Softwood Lumbermen Hit Blindside

By Rich Donnell

U.S. softwood lumbermen have picked themselves up, brush-ed themselves off and put their COVID-19 gameplan in place.

Caught in the web of coronavirus, the collective expectation of U.S. softwood lumbermen for their business situation the remainder of 2020 and into 2021 has taken a big hit, compared to what the lumbermen were thinking at the beginning of 2020 before the onslaught.

In fact before the coronavirus, 86% forecasted their business situation as excellent (29%) or good (57%) for 2020-2021. But now, only 33% see it as excellent (2%) or good (31%), with much of that previous optimism slipping into the fair (40%), poor (19%), and very poor (8%) expectations.

However, the survey does show some optimism on behalf of lumbermen once the virus crisis subsides. 

“I think, God willing, we will be in position to really excel after we get through these issues,” comments Robert Jordan IV, president/CEO, Jordan Lumber in Mt. Gilead, NC. 

‘There is solid demand and I expect our regional economy to continue to grow beyond COVID-19,” adds Eric Fritch, owner, Fritch Forest Products, Snohomish, Wash.

The question then becomes how long will the economic erosion persist as the impact of COVID-19 cycles through the economy, before normalcy prevails?

U.S. softwood lumbermen offered these insights as part of their responses to Timber Processing’s annual Saw-mill Operations & Capital Expenditure Survey. One-hundred twenty-six (126) lumber company personnel—mostly owners, presidents, VPs and general managers, and some corporate executives, regional managers, plant managers and other supervisory personnel—completed the on-line survey during the latter half of April. They represented approximately 260 sawmills, the majority of which (53%) produce mostly 2 in. lumber, with 18% producing mostly 1 in. lumber and 15% focusing on timbers. 

What the survey results reveal is what everybody knows—that COVID-19 totally blindsided everybody, just when the softwood lumber industry and housing markets had tasted some momentum. And that to refer to the current situation as fluid is one of the great understatements in history.

“We didn’t see anything looming on the horizon that had us overly concerned,” says Tom Shaffer, COO/GM at Neiman Enterprises, headquartered in Hulett, Wyoming. Neiman had just finished its new planer mill in Montrose, Colo., and completed a gang edger upgrade at Montrose and an auto grader installation in Hulett.

“2019 was a difficult year in our industry. Early in quart-er one this year things started looking good, but when the virus hit, we quick-ly returned to ’19 type numbers,” comments Richie LeBlanc, president, Hunt Forest Products/La-Salle Lum-ber, which started up a new SYP sawmill in La-Salle, La.

Indeed the virus has hit, and while expectations and projections are interesting, sawmill operators must deal with the here and now.

One of the survey questions listed 10 items for lumbermen to choose any or all as to the impact of the virus crisis on their business and actions they’ve taken. “Have enhanced employee safety measures,” received the largest response at 68%, though that figure is probably higher by now as the first mailing of the survey went out when the virus was very fresh.

“We have made significant changes to avoid having log truck drivers and lumber haulers entering the office,” comments Ross Jackson, general manager, Spanish Trail Lumber in Marianna, Fla. “We have implanted social distancing for employees in the break room areas by providing additional outside tables and have more hand washing stations.”

 “We have communicated continuously with our employees and families to ease anxiety surrounding the virus,” says LeBlanc of Hunt Forest Products. “It has been somewhat difficult to make decisions using data that becomes obsolete in a few hours. Our folks have responded admirably during the crisis.” 

“One of our biggest challenges has been maintaining our employees morale and sense of well being while dealing with potentially ill employees.” comments Wes Grant, president, Cross City Lumber in Cross City, Fla. “Production efficiencies have been markedly impacted while trained operators have been out due to testing and quarantining of themselves and family members.” 

Next highest on the list of items selected was “seeing significant lumber price decline” at 57%. That was followed by “applied for government payment protection loan” with 37%, and “changed hours of sawmill operation” at 34%.

A good portion of the respondents, 18%, said they had laid off employees. It may be difficult to get some of those employees back.  An anonymous lumberman stated, “It’s impossible to hire employees when they are getting more income on unemployment than they would be working. The extra $600 in federal unemployment on top of the state unemployment is counterproductive.” Several comments pointed to the extra $600 per week in federal aid to unemployed workers (part of the CARES Act) as a challenge to deal with. The aid was scheduled to end in July but there’s been legislative talk of extending it.

