75% of domestic consumption.

While pallet cants remain a relatively low valued product, their price is now comparable to the prices of 2A Appalachian yellow-poplar, ash, basswood, beech, soft maple, and cherry. Similarly, crossties are now priced at the level of 1C red and white oak. While market prices of crosstie and pallets are at an all-time high, the composite price of 1C lumber is at levels last seen in the early 1990. It remains to be seen how much longer the hardwood lumber industry will be able to supply pallet cants at current low prices for grade lumber. Most sawmills are only making enough income to cover variable costs, meaning there is little money for capital improvements. While there are observations of mills lowering their cost by purchasing fewer high-quality sawlogs and more low-quality roundwood, there are no studies that have confirmed such activity. However, the major factor that may affect the future availability and prices of pallet cants is whether or not sawmills replace equipment when it eventually wears out.








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