Unlike spring, summer, fall, and winter, mud season has no official start and end dates. Still, it is a predictable part of the logger’s year, signaling the temporary close to a season of work in the woods. When the snowpack starts thawing and the roads soften up, skidders get pulled out of the woods and log trucks get parked. Dooryards and garages are overflowing with equipment in this traditional time to take care of overdue repairs and maintenance. Then, when the woods dry out and the posted signs come off the roads, it’s back to work. Just as spring follows winter, it’s all part of the cycle.
Things are different this year, though. The cycle may be broken. As we come out of mud season, the big question is, how many of those skidders and log trucks will stay parked in the yard? How many of those loggers and truckers will have spent mud season finding another way to make a living?
The forest products industry is mired in its worst slowdown since 1990-91. Because of so little demand for lumber, production at every step from the stump to the showroom has slowed. Sawmill profits – if any – are so slim that many mills are reducing production in any way they can, shutting down second shifts, reducing the work week to four days, and shuttering the most unprofitable parts of their businesses in order to contain losses.
It’s not just mills. The loggers and truckers who supply logs to those mills have been hit in recent years with steadily rising costs of insurance, parts, tires, lubricants, and fuel. Most of their equipment runs on diesel, whose cost in the last year has increased even more dramatically than gasoline’s. Walter Chandler, a logger in Greenfield, New York, told me, “We’ve been in this business long enough to know that it has its ups and downs. We expect cycles. We expect down time for repairs, we even expect someone to get hurt every once in a while. But fuel is going to kill us.”
Sarah Smith, forest industry specialist for University of New Hampshire Cooperative Extension, said, “Fuel cost has been absolutely crippling, and there’s no end in sight. It’s a very straight equation for loggers: ‘If fuel costs this much, I need to get this much for the wood, and nobody is paying that.’ In this market, prices can’t rise high enough to absorb this added cost.”
Low demand for lumber coupled with high costs of production have led to a major reduction in capacity. Many in the wood business are clinging to the strategy that’s worked in the past: squirrel away profits in good times and hunker down when it’s bad, using cash reserves to maintain lean operations while weathering the storm. As one industry official said, “We’re slowing down our metabolism so we can survive.” But some analysts, including Sarah Smith and her counterpart in Vermont, Bob De Geus, a wood utilization specialist with Vermont’s Department of Forests, Parks and Recreation, think that they may be waiting a long time for the upturn. This time around could be significantly worse than any previous slowdown, and the industry as a whole could face wholesale structural changes. Said De Geus, “People in the business like to say: ‘It’s just another downturn. We’ll weather it and we’ll be good.’ But the current situation is very different. We’ve gone from artillery shelling to aerial bombardment.”
Those bombs are raining down on an industry that is tied to three-quarters of the landscape of New York and New England, a landscape that readers of this magazine happen to love. Just as loggers, landowners, and lumbermen are all inextricably linked to each other, so are the economy, the culture, and the forested landscape of our region. With such an assault on the economy, the very nature of our rural world is at risk, and a look at what has happened to farming provides a useful, if ominous, comparison. When the agricultural infrastructure – feed stores, tractor dealerships, farm labor – erodes, and farmers can no longer make a living at it, the land often gets divided and sold, because selling it as real estate is the only remaining way to wring income out of the land.
In the past, when a sawmill closed or a logger or two parked their skidders, there wasn’t an overall loss of volume – other mills and loggers would increase their capacity to fill that temporary gap. Today, nobody is filling that gap. The Hardwood Review, which tracks hardwood lumber prices, reported in February that hardwood lumber production in 2007 was off by 11.3 percent nationally. In the Northeast, it was slightly worse, with Maine and Vermont each being off by more than 15 percent. Sarah Smith told me that sales of lumber from retail outlets at some New Hampshire sawmills were down 50 to 60 percent last year.
The slowdown is not uniform across the region. Some mills, some furniture makers, some loggers are making the best of conditions and continuing to operate profitably. Observers who take a rosier view of the situation note that we’ve been through these tough times before. They point out that the magnitude of the booms and busts in the Northeast is always less than what happens in the Sun Belt and West.
The latest serious downturn in the timber industry was in 1990-91. Then, as now, there was a large contraction in capacity. Loggers quit, and the industry geared down. One lumber wholesaler told me about the recovery in 1992-93: “The market was asking for lumber, and the industry couldn’t respond. We couldn’t meet the demand because capacity had shrunk. Lumber prices doubled in a span of 12 to 18 months. Things got cooking, production geared right back up, and everybody did fine,” he said.
