Unit Costs and Trends within Louisiana's Logging Contract Rate

Abstract

Abstract Quarterly unit costs for a hypothetical logging firm were determined from the logging contract rate for Louisiana spanning the years 1992 to 2018. Machine rate methods were employed to disaggregate the contract rate into five cost centers: felling, skidding, loading, trucking, and tertiary (e.g., trucks, bulldozer, chainsaw). Risk was explained by the quarterly interest rate on a 30-year mortgage, and income taxes were estimated as a fixed percentage of gross income. The real logging contract rate averaged US$19.08 per ton (2018 constant dollars), and it has risen at an annual rate of 1.03 percent above that of inflation for roundwood. Trucking was the firm's highest cost activity followed by skidding, loading, felling, and tertiary. Rates of cost change followed the order of tertiary, trucking, loading, felling, and skidding. The firm faced financial hardship sporadically from 1992 through 2001, but profits were consistently returned from the second quarter of 2000 through the fourth quarter of 2006 (2000Q2 through 2006Q4). Since then, company earnings have fluctuated between profit (n = 25 quarters) and loss (n = 23 quarters). Losses were consistently generated from 2010Q4 through 2013Q2, and all of 2014, as well as in the final three quarters of 2018. Simulation of the contract rate and firm unit costs as stochastic processes utilizing a uniform distribution indicated a 0.48 probability of at least breaking even, but that increased to 0.69 when employing a normal distribution.