An indicator of just how “fluid” and spontaneous the situation is, is this comment from an anonymous respondent: “So far we have been operating close to normal. We have reduced some hours, mostly overtime hours that we had been running. Markets are starting to look more uncertain as I write this so we are not sure what the next few weeks will bring.” 

“We are making decisions on a day by day basis,” says Charles Thomas III, VP, Shuqualak Lumber, Shuqualak, Miss.

“Information is changing so quickly we don’t make any drastic changes,” comments Robert Thomas, CFO of Starfire Lumber, Cottage Grove, Ore.

 CAPITAL EXPENDITURE

A survey question asked how much new capital expenditure in machinery and systems the companies had allocated or committed to per mill for 2020 and 2021—before the coronavirus hit. The results: one company said more than $100 million, and one company each said $30-50 million, $20-30 million and $15-20 million; 4% of respondents said $10-15 million; 7% said $5-10 million; 9% said $3-5 million; 6% said $2-3 million; 13% said $1-2 million; another 13% said $500,000-$1 million; 23% said $200,000-$500,000.

The survey listed 46 items or areas of emphasis that mills planned to spend their money on. More than a quarter of the lumbermen picked maintenance (28%) while 21% selected wheel loaders, followed by lumber handling forklifts at 18%, log yard handling, downstream sawing (gang/edger/trimmer), dry kilns and/or controls, chippers/hammermills/screens, and conveyors—all picked by 17% of the lumbermen.

Other items that were selected by at least 10% of the lumbermen included debarkers, filing room equipment, log scanning/optimization, automated lumber grading, downstream scanning/optimization, data collection systems, planer mill strapping/packaging, log merchandising cutup and scanning, dust control, fire prevention, log canter breakdown, log loaders, boilers, and green end sorting/stacking

But will these planned expenditures for 2020 and 2021 go forward? A survey question asked to what degree the coronavirus had impacted those plans. 

The good news is that many sawmills are going ahead in some measure. In fact 38% of the lumbermen said the virus hasn’t affected those plans and they’re moving forward, while 20% said the situation has caused them to reduce their expenditure plans by up to 25%; 11% are cutting back 25-50%; 9% at 50-75% reduction; 5% at more than 75% stalled but still spending some; and 17% said the pandemic has caused them to totally wipe out capital expenditure plans for now. 

Another question asked if in addition to their future capital expenditure plans, whether they had projects currently in the works (as in equipment being installed or getting close to that point) when the virus crisis hit? Close to 60% said they did.

Despite the virus, 38% said they are not canceling or delaying projects that are in the works, while 38% said they’re canceling or delaying some but not all, and 13% said the crisis has caused them to cancel or delay all projects in the works.

Asked whether they’ll resume these projects once the crisis passes and there’s a return to normal operations, a vast majority said they expect to proceed.

PRODUCTION

The annual production of the mills responding to the survey runs the gamut, with 10% of the mills producing more than 200MMBF in 2019, 25% producing 100-200MMBF, 20% at 50-100MMBF, 16% 25-50MMBF, 11% 10-25MMBF and 18% under 10MMBF. Their anticipated annual production for 2020, before the virus, ran in the same ballpark as 2019. But as to how the coronavirus crisis will affect their anticipated production in 2020, 26% said it is too early tell, 4% said they might even have an increase, 12% said no reduction, 24% less than 10% reduction, 19% said 10-25% downward, 13% said 25-50% off and 2% said more than 50% reduced.

Asked how the virus could impact 2021 production, half of the respondents said it was too early to tell, while 11% said they may see an increase, 21% said no reduction, and 10% said under 10% off.

In 2019, 45% of the mills produced at 90-100% capacity, but for 2020 not surprisingly that number drops to 32%. At 80-90% capacity in 2019 it was 27%, for 2020, 29%; at 70-80% in 2019, 15%, for 2020, 21%; 13% said they ran at 70% or less capacity in 2019, and for 2020 that’s what 18% of the mills anticipate.

“Have gone back to sawing four days a week instead of five to slow down production a bit,” a lumberman commented, adding they’re “practicing safe distancing, more cleaning, workers now wearing masks.”

Consequently, 36% of the lumbermen expect more downtime in 2020 compared to 2019, though 23% said there could be less downtime than last year, while 41% said it will be about the same.

Meanwhile, during what probably seems like ancient history now, nearly three-quarters of the lumbermen said they had completed capital expenditure projects in 2019. (See the 2019 graph for the specific equipment and technology they installed.)

