Montana's Log Home Industry.
Which industry provides $100 million in product from mostly insect- and fire-killed timber, adds enormous value to that timber, has dramatically increased in size over the last few years as most other segments of the timber-using industry in the West have declined, employs more than five times as many workers per volume of timber used as the remainder of Montana's timber processors, and is centered within a county that was dramatically impacted by the fires of 2000?
The answer: Montana's log home industry. In the past decade, log home building has become a significant segment of the state's forest products industry. While the log home industry only processes about 2 percent of the state's harvest, it adds enormous value to that timber and accounts for nearly 8 percent of the wood products industry's employment and sales.
Adding more value to timber and other natural resources has been a goal of economic development specialists seeking to improve the economic well-being of rural communities of the western United States. By further processing natural resources--or adding value--more work is done locally, creating additional jobs.
Sawmills, which process timber into primary products like lumber and ship it to more populous areas for further processing, dominate Montana's wood products industry. In this lumber manufacturing process, value is certainly captured and considerable employment is generated. In 1998, for example, sawmills processed 160 million cubic feet (mmcf), or about 85 percent of Montana's timber use, for which they paid about $270 million delivered to their mills. The mills then sold the lumber and other products for $435 million, adding just over $265 million, or $1.65 million/mmcf of timber processed (Bureau of Business and Economic Research, 2000, and Western Wood Products Association, 1999).
The log home industry, however, adds more value and employs more workers per unit volume of timber processed than any other segment of Montana's forest products industry. In 1998, log home manufacturers paid about $20.6 million for 4.6 mmcf of timber. They sold products for $99.9 million, adding approximately $70.3 million, or $15.3 million/mmcf of timber delivered.
The difference in value added between the log home industry and most other timber processing manufacturers stems from the fact that the log home industry produces more than just a house log. The industry's major outputs are custom-designed log homes or shells. The shells are often constructed at the plant and then disassembled and shipped to the home site for construction. Furthermore, a component of the industry produces handcrafted or authentic log homes requiring substantial numbers of skilled workers.
Montana's log home industry has changed and grown substantially in the last three decades. This article focuses on those changes and developments. Every five to seven years since 1976, the Bureau of Business and Economic Research (BBER),in cooperation with the U.S. Rocky Mountain Research Station's Inventory Monitoring and Evaluation Program, conducts a complete census of Montana's timber processing industry. The initial census in Montana corresponded with the rapid expansion in the state's log home industry in the mid-1970s. Four additional censuses give a 23-year detailed picture of major developments and changes. Data for years prior to 1976 come from various extension reports, industry directories, and interviews with producers (Montana Department of Natural Resources and Conservation, 1969 and 1973; Montana Extension Service).
Commercial log home manufacturing in Montana began in 1946 with a single plant located in Thompson Falls--the National Log Construction Company (Wichman et al. 1994). Eleven years later, a Gallatin Gateway firm--Model Log Homes--commenced operation. Production and sales figures are not reported prior to 1960 due to the limited number of firms. During the 1960s, the industry experienced modest growth with the addition of five log home operations. By the end of the decade, annual sales for these firms were about $4 million (expressed in 1998 dollars), and production was about 750,000 lineal feet of house logs annually (Table 1).
During the 1960s and 1970s, a series of fires and insect epidemics in western Montana created an abundance of dead lodgepole pine timber whose form, workability, relatively light weight, final stability, and other characteristics made an extremely desirable house log (Koch 1996). This raw material supply coincided with the interest in the region of a number of innovative entrepreneurs who believed that house log processing and log home manufacturing would make an excellent livelihood.
The establishment of a number of plants in Ravalli County in the early 1970s ushered in a period of rapid growth centered in the Bitterroot Valley, which has become one of the major log home processing centers in the country. The number of producers in Montana more than quadrupled during the 1970s (Table 1), as did output and sales. By 1981, 28 plants in Montana were producing 4 million lineal feet of house logs annually, with sales of $18.7 million (in 1998 dollars). Growth continued during the 1980s and 1990s, with 1993 sales 3.5 times those of 1981. From 1993 to 1998, the number of log home plants increased from 59 to 75, with a 26 percent increase in lineal foot output and a 50 percent increase in inflation-adjusted sales to $99.9 million (Table 1).
