Sawmill Closures Exacerbate Economic Downturn

As Markets Decline, Timber Industry Hangs On

By Dan Testa, 10-08-08

	Caption: A feller buncher places a tree in a pile to be hauled out by a grapple skidder at a thinning project on state land near Echo Lake. - Lido Vizzutti/Flathead Beacon

Over the last several weeks, the news out of Western Montana’s forest products industry reads like an all-too-familiar litany of job losses, shuttering mills and falling commodity prices.

At the end of September, Plum Creek Timber Co. laid off 24 employees when it suspended operations at its finger-joint stud plant in Kalispell. At the same time, the Tricon Timber mill in St. Regis laid off 40 full- and part-time workers, citing a soft lumber market. Less than two weeks earlier, Plum Creek eliminated 35 jobs at its fiberboard plant in Columbia Falls. In August, Stimson Lumber Co. laid off the final dozen workers from its finger-joint plant in Libby, just a few months after the company closed its Bonner sawmill, putting 92 people out of work.

A log loader organizes felled trees at a thinning project on state land near Echo Lake.

In an industry that has always operated in boom-and-bust cycles, the current job losses can be chalked up to the same old causes: depressed lumber prices that no longer cover the cost of production, a construction slowdown and increased international competition. But then there are the factors that may not subside in the foreseeable future, like increased fuel prices, a national economic crisis with the potential to dramatically alter the number of people able to purchase a new home and a decline in timber harvests on federal land that has continued throughout the tenure of a conservative presidential administration.

While Montana’s timber workers have weathered downturns before, with every mill that doesn’t just suspend workers but closes, it grows more difficult for the industry as a whole to bounce back when lumber markets, housing markets, and the national economy eventually do rebound.

“I don’t think there’s any question we’ve got enormous challenges,” Keith Olson, executive director of the Montana Logging Association, said. “I’m hearing it’s the poorest market that people working today have ever seen.”

Despite these setbacks, loggers and sawmill operators are nothing if not resilient, noting that demand for wood products continues to increase and the timber industry is likely to remain a fixture of Western Montana’s economy. But analysts and industry workers disagree on what – when it emerges on the other side of the current downturn – the breadth and size of the state’s forest products industry will be.

Pulp sustains market
On a recent morning at the bottom of Jewel Basin Road, a five-man crew employed by Stoken Logging of Eureka, thins stands of Grand firs, Hemlock, Spruce and a handful of White Pines. It’s a sunny, early autumn day, and the work goes quickly, but many of the felled trees reveal a dark brown core in their trunks, the result of a fungus infection. As the feller buncher moves through a stand, many of the trees simply tip over once the machine’s teeth grab it. Sawing through the trunk isn’t necessary.

For this job, however, the lack of much good timber doesn’t matter; most of this wood will be loaded onto a truck and taken south to the Smurfit-Stone pulp mill in Frenchtown to be made into cardboard. The market for pulp, along with post and pole products is, according to Olson and others interviewed, responsible for sustaining much of Montana’s forest products industry. In other words, a market persists for materials unrelated to residential or commercial construction.

“It seems like, with all the mills being shut down, there are less chips for pulp,” Mike Stoken, co-owner of Stoken Logging and the head of this crew, said. “If the pulp market falls off, we’re pretty much done.”

In many ways, Stoken represents the successful logging operations currently working in Montana. This thinning project, while on state land, is in a residential area. Stoken has taken many of the nearby homeowners on tours of the work underway and goes out of his way to answer their questions and concerns. The result, he said, is that most homeowners are pleased.

A dangle head processor strips felled trees of their limbs and cuts them into sections at a trimming project on state land near Echo Lake.

Stoken currently has two other logging crews working around the valley, and with the heavy fires of 2007, there’s enough salvage logging to keep busy. The good logs from this site will go to Plum Creek’s facilities in Columbia Falls and Evergreen for processing, and he’s got more jobs lined up when the current one is complete. As a contractor for Plum Creek for more than 30 years, when there’s a job, Stoken is near the top of the list to get hired.

“The ones that are on the bottom of the list?” Stoken ponders, then shrugs.

Profit margins
The problem for loggers, according to Olson, isn’t that they are lacking for work, but that plummeting lumber prices have made it increasingly tough to turn a decent profit.

“The profit margins are extremely thin and it doesn’t take much of a hiccup to hurt them,” Olson said. “There’s no margin of error when you’re negotiating a contract.”

He also cites an aging workforce, fewer bids on federal lands and obstruction by environmental groups among other factors besetting the timber industry. Yet Olson remains optimistic because the demand for wood products continues to increase, despite the current state of the market. For him, the challenge is to ensure that Montana producers are among those contributing to the supply.

“The question is not whether we’re going to log and manufacture and distribute, the question is, who is going to do it?” Olson said. “If we don’t make every effort to make sure we’re a player, we are going to consciously transfer that opportunity to surrounding states, and surrounding countries.”

