Forestry industry sees falling prices

Published 6:00 am Monday, January 7, 2008

High fuel costs and a nationwide lull in the construction of newhouses have combined to create a negative impact on the state’sforestry industry for the second consecutive year.

The agricultural department of Mississippi State University hasreported that the overall value of the industry, which yet retainsits position as second in the state, has fallen from a value of$1.4 billion in 2005 to $1.1 billion last year.

One section of the forestry industry that is reeling from thefalling value is the lumber market.

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“We’ve had a reduction in the pine saw timber harvest,” saidSteve Dickie, an extension forester for the state’s southwestdistrict. “We’ve had historically high housing starts for years tokeep that lumber in demand, but all of that has fallen by thewayside now. The mills have built up an inventory, and we’reneck-deep in lumber right now.”

Dickie said the lumber market would remain stale until mortgageinterest rates around the country began to fall under 6percent.

“That’s the magic number,” he said. “Any time mortgages go over6 percent, we see a decrease in housing and a decrease in thedemand for lumber. Once those rates duck back under 6 percent, themarket should pick back up.”

Dickie said analysts were predicting the mortgage rates tolessen in 2008, though he stressed that it will not happenovernight. He pointed to the fall of this year, and maybe even into2009, as a likely time for the lumber market to beginimproving.

“It’s going to take a while to get this inventory of lumber offour backs,” he said.

Until lumber value goes up, lumber companies, and other forestryindustries, will continue to feel the pinch.

“We’re definitely in the midst of a very, very depressedmarket,” said Jeff Grierson, president and part owner of ColumbusLumber Co. in Brookhaven. “The lumber market is woeful rightnow.”

Grierson pointed out that, despite the low value of lumber, theGulf Coast region was managing to keep the boards moving, whileother regions in the country are not.

“There’s still rebuilding that is going on down here because ofHurricane Katrina that no one else in the country is experiencing,”he said. “That has helped keep the lumber moving, but it hasn’thelped with the price. We moved basically the same amount of lumberin 2007 as we did in 2006, but at much lower prices.”

While the value of lumber sags nationally, the prices aremonitored, and largely influenced, by Random Lengths, a forestryinformation service based in Eugene, Ore. Random Lengths compiles alarge list of several data weekly by contacting wholesalers andmanufacturers to gather the average prices of lumber and otherforestry products across the country.

“They print where the market is at,” Grierson said. “And they’vebeen doing it for so long, everyone buys and sells according totheir estimates. Buyers will call you up on Monday and ask, ‘Whatdid the print say Friday?'”

The “print” has posted some depressing Fridays over the past twoyears.

“The composite average price for lumber in 2006 wasapproximately $365 per thousand board feet,” Grierson said. “Lastyear, it was around $315 per thousand board feet. That’s a $50 perthousand board feet loss, and it adds up fast. We pump out millionsof board feet per month.”

Grierson said the average truck load of lumber contains roughly22,000 board feet. With a hit of $50 taken on every thousand boardfeet, each truck load is delivering about $1,100 less than it wasin 2006.

Within each truckload of lumber lies another great bane of theforestry industry – the price of fuel.

“Fuel prices have definitely hurt us,” Grierson said. “If youtake the cost of living, price index, fuel costs and inflation,you’d probably have to go back to the 1970s to find the same marketsituation as we’re having now.

“So many factors go in different directions to affect the bottomline,” he continued. “Timber prices are stable, lumber prices godown and gas prices go way up. You put all that in a blender andpull the answer out, it’s not pretty.”

Bradley Jim Smith, owner and president of B.J. Smith LoggingInc., does not think the situation is petty either. The devaluationof lumber has affected logging industry, but it has not made asmuch of an impact as the costs of fuel.

“Fuel is the biggest problem,” he said. “When you look at itall, that’s where it starts. The old saying ‘up in smoke’ is a factnow. All our money’s going up in smoke. All we’re doing is turningover money.”

With the housing market in shambles and lumber stacked inwarehouses across the country, the demand for timber is also down,and loggers like Smith are shouldering the financial losses.

“If it went up like everything else, there ought to be a 30 or40 percent increase,” he said. “The value of timber is the same ormaybe even less than it was in 1994 when I went into business, butthe cost of fuel has tripled since then.”

Smith said loads of timber were bringing in a far lower gateprice, the price paid for logs at the door of the mill, and loggerswere being forced to pay landowners more for timber harvestingrights. He said the cost of equipment has doubled, the cost of fuelhas tripled and the rates have stayed the same.

“It just costs more for us to operate these days,” Smith said.”It’s one of those games where you make money one week and none thenext. You have to look at your business from a yearly standpoint,’cause if you look at it day to day, you’ll find yourself flatbroke and go crazy.”

Smith pointed to a decrease in the stumpage price, the moneypaid to landowners for timber harvesting rights, and the strictnessof equipment emissions restrictions as two variables that arecurrently hurting the logging business.

“I’m all for doing what’s right and taking care of theenvironment, but when they started all that emissions stuff out inCalifornia it has really hurt us,” he said. “It’s just like runningthe air conditioner in your car. The extra engine power it takes torun that compressor hurts your gas mileage. All the new emissionsparts are burdening these engines. And those new Tier 3 engines,they’re just gulping down gas. We get worse fuel mileage now thanwe did three years ago.”

Despite forestry’s downward turn of events, Mississippi’s woodworkers are enduring.

“We’re continuing to survive, despite the down market,” Griersonsaid of Columbus Lumber. “And we’re going to continue tosurvive.”

Grierson said his company had met the challenge by expandinginto other markets and by developing special lumber products tofill niche markets, like pre-notched fence boards and othermodified pieces.

While the heat is on the forestry industry, Smith offered someadvice for the next year, or more, while the logging and lumbersections of the industry wait on the housing market to regainstrength and help to pull the wood markets through.

“I’ve just tried to quit worrying about it,” he said. “We’lljust have to ride it out and pray about; do lots of prayin’.”