WWPA - Lumber Price Indexes

To better reflect the product and grade mix coming from the current log supply, WWPA changed its Lumber Price Indexes starting in January 2005.

WWPA Coast and Inland Lumber Price Indexes represent weighted price averages for the major Western species. The prices are weighted according to grade recovery percentages of an Index Log, or "typical" log as determined by WWPA mill surveys. Starting in January 2005, the two Indexes will show prices calculated on average lumber grade recoveries for 2002-2003. Previous Index prices were based on Index Logs set using grade recoveries from 1997 and 1998.

WWPA has prepared the following to explain the changes in the Lumber Price Indexes and provide information on the Association lumber price statistics.

Frequently Asked Questions about Price Index Changes

Each month WWPA publishes Lumber Price Indexes that are used to indicate lumber price changes by species or species group. The Index prices shown are based upon reported lumber prices combined into grade groups, which in turn are multiplied by the fixed percentages as shown in WWPA's Index Logs.

For each species or species group represented in WWPA Lumber Price Indexes there is an Index Log, a hypothetical log containing the average percentage of grades recovered as reported in the latest survey of Western mills. A new survey was recently completed and the Index Logs now in use reflect the grade group percentages produced in 2002-2003.

WWPA's Economic Services Division contacted all Western mills asking them to supply 2002-03 production by species and grade information for the purpose of producing the new Index Logs. The responses represent approximately 70 percent of total Western production in the Index species or species groups.

WWPA released the new Indexes with the January 2005 reports, published in early February. The U.S. Forest Service is using these Index prices for all new timber sales advertised.

Existing contracts are being revised using differentials calculated from a recent 24-month period (January 2002 to December 2003). The reason for the differentials is to reduce the impact of short-term market swings and seasonal biases. The same method was used for the last four Index Log revisions completed by WWPA.

Coast Index	Differential
Douglas Fir	-$1.26
Hem-Fir	-$1.79
Inland Index
Douglas Fir/Larch	+$0.70
White Fir	-$5.60
Inland Red Cedar	-$68.48
Rocky Mountain Ponderosa Pine	+$14.42
Coast/Inland Ponderosa Pine	-$28.42
Sugar Pine	-$67.69
White Woods	-$6.71

For more than 30 years, Western sawmills operating in the 12
Western states have provided WWPA with lumber sales invoice information. Each year WWPA processes invoices for approximately 12 billion board feet of lumber shipments.

Analysis of these invoices enables the Association to publish the Lumber Price Indexes and F.O.B. Price Summaries for the Coast and Inland regions. These reports are used by government agencies and private companies to adjust timber prices and analyze related markets.

Invoice Collection

Western lumber manufacturers are asked to send a copy of each “arms length” invoice to WWPA. The invoice data is mailed, faxed or e-mailed.

Only wholesale transactions are used. Intra-company transfers,
mill use and employee sales are not included in price report calculations. Freight charges are backed out from delivered prices to ensure that all prices reported are F.O.B. mill prices. Special charges (paper wrap charge, for example) are excluded from the price, as are discounts and commissions.

All price data compiled by WWPA is kept confidential. Participating companies receive free copies of the Index and
Price Summary for their region.

Each month WWPA publishes Lumber Price Indexes for the Coast and Inland regions. Each Index is computed by applying that month’s grade price averages by grade and species to grade group percentages determined by an Index Log, which is a hypothetical recovery log that reflects the average percentage of grades recovered by Western sawmills for that
Index species or species group.

WWPA revises the Index Logs for each species or species group at least every five years based on extensive surveys of sawmills, coupled with analysis of invoices collected by WWPA.

The Index Log provides a consistent weighting of grade prices. If grade prices were not weighted by an Index Log, the Index
price would reflect changes in lumber shipment levels as much as price changes.

For example, if increased volumes of low-grade Douglas Fir dimension shipments were recorded and compared to the previous month without the use of an Index Log, the Douglas Fir Index price would likely decline, even if actual prices remained stable.

Conversely, if shipments of higher grade products increased, (again – not using an Index Log) Index prices could rise irrespective of actual lumber prices.

Lumber manufacturers should not attempt to gauge performance based on WWPA’s Price Indexes. The Index is not intended to represent expected realization for a specific sawmill or timber sale. It indicates price trends for a region-wide “average” log of that species.

Although Index prices are based on invoice dates (for example,
the July Index is based on July invoices), an individual sawmill’s realization one month to the next will likely differ from the change in an Index over the same period. This happens because that mill will probably not experience the same static grade recovery as shown in the Index Log for that species.

In connection with use of Indexes in appraisals or timber price adjustments, it is not the level of the Index, but rather the trend or difference compared to a previous period that is used.

For example: Company A buys a tract of mixed species timber from Company B, paying 50 percent at the time of purchase, with the balance to be paid by the end of one year. The companies agree to revise the final price at the time of harvest (or one year later, whichever came first) based on changes to
WWPA’s White Woods Index.

At the time of sale, the Index is $329.56. One year later the
White Woods Index is $267.44, resulting in a downward price
adjustment of $62.12 per thousand board feet, Scribner, or
18.85 percent, depending on how the contract was structured.

WWPA Lumber Price Index reports are published monthly, in the first two weeks of the following month.

The Inland Lumber Price Index and Inland F.O.B Price Summary reports are typically available the first full week of the month. The Coast Lumber Price Index and Coast F.O.B Price Summary reports are normally published the following week.

The reports are available by e-mail, fax or regular mail. To order WWPA Lumber Price Indexes and Reports, go to the Business Information section.

Lumber Price Indexes

Frequently Asked Questions WWPA Indexes - How They Work

Frequently Asked Questions about Price Index Changes

Frequently Asked Questions

WWPA Indexes - How They Work