As Timber Industry Improves, Mills See Setbacks with Availability

The first half of 2014 was the strongest six-month period for the wood products industry in five years

By Dillon Tabish

Reflecting slow but mostly steady improvements in Montana’s wood products industry, lumber production and worker wages increased in the first six months of 2014, according to a new study.

But despite the optimistic numbers, logging managers in this corner of the state say they continue struggling with available inventory, due to ongoing litigation tying up forest lands and challenges within the U.S. Forest Service.

“In general the first six months have been pretty good. The market and prices on the products are up. But the problem is securing the raw resources and trying to get sufficient wood,” said Chuck Roady, vice president and general manager of F.H. Stoltze Land and Lumber Co. near Columbia Falls. “We’re surrounded by trees but we just can’t get the Forest Service to manage their land.”

The first half of 2014 was the strongest six-month period that the state’s timber industry has experienced since 2009, according to Todd Morgan, director of forestry industry research at the University of Montana’s Bureau of Business and Economic Research.

Morgan released an overview of the industry last week, proclaiming a positive message for Montana’s sawmills.

Statewide, wages paid to production workers spiked 20 percent from January through June compared to a year ago. The number of production workers was up 3 percent. Lumber production increased 4 percent.

The continued increases are good to see, Morgan said, and the trend should continue with gradual improvement from 2009, which saw the industry plummet to its lowest point in more than 50 years.

“Montana wood products results for 2009 and 2010 were the lowest since the end of World War II, and their recovery has been slow but fairly steady,” Morgan stated. “U.S. homebuilding has increased more slowly than predicted for years and is still not back to its long-term average, which has contributed to slow growth.”

The number of production workers employed during the first half of 2014 increased to 1,698 – the highest since 2009, Morgan said.

Montana’s plywood, particleboard and medium-density fiberboard production levels were somewhat lower in the first half of 2014, but that was the case across much of the country with slower-than-expected housing starts, Morgan said.

Annual lumber production was up almost 40 percent from the 2009 low, but still well below where it was in 2007 and 2008, Morgan said. About 294 million board feet of lumber was manufactured in the state during the first half of 2014 compared to 283 million board feet in the first half of 2013 and about 264 million board feet on average for first halves of 2010 through 2012.

“Most mills in Montana are still operating below full capacity and have not yet added additional shifts,” Morgan said. “Log supply continues to be the key issue currently limiting production, as opposed to markets for finished products.”

Plum Creek, one of the largest private landowners in the U.S. with roughly 6.7 million acres of timberlands, forecast that roughly 1.1 million housing starts, but residential construction “has not increased as initially projected,” according to company officials. The company’s latest prediction is the year-end total will reach 1.03 million starts. The long-term annual average is 1.4 million new starts.

According to Rick Holley, Plum Creek’s chief executive officer, the company’s operating income and cash flow from its timber resources segments are up nearly 30 percent.

“We are still expecting meaningful growth this year, and the second half will be sequentially better than the first half,” Holley said. “The long-term trends in the timber industry give us confidence that timber markets will improve as lumber demand grows, although the recovery in 2014 has been more muted than we and other industry participants initially expected.”

Plum Creek’s Northern Resources segment, which includes Montana, reported an operating income of $5 million during the second quarter, compared to $8 million during the same period last year. Overall harvest volumes decreased about 5 percent year over year.

Plum Creek’s manufacturing segment, which encompass a majority of the company’s Montana operations, reported an operating income of $10 million, compared to the $14 million of operating income reported for the second quarter of 2013.

Earnings were negatively impacted by the June 10 fire that rocked the Columbia Falls medium density fiberboard plant. Production was suspended and shipments were halted while the plant was closed for repairs for 30 days.

The fire adversely impacted the segment’s income by $2 million in the quarter, according to Plum Creek’s quarterly earnings report. The property damage and lost income was covered by insurance.

As expected, plywood production and sales volumes were 22 percent lower than the second quarter of 2013 due to limited availability of plywood peeler logs in the region during the past six months.

MDF and plywood prices remained strong and were similar to the second quarter of 2013. Lumber prices increased 8 percent over the prior year due to stronger pine board pricing.

At Stoltze in Columbia Falls, the family-owned operation has also enjoyed favorable log prices and high market demand. But even though production has increased this year, Roady said the company has not added workers.

“We just can’t secure enough logs to do that,” he said. “We’d love to take advantage of the demand in the market but you have to have the trees.”

Roady praised Gov. Steve Bullock’s recent efforts to improve forest management in Montana, including the new Forests in Focus initiative that aims to increase management partnerships with tribal and private landowners and designates 5 million acres of “priority landscapes” that are provided as a provision in the new Farm Bill.

“It bothers me that there are groups out there who think they will protect the forest by stopping timber harvesting. Well we all like to live here, too. We’re not going to tear up anything where we live. I like to recreate and hunt and fish and do all the same things as anyone else,” Roady said. “We need to manage the forests instead of doing nothing and letting it burn up. That just doesn’t seem unreasonable to me.”

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