S2Increased export activity in the hardwood and oak lumber markets coincided with rising prices of these commodities, which also coincided with an increase in the overall price level of all commodities. To determine the effect that exports have on the prices of hardwood and oak lumber, relative price models for these commodities were developed. Relative, rather than actual or nominal, price models were used to remove the effects of inflation. The models indicated that exports to Europe have had and will have an influence on hardwood lumber prices. Oak price seems to be more sensitive to changes in exports than overall hardwood lumber price. However, the main determinants of hardwood lumber and oak lumber prices were found to be domestic demand and millstock levels.S3.

S2Studies made at seven circular sawmills in the Appalachian region of Kentucky and Ohio (fig. 1) show that costs and returns differ among mills because of three major factors: (1) the types of markets for which lumber is produced. (2) the volume sawed annually, and (3) the amount of processing and seasoning done to lumber produced. Classifying sawmills according to these three factors, and examining their annual costs and returns, revealed needed areas of cost control. In addition, comparison of similar costs and returns between mill types indicates what might happen if a small mill owner gradually increased production and diversified his operation. Because knowledge of costs is necessary for controlling them, annual costs and returns were studied at the seven mills, each of which produced million board feet or more annually. Mills of this size class make up 36 percent of the 360 commercial sawmills and account for about three-fourths of all lumber produced in the region. Mills selected for study were those that (1) use a circular headsaw for primary log breakdown: (2) have good records of costs, returns, and production; and (3) typify the types of larger scale operations in the study area. The report summarizes 1 years costs and returns at each study mill. Operating costs are first consideredwhat these costs are, and where within the firm they occur. Second, costs are analyzed by volume of lumber and manufactured products containing lumber sold. Finally returns, also analyzed by volume sold, are related to costs to determine net income available for profit and risk.S3.