Why are lumber mills really shutting down.

jdtuttle · September 03, 2009, 10:15:03 AM

I was working on my business plan & doing research online when I ran accross this. It makes sense to me. What do you think?
http://www.nativeforest.org/campaigns/public_lands/lm_2_23_03.htm

jrdwyer · September 03, 2009, 11:03:45 AM

The article generally makes sense. Commodity products like 2x4's and OSB are very subject to the housing market ups and downs. It is better to chase after higher value products or go directly to the consumer to sell wood products and make a profit (or at least pay the bills) than to sell commodities into the wholesale market.

I do take issue with several items in the article. Forest management in National Forests, including timber harvesting, should be carried regardless of market conditions. Forest health issues, wildlife habitat needs, vegetation management for fire prevention, etc. need to be addressed and timber harvesting is one good way to do it. The forest is dynamic and not static, as many preservationists would have you believe. Any timber sold during a period of low prices will be balanced by other timber sold during periods of high prices.

Second, this statement "... since the costs associated with most National Forest timber harvest programs exceed the commercial value of the timber harvested, such an expansion can proceed only with subsidies from the American taxpayer." really irks me. The only reason many of these timber sales are "below cost" is because the taxpayer requires a huge amount of professional resources to be allocated to each sale for NEPA purposes. If a private landowner owned such lands, many of these sales could be carried out with a profit, even after subtracting the cost of a professional consulting forester. If the public really insists on a profit from all National Forest timber sales, then the rule book will have to be changed to lower the cost structure.

ARKANSAWYER · September 03, 2009, 11:53:33 AM

I live in an area that has lots of National Forest. Years ago you could buy the timber for about half what it would cost from a private land owner. Then all these things about the logging trails had to be reseeded with native grasses and trees damaged had to be paid for but not allowed to remove. So when the timber came up for bid it was lower to cover the added cost of harvest. So now it is not even thought of if there is timber from private land. I have seen bids for oak go for $0.05 bdft on the stump. Taxpayers may have lost but the logging tails are covered with blue stem grass and brown eye susans.

The reason mills are shutting down is because the flood of wood on the market. As the price lowers large mills just crank out more lumber and flood it more. Then when they can no longer make a profit just shut down. When the price comes up a bit and they can make a profit they start cranking it out again. They do this to run out small mills to limit competion when the markets are good.
It is like the Amish working for cash and using timber grown on church land. They can under bid any one local and keep plenty of work. IF you worked for cash and worked under a Non Profit 501 Church tax code you could make more money as well. When you got so large you would run all the other local mills out of business. Get your processing cost down to $0.07 bdft and let the prices drop as you will just discount the timber and keep going.
( I have no problem with the Amish)

I have run off several small mills in the area. I just got to big for them. and they could not compete.

Ron Wenrich · September 03, 2009, 05:14:33 PM

You have to look when that article was written - 2003. We just come off of a recession that was caused by 9/11.

What followed that cycle? Greenspan dumped a bunch of money into the economy by keeping interest rates too low. That caused a housing bubble, and all those mills were back in operation, and timber and lumber prices were high.

The other thing that happened was that markets changed from ring porous woods like oak over the the ring diffuse woods, especially hard maple. I know of a logger that was practically ashamed of all the money he made. There were several mills that also fit into that category. Cherry prices also spiked thanks to the European markets.

Small mills do get chased out. They are usually too inefficient to compete with larger mills. They can't compete in the same marketplace. However, they can compete very well in specialty and niche markets. Those markets are too small for big mills to handle. If your business plan is for a small mill, then these are the markets you should be addressing.

Smaller markets are quite often immune to the comings and going of the housing market. The article was talking about softwood markets and the housing market link. When you distance yourself from that market, things look different.

We primarily to brokers for our upper grade woods. We also sell to direct users for other niche markets. The big one for us is the casket market. No downturn in demand. We sell more wood due to the quality of product than we do on our price.

SwampDonkey · September 04, 2009, 04:15:10 AM

Quote from: Ron Wenrich on September 03, 2009, 05:14:33 PM
We sell more wood due to the quality of product than we do on our price.

I certainly believe in that. Just go to the lumber yard and open a new bundle and see all the defect. Not much in the stack would be no 1 grade. It's what we always called utility grade, yet your charged for no 1 at the cash register. Be hard to find a 2x6" in the stack that you want to make a bench for a picnic table from. :

The modern mills might be efficient in milling out lumber, but they are loosing a lot of money on quality. Up here they are also loosing tons of money trying to saw what we call stud wood sized timbers, barely enough jacket wood shaved off each stick to leave a smooth piece of lumber without a corner of bark still on it. That is a result of too much capacity, and short growing season and harsh climate. No shortage of wood, just a shortage of upper diameters to be profitable.

Red spruce and black spruce are amazing trees in themselves. But more so for red spruce. That stuff will grow in suppression and the thickest of thick you ever saw. You take a tree about 25 feet tall, skinny as a bean pole, you could bend that thing like a catapult and the top could touch the but end of it and that darn thing won't break off. Cutting them with a brush saw is just like cutting an ironwood. We aren't cutting too many 25 foot spruce with a brush saw, mostly 6-12 footers. But a 25 footer in a thicket is like a piece of spagetti. Take a balsam fir and you can snap that thing off like a match stick, not much bending strength. That's why moose will browse it in winter if they are hard up.

