Where’s the Wood?

The current mill wood shortage is not solely a result of the severe winter weather and wet spring/summer weather. The current situation is a result of a combination of years of wood procurement practices and price structures that have taken advantage of a supply/demand imbalance. This has allowed mills to keep wood prices at a point that prohibited profitable logging operations for many. Additionally, public land management agencies have failed to provide sufficient timber to meet supply demand, thereby increasing competition and price for limited timber. This combination of factors has squeezed the loggers in the middle, forcing many out of business, and eroding logging capacity to the point that it cannot support mill demand.

As an example, Turnboom Logging was a SAPPI supplier. They produced 20,000 cords annually, but like many logging companies they were only keeping the bills paid and the payroll covered. Owner Craig Turnboom approached SAPPI and told them that if they were willing to pay an additional $2.00 per cord, he would be able to draw a modest salary from his business. SAPPI denied his request, so he shut down his business, sold his equipment and went to work in the mines.

Additionally, when Packaging Corporation of America took over the Boise operation the first thing they did was cut the price to loggers as they prepared to go into the winter season. Along with this price cut, Boise reduced the amount of timber stockpiled and eliminated the stockpiling compensation for some loggers. Many open market loggers took their wood to mills that paid a better rate. Then they wonder why they are running short of wood. Now, they have reinstated the price cut (after loggers lost thousands during the winter harvest season) and they seem to be able to pay three times (more on occasion) the appraised value of timber at auction.

It is an unfortunate testimony to the impacts of these wood procurement practices when a loyal, two generation logging family, for Boise is forced to go out of business because they cannot afford to replace a buncher lost to fire. Bob Ranisate stated that during the boom times of OSB he would drive past Ainsworth, who was paying more, and loyally bring his wood to Boise. But last year, when his buncher burned, he shut down his business and said, “What did that loyalty get me?”

Some foresters philosophy is that loggers are like pencils, when you break one, you just get another. This attitude has contributed to the current logging capacity shortage and low woodyard inventories.

You’ve broken too many loggers and if you look around there are no more to replace them.

There are select loggers who have enjoyed more lucrative contracts than most loggers, but they are the exception, not the norm. Most loggers have not received any substantive increase in gate price rates for the past eight years. During this time, equipment has doubled in price and fuel has peaked at over twice the price it was eight years ago. It doesn’t take an economics business major with a Masters degree to figure out that doing business this way is not sustainable.  The results are evident.

Now, after all of these years of not providing a fair rate for delivered wood that would have allowed most logging companies to operate profitably, be able to reinvest in equipment, and retain employees with competitive wages, the mills clamor that their situation was caused by the weather and that they need the public land management agencies to put up emergency timber sales.

With the closure of numerous mills, it would be expected that there would be an oversupply of wood. The public land managers defend their wood offering volume by stating that they have remained consistent. However, private timber land ownership accounts for 47% of the land in Minnesota. During the housing industry boom, private timber land contributed a disproportionate (56%) of harvested timber. With the collapse of the housing industry and subsequent drop in timber value, private timber land has lost the monetary incentive to actively manage (harvest) their land which has created a significant net loss of available timber.  Note: without a timber industry there will be no forest management or timber revenue.

The limited timber volume offered by public land managers has created heavy competition for the available timber and consequently rising stumpage prices. This revenue generation appears to be the shortterm objective of the public land managers instead of forest management and support of the timber industry.

As an example, the recent St. Louis County Auction had an appraised value of $848,269.22 but resulted in a bid up value of $1,850,510.96 – for an additional $1 million in revenue.  The public land managers jumped when the mills said jump, and offered approximately another 150,000 cords of wood this fall.  Unfortunately, all of this wood was pulled forward from future timber auction schedules, which is only going to result in less wood offered in the future and subsequently higher prices.

Unfortunately, some mills wood procurement practices have already done damage. The question is, are they going to learn from their shortsighted mistakes, and change the way that they treat this vital supply component of their mill operation, or continue on until the damage is beyond repair and there is not sufficient logging capacity to keep the mill in operation, and ultimately the mill closes.

The mill wood shortages are not simply the result of weather, or loggers, or truckers, or wood availability, but more a result of forest management policy by public land management agencies and the wood procurement practices of some mills.