And now this: Beetle infestation spreads

The damage done by the mountain pine beetle to the forests in British Columbia has received much attention, given the billions of dollars already lost to this pernicious pest. But Dendroctonus ponderosae knows no borders, and now the western United States is grappling with the same epidemic. The pine beetle has spread to Wyoming, Montana, Nebraska, South Dakota and Colorado. 


Sawmills and wood product producers have dealt with various infestations before, but not during the worst U.S. housing downturn in history. Many mills have closed, and Colorado, perhaps the worst-hit state, watched its largest sawmill go into Chapter 11 bankruptcy protection last year. One of the reasons behind the failure of Montrose, Colo.-based Intermountain Resources was its payments to the U.S. Forestry Service timber contracts. Two other remaining mills, along with smaller mom-and-pop operations, have found themselves in similar straits. 


Enter Sen. Mark Udall (D-Colo.), who brought up the timber contracts last June during a Senate subcommittee hearing on the Colorado wildfires. Udall questioned whether beetle-killed trees — Colorado has an estimated 4 million acres of dead Lodgepole pines — had not fueled the fire. And wouldn’t it make sense for the idle sawmills to be processing these trees into wood pellets and other biomass products?


“Our sawmills are in real trouble, and the reason behind that are the legacy timber sales,” Udall testified. “They are no longer viable. They have become a liability.” In Udall’s view, releasing the mills from their forest service contracts would bolster their finances; then they could turn their attention to the less profitable, but just as important, job of clearing away dead and dying trees. 


The head of the U.S. Forest Service, Tom Tidwell, defended the use of long-term “stewardship” contracts. “In order to maintain this integrity, the wood products industry needs to [have] some certainty that wood is going to be available,” he replied. 


Udall kept up his campaign, however, stressing the risk of mills closing, jobs leaving the state and the need to clear hundreds of thousands of dead trees that pose a risk to power lines, campgrounds, roads and trails. Udall’s efforts paid off on Aug. 4, when Tidwell announced that the U.S. Forest Service would allow an unspecified number of mills in Colorado, Nebraska, South Dakota and Wyoming to either renegotiate or “mutually cancel” contracts made before the recession began.


This spells good news for Eric Sorenson, who operates the second largest sawmill in Colorado: Delta Timber, located just south of Grand Junction on the Western Slope. Sorenson signed a 10-year lease with the Forest Service when Louisiana-Pacific operated a wafer board plant up the road. In a joint agreement, LP and Delta shared low-grade Aspen logs to make wafer board and sawn lumber. 


But LP closed its plant shortly after Sorenson signed the contract, and there wasn’t enough money in the timber end of the business. “It would eat our lunch every time we’d try to bring timber in here,” Sorenson recalled. 


A second Forest Service contract, this one for Aspen and conifer used at a Delta mill in Montrose, was signed in 2004, when the market for tongue-and-groove interior paneling — about 25% of Delta’s business — was strong. Sorenson faced the same predicament with both contracts: operate at a loss or default. 


“We’ve been here 21 years, and I’ve never defaulted on a timber contract,” Sorenson said proudly. He noted that 90% of his supply depends on logs from U.S. Forest Service land, and he really can’t risk ruining his reputation or his financial standing with the agency. 


Sorenson has already received a letter from the Forest Service regarding an easing of the terms of his current contracts. “For us, it’s really going to help,” he said. “We’re facing so many challenges right now, from the markets to the lenders, and it’s one more thing off our plate.”


Sorenson is going to leave most of the beetle-kill logging to his competitors, who sell the blue-stained lumber as a niche product. But he has talked to investors about biomass plants and wood fiber fuel made from beetle-killed trees. “There are people interested in doing it,” he said.