Ron Wenrich · September 04, 2009, 05:37:12 AM

There's 2 different measures of quality. One has to do with grade and the other has to do with dimension. My dimensions are strong, while many other mills are right on or scant. My yard has no pallet cants in the yard while other mills are loaded. That means we keep cash flowing while others are not. Am I giving wood away or keeping a business moving in a downturn?

As for utility grade being sold as #1, that has to do with quality control on the purchasing end. There are a lot of buyers out there that couldn't buy a stick of wood because they are pretty ignorant of grades, species, and uses. They don't really care as long as they can pass the costs forward. Box stores are on the top of that list.

If you're selling through a broker, lumber gets graded and that determines price. If lumber is scarce or in high demand, the grade gets relaxed to meet demand. Right now, they are really fussy. Scant thickness is not going to make grade in today's hardwood markets.

jdtuttle · September 04, 2009, 06:39:18 AM

Small mills do get chased out. They are usually too inefficient to compete with larger mills. They can't compete in the same marketplace. However, they can compete very well in specialty and niche markets. Those markets are too small for big mills to handle. If your business plan is for a small mill, then these are the markets you should be addressing.

Some very insightful responses. My business plan is focused on the niche market. I have become addicted to sawing and want this business to be self supporting so I can support my habit. :D The sawmill is only one part of the business plan. I have a small wood shop and hope to have a kiln by next year. My ultimate goal is having the ability to take a log, saw it, dry it, & process it into a finsihed product like molding or flooring.
Thanks for you help 8)

Ianab · September 04, 2009, 07:26:20 AM

The original article seems to come from a conservation point of view. "Dont give away trees just to keep mills running."

Thats actually true. If the market for logs is down the last thing you need is a flood of cheap logs. You need to leave some trees standing, cut back on the milling operations and get through the next couple of years.

Of course if you have done a business plan, with bank loans, based on the good years you have a problem.

You cant cut back because the finance payments still need to be payed. But continuing to produce when you cant sell at a profit sees you going downhill fast.

The mills that survive are the ones that have the financial backing and can tighten the belt and work smarter. Working smarter is like Ron says, produce what the customer wants. Saving 5% by cutting too thin and then not selling any product is false economy.

Smaller mill operations can work because they are flexible and dont have high over heads. Niche markets, wordworking, fence building, garden furniture etc.

Ian

SwampDonkey · September 04, 2009, 07:43:21 AM

At least one of the timber companies here has shifted from concentrating on producing softwood pulp, to selling hardwood pulp logs. I don't know where the thinking on this comes from, because it's my understanding that pulp, whether softwood or hardwood is still at a low as far as price. But, I believe right now that this mill is looking to buy that "black liquor" subsidy pulp in the US and sell hardwood pulp. Their sawmills have been idle for months and they have said even before the recession that the sawmills have been loosing money. That points back to what I said earlier on tree growth and piece size. I can sit down on the corner from 6:30 am each day and count truck after truck of hardwood tree length pulp going to Maine non-stop, usually 2-3 trucks at a time. This company is in hard times right now and is under bankruptcy protection. Their stock is so poor it's no longer listed on the exchange. Took the Union most of the year in negotiations to come to an agreement. I'm not so sure it even matters.

ARKANSAWYER · September 04, 2009, 10:39:03 AM

Here we are getting $540 mbdft for FAS red oak. Can not afford to saw it. We are getting about that for rr ties. But when we saw a log we have $550 mbdft in by the time we buy the logs, saw them and then truck out the products. If I am going to starve to death I am not going to work myself to death trying to do it. Tie buyer came by and wanted me to saw some ties for them. Nope! was my answyer. I just do not sell that much 1x oak stock and have no place to store it when dry. When FAS was above $850 mbdft we were making money. Right now I can buy wholesale pine lumber cheaper then I can buy the logs :

I went last week and bought 2 mbdft of pine lumber from a mill that was kiln dried for $450 mbdft and I selll green for $600 mbdft here. ???
Read in one of the Timber Mags about a company in MS that was doing more production as ever. Cutting logs off of their timber lands along the Mississippi river and selling alot over seas. They have millions invested in land and equipment so I know that they are not making much profit if any. They are working, but it may be themselves into the ground. But if the company cut back just 1mmbdft a year production the price would come up and they would not notice the loss in production. When the price was $1,250 FAS for red oak a few years ago every one flooded the market and now it is less then half. Greed is a tuff critter to keep a hold of. But them of us who make it through this hard times will cut a fat hog for a while when it comes back. Jungle rules apply in the forest.

Cedarman · September 05, 2009, 09:17:10 AM

Normally I pay for standing cedar in Ky and In. The Feds want 12 acres of cedar clear cut and removed to make for prairie restoration. I can use every stick down to 1" x 8' long. The residue mush be chopped and removed or spread out so that it is not more than an 1" or 2 thick. They estimate the cost to be 2000 to 2500 per acre. Don't you just love the gubberment.
When we did a job like this in so Ok we did it for $500 per acre. But we only had to jump through steel hoops. This job has the hoops covered in burlap, soaked in fuel and lit.