But Tom Power, professor emeritus of the economics department at the University of Montana, is pessimistic that the timber industry here will rebound in a big way. He believes extractive resources are no longer the “engine that drives” the state economy and that diversification is a good thing for Montana. The recent economic downturn has only exacerbated problems that already exist for the timber industry here, including the cold climate, distance from population centers and steep terrain.

“This is a high-cost, slow-growing area that can’t really be managed in an ongoing way for commercial timber, especially compared to the southeast,” Power said. “If you’re going to make ongoing investments, why would you do it up here?”

Power points out that milling infrastructure across the Pacific Northwest has actually increased over the last two decades, through the construction of large, highly automated mills located near coastal cities – not through smaller mills located where the logs are.

“They’ve been able to get their costs down low enough that they’ve been able to survive,” he said. During boom-and-bust cycles of the past, smaller mills would typically shut down, then come back online when the market picked up, but “now, no one expects them to come back; they’re just so out of it because of the cost structure,” he added.

Power sees future loggers as workers looking very much like Stoken’s crew: a small group of highly skilled heavy equipment operators capable of a wide range of work in addition to logging, adding, “I think that in the future we’re going to see a much different timber industry.”

Ready for a comeback?
Regardless of what Montana’s timber industry eventually becomes, it currently employs approximately 9,000 people across the state, earning $400 million in labor income annually and accounting for 10 percent of the state’s economic base, according to Todd Morgan, director of forest industry research for UM’s Bureau of Business and Economic Research.

But those statistics are all trending downward. The number of mill production workers employed in Montana dropped from more than 3,300 in 2007 to 3,068 by June of this year. Their production wages dropped from $64 million in 2007 to less than $60 million this year. Lumber production is down 21 percent from what it was two years ago. According to Morgan, national forest timber harvests under the current President Bush are 28 percent of what was offered under his father.

Other states across the West, like Colorado and Arizona, allowed their milling infrastructure to shut down during economic downturns, Morgan said, such that when markets picked up, the timber industry there couldn’t capitalize on the boom. While the timber industry in Montana is undergoing a gradual decline, a recession that permanently shutters even more mills could accelerate the trend – even when the larger economy regains its health.

“Eventually, it will come back,” Morgan said. “The question is, will Montana be able to respond to that resurgence?” [End of article]

Guess we’ll have to get our timber from Canada.

Recent turmoil shows a new economic model needed
By Matthew Koehler
Missoulian, October 6, 2008

Over the years, there have been plenty of proverbial canaries in the coal mine who repeatedly warned about a looming economic crisis, a virtual perfect storm that would be equal parts over-consumption, unsustainable development, deregulation, “free trade” and irresponsibility on the part of corporations and consumers.

If the sobering economic headlines of the past few weeks teach us one thing it should be that much of our current economic system is significantly flawed and that a new economic model - based on the principles of sustainability and local and regional self-sufficiency - is desperately needed.

Fortunately, Montana is in a unique position to lead this effort towards greater sustainability.  A future where local farmers and ranchers grow our food, Montana workers produce clean and green energy for our homes and the ingenuity of our businesses combines with the skills of our workforce to protect and restore the environment, while also producing locally-made products that enhance the quality of our lives.

Locally, we’ve witnessed the timber industry hit particularly hard by the economic crisis with recent announcements of closures, curtailments and lay-offs. As tough as this news has been, it’s not entirely unexpected since the industry is inextricably tied to the housing and credit sectors of our economy.  After all, we’re experiencing the worst housing slump since the Great Depression and the steepest decline in lumber consumption ever.

For example, when Plum Creek laid off nearly fifty workers in the Flathead, their vice president told the Missoulian, “Market prices are depressed and don’t currently cover the costs of production.”

Last week, as Tricon Timber in Mineral County laid off forty-five, the Missoulian article opened with, “No one’s buying what Tricon Timber of St. Regis has to sell.” Equally as blunt, was Tricon’s president as he told the Clark Fork Chronicle, “We are getting to the point where we’re not getting any offers [for our products].”

Compounding the problem, the industry is currently getting only 42% for their dimensional lumber compared with prices four short years ago, while diesel fuel costs have risen 250% during a similar time period.

Understandably, people are concerned and there is a natural inclination to “do something.” The past few years have seen an increase in collaborative efforts that have brought together diverse interests, including the WildWest Institute, to find common ground on bona-fide restoration and fuel reduction projects. While much work remains to be accomplished, to date agreements have been reached on a set of statewide Restoration Principles (http://www.montanarestoration.org) and collaborative projects are under way across the state.

Unfortunately, outside of these successful and emerging collaborative efforts, there is an aggressive effort behind the scenes to “bail out” the timber industry with an ill-conceived initiative divorced from economic reality and any concept of sustainability.

Led by the Missoula Area Economic Development Corporation, this initiative is based entirely - and, up to this point, only - on a “wish list” that was put together by the timber industry. 

