MONTICELLO -- Mike Pennington eased his pickup to the edge of a muddy road to let a log truck pass. Thick stands of pine trees crowded the road on both sides.
Logging company owner Mike Pennington said he has spent more than $2.5 million on equipment since 2013.
A skidder owned by LD Long Inc. logging company moves harvested pine trees on Wednesday near Monticello.
Greg Bradley (left) and Ben Raney, logging equipment operators for LD Long Inc. logging company, prepare for work Wednesday at a site near Monticello.
"There's more trees standing now than ever before," said Pennington, a timber industry veteran and owner of LD Long Inc., a logging company. "There is a glut of pine. There's a sea of pine."
Hardwood growth, while not at record levels, also is high, industry experts say. Oversupply drives down prices in any market, but in the timber business it also increases risks to producers' inventory -- overly dense forests full of stressed trees are more susceptible to insect infestations, disease, storms and wildfires.
"The supply is just huge and it's going to take us a while to chew through it," said Matthew Pelkki, who holds the George H. Clippert Endowed Chair of Forest Economics at the University of Arkansas at Monticello. "It's a manageable problem, but we're sitting on a powder keg."
Essentially, Pelkki said, landowners in Arkansas are growing trees faster than they can be cut.
Numbers provided by the Arkansas Forestry Commission support that contention. In 1995-2005, the last survey period before the recession, Arkansas had 38.5 million tons of mature trees available for harvest, and 31.5 million tons were actually removed from the land. That left a surplus of 7 million tons.
In 2006-2009, a time period that includes the recession, total growth stood at 42.2 million tons and just 30.8 million tons were removed, leaving a surplus of 11.4 million tons.
In 2010-14, according to the most recent information available, Arkansas had 41.6 million tons and harvested 24.8 million tons. The annual surplus had grown to 16.8 million tons.
The harvest number accurately reflects market demand, Pelkki said, and the greatest effect of the recession can be seen in the declining removal of pine trees for use in home construction. From 2009-14, the pine harvest dropped by 4 million tons, or 20 percent, according to the Forestry Commission. Removal of hardwoods, used for things such as furniture and interior molding, fell by 17 percent over the same period, the commission said.
The reasons for the decline in demand are complex and connected, but they all start with the collapse of the homebuilding industry, which Pelkki said consumes about half the softwood crop.
Officially, the recession started in December 2007, but Aubra Anthony, president and chief executive officer of Anthony Forest Products in El Dorado, said he got an early warning.
"From April to May of 2006, our sales [of lumber and other building materials] dropped 30 percent," Anthony said. "That was more than two years before Lehman Brothers failed."
The seasonally adjusted annual average for housing starts topped 2.2 million in 2006, Pelkki said, then plunged to 500,000 to 700,000 through 2012. The rebound has been frustratingly slow, he added. The federal government said Thursday that housing starts are expected to total 1.1 million units this year, down from a July estimate of 1.2 million.
As demand for lumber dried up, stumpage prices for timber fell -- from $44 per ton for saw pine in 2005 to $25-$27 per ton today -- and landowners began cutting fewer trees, Pelkki said. Sawmills across Arkansas shut down or reduced shifts, and many loggers went out of business.
Arkansas' trees, meanwhile, kept growing. Forests kept getting thicker.
Robert Bell, who owns about 80 acres of hardwood timber at Mooreville in Independence County, said the recession temporarily "destroyed" the market for small growers like himself.
"Sawmills could not move a board to save their lives," he said.
Now, almost 10 years later, the market is sending mixed signals, according to Max Braswell, executive vice president of the Arkansas Forestry Association. Demand for timber has rebounded from historic lows as housing starts have increased, but it's not back to pre-recession levels and lumber prices are falling, Braswell said.
Industry reports show lumber prices have fallen this year from a high of $380 per 1,000 board feet in February to $307 in August. Reasons for the price decline include an oversupply of lumber, weakening exports because of the strong dollar and the fact that the increase in housing starts is partly because of the construction of multifamily units that inflate the count but use less lumber than stick-built homes.
Arkansas timber industry participants generally agree about what caused their problems, but they frequently emphasize different things when asked what's needed to reduce the timber glut.
Frank Wilson, owner of Wilson Brothers Lumber in Rison, agreed the Arkansas timber industry had been severely weakened. His company logs pine trees and operates a hardwood mill.
"We don't have enough mills to take care of the pine trees we have," Wilson said.
Anthony, on the other hand, said the mills that survived the recession invested in technology to become more efficient.
"Those of us who are left can produce more and better lumber than we could 1o years ago," he said.
Pennington said loggers also are more efficient but added there still aren't enough of them to eliminate the surplus. There were no axes or chain saws in sight when he took a reporter to observe one of his crews. His men worked from the air-conditioned cabs of computer-equipped heavy vehicles, pushing joysticks and pressing buttons to fell trees, haul them to a processor, strip off limbs, cut them to mill specifications and load them onto trucks. The work was breathtakingly fast, and no human hands touched the trees.
Pennington, who employs 19 people, said he had spent more than $2.5 million on equipment since 2013, typically financing it for three years and hoping to operate it for four. Those kind of upfront capital costs make it difficult for new operators to enter the business.
Finding employees who can pass a drug test and qualify for coverage under his vehicle insurance policy also is a challenge, he said, as is the fact that many young people don't want to be loggers. Earlier on the day he met with a reporter, Pennington said, he had to turn down a large job because of a lack of crew capacity.
Pelkki said the solution to the oversupply problem lies in recruiting and training more heavy-equipment operators, like those Pennington needs; making available low-cost or no-cost loans to new and expanding loggers, and ensuring that the Arkansas Forestry Commission, which had to lay off employees in 2011 because of declines in timber severance taxes, is well-funded so it can help landowners protect their trees.
Braswell said a sustained period of high employment and low interest rates is necessary to significantly increase the housing starts that drive the timber industry. In addition, he said the industry needs more sawmills and more loggers and less "over-regulation" by the federal government. But, he said, everyone in the industry will have to adapt to "the new normal."
"We aren't going to see the stumpage prices that we saw at their peak," Braswell said. "We're not going to see housing starts like they were before the recession."
SundayMonday Business on 09/20/2015
Print Headline: Timber glut worries state loggers