Testing for variation in the western Oregon softwood log price structure

Timber owners in western Oregon have been concerned about the erosion of price premiums for higher quality grades of Douglas-fir (Pseudotsuga menziesii (Mirb.) Franco) sawlogs over the past decade. Time series tests indicate that the ratio of 3Saw (lower quality) to 2Saw (higher quality) sawlog prices did rise over the 1990– 2000 period, suggesting convergence between the prices. To identify causes of this trend, we estimate reduced form equations for Douglas-fir sawlog prices with time-varying coefficients using flexible least squares. Log grade prices were related to prices of lumber by grade, prices of chipped residues, labor wage rates, and volumes of public timber supplied. Changes in the relation of log grade prices are reflected through changes in both reduced form coefficients and levels of the exogenous variables. Changes in the coefficients, in turn, may derive from shifts in the distribution of log qualities within grade categories and from grade-specific changes in sawing and log production technologies. Coefficient trends showed that higher quality lumber grades became more important for 3Saw logs during the sample period, while lower quality lumber grades and chips became more important for 2Saw, moving the log grade prices closer together. Comparison of simulated 2Saw and 3Saw prices with and without historical time patterns in the exogenous variables had little impact on their relationship, suggesting that factors shifting the coefficients may have been the primary drivers of price convergence.