To an industry toughened by three decades of hard knocks, this is still a body blow.
The Oregon timber harvest in 2009 was the lowest since the middle of the Great Depression at 2.75 billion board feet, according to a new report by state forest economist Gary Lettman.
And the bad news for the industry doesn’t end.
“The preliminaries I have coming this year show it’s going to be just about the same,” Lettman said.
Mill owners, millworkers and sector analysts say they’re no longer talking about recession in the timber industry. To them, this is a depression.
“It’s very scary,” said Butch Bernhardt, spokesman for the Western Wood Products Association. “This business environment is something most people haven’t seen in their careers. This is not once in a generation. It’s far beyond that. This is, perhaps, once in a century type stuff.”
Oregon is still the biggest timber producer in the country, and Douglas and Lane Counties are still the state’s top producers — and people around here are flummoxed.
“It’s so unprecedented that many people in the industry don’t know how to think about it. They don’t know how to plan. There’s not much certainty in the future,” said Norm Johnson, a forestry professor at Oregon State University.
A cruel twist
At the beginning of 2010, an optimism was washing through the industry.
Hurricane season, an expansion of the Panama Canal and the reconstruction of Chile after a shattering earthquake were all tickling demand.
“We had all this stuff coming together at one time and prices actually started to recover. Not to what they were, but they did recover,” Lettman said.
The Random Lengths framing lumber composite price started the year at $251 per thousand board feet and peaked in April at $367 per thousand board feet, a 46 percent gain.
“I was starting to get jazzed in April. It just seemed like things were, ‘Yeah, we’ve turned the corner. It’s starting to get better,’ ” said Bryce Ward, a senior economist at ECONorthwest who follows the housing market.
“The economy was going to recover, and the housing market was going to recover. People were optimistic that in a year or two we would be out of this funk,” Johnson said.
Enticed by the demand, northwest mills — thrumming with idle capacity — swung into production, Seneca Sawmill Co. General Manager Richard Re said.
But the gears turn too slowly; and they can’t stop quickly enough.
“You can’t say, ‘OK, were going to produce 50 percent more lumber’ and flick a switch. It takes time to crank up that production, to get the logs, to bring on the additional staff,” Bernhardt said. “By the time you do all that, things can go to hell. That’s what happened.”
The price of framing lumber fell 29 percent between April and July, according to Random Lengths. And it continued to slide in August, editor Shawn Church said.
“We’re getting back down to the levels where we started the year, which is in a historical trough,” he said.
“There’s not a lot of optimism for demand looking forward right now. There’s just a lot of uncertainty about the marketplace, about housing, about the U.S. economy,” he said.
The spring uptick in demand was a cruel trick, Johnson said, which took its toll on the people working in timber production.
“Now they’re doubly discouraged.”
This time of year, mills should be hopping, said Robbie Robinson, part owner and CEO at Starfire Lumber Co. in Cottage Grove. “When we had reasonably good markets, this is the time of year we’d run nine hours a day and nine hours every Saturday.”
With favorable interest rates, the housing market should be in high gear, economist Ward said.
“We should be seeing lots of housing demand. A 4 percent mortgage rate? That’s great! People should be saying, ‘Yes let’s go get it,’ ” he said.
But fewer homebuyers are interested in building or buying new when there are so many houses on the market, including short sales and foreclosures at reduced prices.
“There’s a lot of houses that have been taken back because people have been out of work; those houses all need to get sucked up,” Re said.
In monthly annualized projections, builders broke ground nationally at a pace of 679,000 houses in April, 588,000 in May, 537,000 in June and 546,000 in July.
“It used to be that 1 million housing starts was considered a really bad year,” Bernhardt said. “We’re half of that — and we’re going on four years below a million housing starts. We’re talking depression years.
“Unemployment is still high and without jobs — without people feeling confident that they’ll continue having a job — they’re not willing to make a huge investment like a house.”
Lettman, the economist, said he can see no indicator that would suggest a turnaround in residential construction.
Homebuilders’ confidence slumped for a third month in August, according to the National Association of Home Builders/Wells Fargo confidence index. Readings lower than 50 mean that homebuilders rate conditions as poor. August’s reading was 13.
“(This is) equivalent to what was happening in the Depression years,” Bernhardt said. “All the previous recessions, things started to snap back after 24 or 36 months. That doesn’t appear to be the case this time.”
It’s easy to tell when demand dries up quickly because sawmill yards accumulate great stacks of finished lumber.
“The market is finite,” Re said. “It’s only going to take so much wood. In the big picture, eventually, you’ll run out of places to stack it. That goes for the lumber yards we sell to. They can only take so much wood because carpenters are only buying so much.”
When the lumber is not moving, the mills take downtime, he said.
And mills are in mortal peril when they produce too far ahead of demand, Robinson said.
“You’ve got to be careful with finished inventory because — by that stage of the game — you’ve not only got log costs in it, but also the manufacturing costs and handling costs. You can get a lot of money tied up very quickly. You can run into financial problems.”
Today, western lumber mills are running at 55 percent of their capacity, Bernhardt said. To see what’s happening, compare Oregon’s timber harvests to historical numbers, Lettman said. The cut on public and private lands last year was 2.8 billion board feet, the lowest harvest since 1934 — the middle of the Great Depression.
“And it’s not sustainable at these levels. These people have to make a profit to stay in business — the mill owners and the timberland owners,” Lettman said.
Mill owners are forced to cut costs in reaction to the diminished demand, Robinson said.
“How do you do that? You cut people, you cut hours and you cut wages. You do all the things you’ve got to do — you do that or you won’t be around at all,” he said.
More than 35 percent of the state’s wood products work force has been idled since 2006, said Brian Rooney, regional economist for the state Labor Department. More than 27 percent of the state’s loggers hung up their caulks in that period.
In October, Robinson said, he cut the Starfire Mill work force deeper than he could have imagined, sending away 25 of the plant’s 75 employees.
He reduced operations to four days a week, and he cut the remaining workers’ pay by 10 percent.
“We’re running the sawmill one week, the planer the next week, trying to do everything with the same crew to keep working at all. We didn’t even do that in the ’80s,” Robinson said.
Robinson, who is nearing 50 years in the lumber business, said he’s downright spooked by this economy.
“I’m anxious. Every place you look everybody is reasonably anxious.
“Maybe some of the real rich aren’t real anxious, but for those of us who are part of the common herd who worry about paying light bills and putting food on the table — everybody is anxious.”