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Looming Expiration of Softwood Tariff Worries Beleaguered Timber Industry

Montana’s congressional delegation urges Forest Service to provide relief

A witch’s brew of misfortune has cast a spell on Montana’s timber industry, staggering the beleaguered market as mills pare back hours and lay off employees with little relief in sight.

The multifaceted problem is complex, compounded by the looming expiration of the softwood lumber agreement – the Canadian tariff that former U.S. Sen. Max Baucus put in place in 2006, ending a vitriolic lumber trade dispute between the U.S. and Canada – is set to expire Oct. 12.

The SLA had a six-to-nine-year time limit and was extended for two years in 2012. Since then, there has been little in the way of negotiations between the two countries to renew it.

According to Random Lengths, a trove of inside information for the wood-products industry, the American dollar equaled roughly $1.33 Canadian in August, and the softwood lumber agreement between the two countries dropped its tax from 15 percent to 5 percent, making the U.S. market more attractive.

Because the Canadian “loonie” – the country’s dollar, named for its state bird, the common loon – is slipping against the U.S. dollar, the country sees a 25 percent profit from the exchange rate alone when it exports to the U.S.

And with the U.S.-Canada trade agreement set to end next month, the market will likely be flooded with more Canadian lumber.

Chuck Roady, director at F.H. Stoltze Land and Lumber in Columbia Falls, said competing with cheaper Canadian lumber is a lopsided endeavor because the U.S. and Canada have two different systems for harvesting logs.

Canadian lumber companies have an easier time accessing trees for harvest when compared to the American system, and invest much less while competing in the same market.

“It’s a completely uneven playing field but we’re both selling into the same market,” Roady said. “Combined with the exchange rate that is a huge amount of money that they make when they export their timber across the border.”

Although early economic forecasts called for a promising year, the timber industry lost momentum this summer as housing starts slowed and the domestic timber market hit another stagnant point, while commodity prices for 2×4 and 2×6 studs tanked, dipping from $355 per thousand board feet earlier this year to $280.

Meanwhile, China’s market downturn and the devaluation of its currency has dwarfed the country’s building boom and stanched the flow of its imports. That means Canadians can’t sell lumber to China, so they’re unloading it in the United States, where the strong dollar has made it one of the most attractive markets in the world and is a boon to Canadian business.

“There’s a lot of moving cogs right now and it has really taken a toll on the wood products industry,” said Todd Morgan, director of Forestry Industry Research at the Bureau of Business and Economic Research at the University of Montana. “And when the Canadian softwood lumber agreement ends, I think there’s concern that the Canadians are really going to flood the market with lumber.”

While Stoltze has pared back its hours of operation from 80 hours a week to 60 hours a week, other mills in the state have been forced to layoff workers.

The news prompted Montana’s entire Congressional delegation to implore the U.S. Forest Service and the Bureau of Land Management on behalf of the state’s timber industry to grant flexibility on federal timber sales.

Sens. Jon Tester and Steve Daines and Rep. Ryan Zinke all sent letters to USFS Chief Tom Tidwell, asking for relief and flexibility to soften the impact of foreign demand and exchange rates on the timber industry.

And while Roady said extensions of timber contracts would help and that he’s not predicting any additional cuts at Stoltze, Morgan said the economic aftershock will continue to weaken the industry for some time.

“I wouldn’t be surprised to see mills taking some down time, either by shortening shifts or through curtailments,” Morgan said.

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