A related question asked if their company had built and started up a new sawmill during 2017-2020? An impressive 11% said yes.

“We refurbished and restarted a previously closed mill and retooled it with many new pieces of machinery,” comments Grant of Cross City Lumber in Florida.

A followup question asked if they are considering building a sawmill after 2020, and 14% said yes.

One lumberman commented: “That’s always under consideration, in spite of the levels of bureaucracy we’d have to satisfy now to ever attempt such a thing. That would likely take longer than building the mill!”

OBSERVATIONS

The survey closed with two open-ended questions. One asked the lumbermen to comment on their current business situation and the industry in general.

“With the large amount of curtailment and shut down announcements I forsee lumber prices rising until more of the production is back.”—anonymous lumberman 

“Hopefully, we will see demand catch up with supply. But that will depend on how smart we are as we move through this uncertain time. Curtailments will have to be made and made for an extended time. If not, the market will be flooded and it will take longer for the lumber industry to recover than it will for the general public.”—Thomas of Shuqualak Lumber

“Essential business is going well so far despite demand being down. We are blessed to be working. As long as we can keep our employees healthy and coming to work, we should be okay.”—Jeff Rogers, Executive VP, Rogers Lumber, Orange, Texas

“Our small size among huge West Coast mills allows us to be flexible and rapidly adjust to this current business climate.”—anonymous lumberman

“We have been running close to ‘normal’ but we are beginning to see some cracks in some of our markets. We have been blessed to be able to keep our employees working full time and to be essentially COVID-free at all of our plants. We can only hope and pray that we can continue on—obviously we can’t control markets but we remain cautiously optimistic while at the same time have some expectation for some tough times ahead.”—Shaffer of Neiman Enterprises

“If job site construction holds then we will be okay. It has so far and we are still quoting new business and have not received any negative comments from our customers even after we solicited them.”—Jackson of Spanish Trail Lumber

“We need the economy to reopen and get people back to work. Our teams have operated without interruption since the inception of the COVID-19 concerns.”—LeBlanc of Hunt Forest Products

“As a mill dependent on export markets, an international pandemic has definite affects. The ability of the Caribbean market to handle this virus has us concerned.”—anonymous lumberman 

“We believe that there will be a slowing of lumber purchases over the next three to four quarters as the general economy lags and recovers. We will assess the market weekly and react accordingly.” —Grant of Cross City Lumber 

“We hope to maintain our strong relationship with lumber purchasers. Expect lumber sales to drop off considerably before making a slow recovery.”—Randy Eller, wood products manager, Empire Lumber, Kamish, ID.

The last question invited lumbermen to comment on once the coronavirus crisis is over how they view business and markets: 

“I don’t think you can really put a pencil to what the entire effect COVID is going to have on our economy. I think it is safe to say that it will be bad—how bad is the real question.”—Shaffer of Neiman Enterprises

“We see a surge in lumber/decking after the COVID-19 crisis is over.”—Tim Semons, general manager, Redwood Empire, Woodland, Calif.

“Once the virus ends and people start moving around, I would like to believe building products will firm up and have a decent Q3 and Q4.”—LeBlanc of Hunt Forest Products

“Demand for our product has been way down since this started. It depends on how long the quarantine lasts on and if we will have time to bounce back before the election gets too close. Business always seems to slow to a crawl a couple of months before a presidential election. Then it will all depend on how the election turns out, whether we will bounce right back, or have to survive the crawling for four years.”—Rogers of Rogers Lumber

“Demand is still there. How quickly people get back to work and production resumes will tell a lot.”—Thomas of Starfire Lumber

“It will take a while for the economy to return and lumber demand to return. We need to survive the downturn and should be good when the market returns.”—Phil Latos, technical and projects director, Weyerhaeuser Co.

“I expect a two to three month surge in demand on the market and prices to climb quickly but then level off close to normal in last four months of 2020.”—Michael Millwood, superintendent, PotlatchDeltic, Ola, Ark.

“I think things will pick up as global lumber inventory has decreased.”—Boyd Plumb, shipping manager, Cameron Lumber, Cameron, SC

“Hopefully long-term impact will be minimal, but expect impacts and recovery through the remainder of the year.”—Tim Papa, area manager, Canfor Southern Pine, Myrtle Beach, SC

“We feel construction activity will lead our economy out of the recession/depression CV-19 created, unless the crisis should prevail for several months.”—anonymous lumberman

That last comment properly emphasizes just how essential the sawmill industry is during this peculiar period.