The basic premise of MAEDC’s initiative, which in August was given to state officials, legislators and the Montana Congressional delegation, can be summed up simply: Log Baby Log. The initiative calls for “immediate action” to increase national forest logging by 330%, double state land logging and a bizarre plan for the state to seize control of a million acres of national forests, purportedly for even more logging.

But wait. There’s more. Montana taxpayers are being asked to foot the bill for timber industry exemptions from fuel taxes, discounts for vehicle registration and a taxpayer-supported program to pave log yards.  One state legislator has even drafted legislation giving the entire timber industry a two-year tax holiday.  Sorry, but does Plum Creek really need tax breaks paid for by hard-working Montanans?

If we are going to “bail out” the timber industry, shouldn’t Montanans at least demand that any taxpayer dollars go towards efforts that truly put the industry on a path towards economic and ecological sustainability?

For those interested in a more detailed discussion of what this path might look like, the Montana Community Development Corporation’s well-researched and well-reasoned “A New Business Plan: Moving Forest Businesses to Long Term Environmental and Economic Sustainability” should be required reading.

The WildWest Institute supports sustainable economic development in Montana and has been actively promoting some of our solutions. For example, let’s work together to ensure that every home and business built in Montana is made out of Montana wood products.  After all, this would help solve some market issues, while also reducing costs - and greenhouse gases - from shipping products around the country.

Or how about collecting construction waste, which is currently dumped in our landfills, for use in high-efficiency biomass boilers?  Or developing businesses that would use sustainably harvested blue-stain pine for locally made cabinets, furniture and wainscoting? 

I’m confident that if we work together we will find solutions. That’s why I would encourage all Montanans to keep their eyes and ears on Helena during the upcoming legislative session. Touch base with your elected officials and demand they work together on sustainable solutions that will benefit our state’s economy, workers and environment.

Matthew Koehler is executive director of the WildWest Institute. You can learn more at: http://www.wildwestinstitute.

Below are snips from the AP article “Lumber industry threatened by glut of unsold homes,” which is obviously related to this article above. The entire article is available at: http://biz.yahoo.com/ap/081023/lumber_struggles.html?.v=1

Lumber industry threatened by glut of unsold homes
Thursday October 23, 2008
By Timothy R. Brown, Associated Press Writer

JACKSON, Miss. (AP)—The glut of homes in foreclosure, vacant, or stuck on the market has the nation’s lumber industry hanging on by a limb.

Since housing starts hit their peak in mid-2005, demand for lumber used in floors, home frames, and cabinets has declined sharply, and experts say the number of unsold homes would need to significantly decrease before homebuilders commit to building new ones.

Glenn Hughes, a forestry expert with the Mississippi State University Extension Service, said many loggers are faced with difficult decisions. A global economic slowdown, tight credit, and the housing bust are hitting sawmills hard and shutting down logging companies.

“Boy, surviving this downturn. I have talked to a lot of people who have been in the business for many, many, years—this is probably the roughest they have seen it,” Hughes said.

The brutal economics of the housing crisis don’t appear to be letting up, continuing to drag down demand for both hardwood lumber, for floors and cabinets, and softwood, used in home frames.

Even if home buyers miraculously returned to the market to purchase unsold homes, Al Schuler, a research economist with the USDA Forest Service, says it may be a little too late to lift up the lumber industry because the inventory of unsold homes is “a huge number.”

“We are going to be building smaller houses. We are going to see lot more 2,000 square-foot homes rather than 5,000 square foot,” he said.

Below are snips from the Western Wood Products Association’s article title “U.S. Financial Crisis Will Delay Recovery of Housing, Lumber Markets until 2010”

Full article available at:
http://www.marketwatch.com/news/story/us-financial-crisis-delay-recovery/story.aspx?guid={323BF266-93C2-489B-81BF-295FFCFA16D0}&dist=hppr

PORTLAND, Ore., Oct 21, 2008 (BUSINESS WIRE)—The historic downturn in lumber demand will likely extend another year until the American financial system and housing market can be repaired, according to a new lumber supply and demand forecast from Western Wood Products Association.

According to the lumber trade association, lumber demand is expected to drop 15 percent to 44.3 billion board feet this year, then fall another 3 percent to 43 billion board feet in 2009. In just three years, demand for lumber has plummeted by some 20 billion board feet—more than what Western mills produced in all of 2005.

Housing starts are forecast to reach just 993,000 in 2008 and decline again to 933,000 next year. Since new housing typically accounts for more than 40 percent of annual lumber demand, the more than 50 percent decline in starts from 2005 has been a body blow to lumber mills.

The volume of lumber used in new home construction is expected to total 11.8 billion board feet in 2008—less than half of the 23.3 billion board feet used just two years earlier.

The WWPA forecast calls for housing markets and lumber demand to grow in 2010, but cautions that any recovery will be slow.