Still, there’s evidence that it may be different this time. De Geus’s aerial bombardment includes: an increasingly competitive global marketplace; increased costs of production; tight credit in the wake of the mortgage lending debacle; a stagnant housing market; and loss of production capacity. The last two are perhaps the most dangerous.
First, housing. New home construction traditionally accounts for 45 percent of lumber consumption, according to economist Paul Jannke, an expert on softwood markets. I heard Jannke speak at a meeting of lumbermen this spring, and he explained that too many houses were built in 2002-2006, and the glut has meant that sale prices for houses have come down three percent a month for the last 18 months. There are two million unsold houses on the market, which tells carpenters to hang up their tool belts. When new houses stop being built, the demand for softwood lumber dries up. That is followed six months later by a similar lag in hardwood lumber, which is borne out not only statistically but also logically: it takes six months to frame and sheathe a house, which requires softwood, followed by the finish work – flooring, cabinets, furniture – which tends to come from hardwood.
The fallout from the housing crash is widely expected to take several years to settle out. The Hardwood Review echoes many other observers when it concluded its report by encouraging sawmill owners to hope for the best but suggests they “prepare for the most likely scenario that significant improvement won’t occur until 2010.”
By then, a lot of iron could be rusting, which bring us to capacity. Bob De Geus explained, “Every loss in trucking capacity affects a landowner’s chance to harvest, a logger’s chance to cut timber, and a mill’s chance to obtain raw material. At what point does this situation create a cascade of effects that push loggers and sawmills out of business? What scale of closures can the forest products economy sustain?”
And how is all this affecting paper companies, the industry’s other major player? The paper industry has transformed itself in the last decade. Paper companies have cashed in on all their timberlands, selling them mostly to timberland investors known as TIMOs. And there’s been widespread consolidation: older, less-efficient paper machines have been shut down, and in some cases, entire mills have closed. There’s just about enough paper coming out of the mills to meet demand, and no extra. All of this consolidation has been in the service of making each remaining plant as productive and as cost-efficient as possible, because they, too, are competing in a global market.
An erosion in logging capacity would hurt them by increasing the cost of procuring pulpwood. Already, some mills have had to absorb part of the loggers’ and truckers’ fuel costs. Plus, there are alternative and thus competing markets for pulp-quality wood. The potential for growing markets in wood for energy – electricity, heating, and biofuels – is, as Sarah Smith notes, “a glimmer of hope,” though not for paper mills, which will be competing for that same wood. That glimmer will shine brightest in the regions that have traditionally relied more on production of pulpwood than sawlogs, but it’s a dim substitute for the diverse markets for higher-value hardwoods that have existed in the recent past. Forest owners who are accustomed to getting $500 per thousand board feet (MBF) for their sugar maple logs are not going to be interested in selling them for biomass or pulp at a price one-fifth of that. As Sarah Smith points out, buyers won’t get the pulp if landowners aren’t cutting sawlogs, and at today’s prices, more and more owners are postponing timber sales. This is particularly true in family forests, rather than TIMO forests, where investors don’t turn the cash flow spigot off and on so easily.
People who work in the wood business know a secret that the rest of the people who treasure these forests would benefit from knowing. That secret is this: a thriving forest products industry is our best hedge against a diminished forest that’s chopped up into little pieces and inhospitable to current populations of wildlife and people.
By providing the owners of this forest – whether the holding is 100 acres or 100,000 acres – a market to sell wood, the wood business delivers the income that justifies their holding onto this land. Without that opportunity, the owners of millions of acres will need to reconsider whether this is the time to exploit the development potential of their part of this magnificent forest. What’s worse, before the land gets sold, its valuable timber could disappear like cash from a Depression-era bank.
I’ve been covering forestry in the Northeast for 15 years now, and there have been improvements in harvesting practices and commitments to long-term stewardship that were unimaginable when I started. Apart from some notable exceptions – in some areas, there’s an enduring culture of cutting only the best trees – the forestry world has made great strides. It would truly be tragic if that progress were wiped out.
I asked the lumber wholesaler who told me about the 1992-93 recovery whether the present downturn was just part of a cycle. Or is the situation different this time? He said, “This one has knocked so many people out. A lot of our friends have closed their doors. It’s heartbreaking.” After a pause, he continued: “But I’ll bet my life on it there will be a recovery. For those who last, it will be good for them again.”