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Housing slowdown hits loggers hard

By Dee DePass

Associated Press

BAUDETTE, Minn. -- Like their father before them, brothers Dale and Wayne (Gib) Erickson harvest timber. The trees they cut down eventually become wood chips or crates, and their Baudette-based company has provided jobs for 20 workers.

But the sagging housing market is starting to echo in the North Woods, and the Ericksons' business is down 20 percent this year as a result.

"Our lumber is used in shipping and crating. And when people don't buy houses, they also don't buy the refrigerators and stoves and things that need to be shipped in a crate," Gib Erickson said.

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With too much inventory sitting in stockyards, deliveries have stalled and prices have plunged. "I'd say our lumber sales are down about 20 percent," he said.

Most of Minnesota's 300 logging firms are being hurt to some degree. Small operations that typically generate less than $5 million a year, they sell their timber to lumber mills, crate and paper manufacturers and makers of oriented strand board -- or OSB -- , a product made from wood chips that's commonly used to build exterior house walls.

Now some loggers are at the end of a domino chain in which mill owners are putting off deliveries because of the slowdown in home building. That has left some cash-strapped loggers skipping equipment loan payments to their bankers, scuttling their pension plans or simply walking away from the business.

"It's probably the worst market that we have seen for loggers for 25 or 35 years," said Wayne Brandt, executive vice president of the Minnesota Timber Producers Association, a trade association. "The rise in interest rates and these low housing starts have had a significant impact."

$6 billion industry

The loggers, paper, pulp, lumber and strand board mills contribute $6 billion a year and 41,260 jobs to Minnesota's economy. But current market conditions are causing those numbers to slide, said Brandt, adding that five loggers around the state are thinking about closing shop.

"There have been very limited wood deliveries this summer, and that is a very difficult situation for loggers who need to work on a regular basis to maintain their crews and equipment," he said.

Tom McCabe, a second-generation logger in Duluth, said the drop in housing starts has cut his sales by 25 percent because the siding and paper mills he sells to simply have too much inventory.

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"Sappi Fine (Paper) in Cloquet has cut us off completely for the month of September," said McCabe, who heads the McCabe Forest Products firm his father founded in 1954. "Normally we would deliver them about 200 cords of pulpwood. And Louisiana Pacific's (siding plant) in Two Harbors has cut everybody off for the first three weeks of September. Normally, we're delivering them 600 cords of pulpwood."

Hard choices

McCabe's stockpiling wood and taking on excavation jobs on the side. He's also stopped contributing to the company pension plan for his workers, at least for a while.

"I have never had to do that before," McCabe said wearily. He said his seven employees understand the situation.

"They know what we are up against," he said. "There is such a tremendous surplus of inventory out there, and it's affecting me."

Keith Jacobson, forest products utilization program leader for the Minnesota Department of Natural Resources, said McCabe is far from alone. The downturn in housing demand occurred so rapidly that loggers and mills couldn't prepare.

Last month, the U.S. Commerce Department reported that new home construction dropped 2.5 percent in July. That pushed construction to a seasonally adjusted annual rate of 1.795 million units, the slowest pace since November 2004. Building permits, considered a good barometer of future activity, dropped by 6.5 percent, a further sign that the five-year housing boom is over.

"Folks projected this slowing housing market. But it's a significant slowing, and the speed of it caught some folks by surprise," Jacobson said.

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Mike Kilgore, a University of Minnesota associate professor of natural resources, said the softer housing market is "clearly having an impact on those loggers and mills. ... If you look at the prices of just oriented strand board, they have gone down quite dramatically in a short period of time."

The prices mills are receiving for that product have plunged anywhere from 25 percent to 50 percent, according to industry observers.

Ainsworth Lumber Co., based in Vancouver, British Columbia, runs three OSB mills in Minnesota. Last month, it announced it will close one of two production lines in Bemidji and lay off 110 workers. That production line used to receive and process more than 300 million square feet of wood a year.

Newer OSB mills in the Southeast and Canada can operate more efficiently and are helping to drive prices down, said Jacobson at the DNR.

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