If the logging sector associated with log home timber is included, the log home industry in Montana employs approximately 850 full- and part-time employees--about 8 percent of Montana's forest industry employment. Compared to other sectors of Montana's primary forest products industry, the log home segment is very labor intensive and has become more so over the past 25 years, largely because of the high degree of product processing and custom product designing. Also, hand-hewn homes make up a larger portion of the output of Montana's industry than in its formative years. To illustrate the relative degree of labor intensity, full- time-equivalent production workers at plants will be used (Table 2).
In 1993 and 1998, the log home industry employed an estimated 130 full-time-equivalent production workers per million cubic feet processed at the mill. This compares to Montana's sawmill and plywood industries, which use about 95 percent of the timber harvested in the state and employ 15 to 30 production workers per million cubic feet processed (FIDACS).
Furthermore, the number of log home workers processing a million cubic feet of timber into marketable products more than doubled between 1976 and 1998, with growth in total full-time-equivalent employees approximately twice the increase in timber input. About 100 workers processed 2 million cubic feet of timber in 1976. By 1998, 605 production workers processed 4.6 mmcf (Table 2). The increasing labor intensity is largely due to the move toward custom designing and hand-hewn homes.
From 1993 to 1998, the number of workers remained stable at about 130 per million board feet of timber processed, primarily because of the introduction of some labor-saving technology such as cranes and computerized log machining equipment.
The expanding industry in the 1970s was focused on Montana and the Rocky Mountain markets, which purchased about 60 percent of the industry's output. In 1976, the far western states bought an additional 20 percent, as did the remainder of the United States, with no sales reported to other countries (Table 3). As the industry grew and firms became more sophisticated, market areas expanded and shifted to take advantage of changing market conditions.
During the 1980s, a weak Rocky Mountain economy led firms to focus on a much broader area--markets east of the Rocky Mountain region and in Japan and Southeast Asia. In 1988, the central, southern, and eastern U.S. markets accounted for nearly 50 percent of sales, while overseas markets accounted for 7 percent of the industry's gross sales. Interestingly, in 1988 and 1993, Montana's log home industry exported a larger proportion of its total production than any other component of Montana's wood products industry.
During the 1990s, the western U.S. economies and markets improved dramatically, while Japan experienced a very weak economy. Much of the Asian economy fell into a deep recession beginning in mid-1997, and export sales nearly disappeared, with less than 0.50 percent of sales in 1998 outside the United States. Sales within Montana and in other Rocky Mountain states increased in both 1993 and 1998, from 32 percent in 1988 to over 50 percent in 1998 (Table 3). The proportion of sales to West Coast markets also increased substantially in the 1990s.
The volume of timber used by Montana's log home industry has doubled since 1976, rising by more than 10 percent in the past decade (Table 2)--a stark contrast from the remainder of Montana's timber-using industry, which has experienced a 30 percent decline in timber processed and milling capacity due to a 70 percent decline in harvest from federal lands (FIDACS). The log home industry has been able to continue to grow and increase slightly the volume of timber processed during this period by making a number of adjustments related to the species and type of timber used, its geographic and ownership source, and by paying increasingly more for timber.
The industry's initial rapid growth in the 1970s was based almost entirely on the use of standing dead lodgepole pine --either insect- or fire-killed. Standing dead lodgepole pine was a desirable raw material for a number of reasons, including:
* Initially there were large volumes available because lodgepole pine is a relatively short-lived species impacted by fire and insects.
* It exists in relatively cool, dry environments and therefore doesn't deteriorate rapidly, remaining standing for long periods of time drying or curing on the stump with little rot or defect.
* Wood characteristics include straightness with little taper and relatively light weight.
The industry continues to rely heavily on lodgepole pine, with 53 percent of 1998's input consisting of lodgepole (Table 4). However, quality log homes are presently manufactured from several species. The major change has been the increased use of Engelmann spruce, which represented 29 percent of the industry's timber input in 1998, up from 2 percent in 1976. Douglas-fir, western larch, and subalpine fir have also increased substantially over the years, from 1 percent or less in 1976 to about 5 percent each in 1998.
Geographic Timber Source
Limited availability of timber and subsequent increased competition has led to greatly expanded timber supply zones for Montana's log home producers. In 1976, virtually all the timber used came from within the state, with a one-way highway haul distance generally less than 100 miles (Table 5). As the industry expanded and the state's timber became more limited, supply zones expanded to adjacent states and provinces in Canada. But Montana timberlands remained the major source of timber, and as recently as 1993, only 20 percent of the volume processed by Montana mills came from sources outside the state. However, the situation changed as timber availability tightened by 1998. Nearly two-thirds of the industry's timber came from outside of the state, with mills reaching as far away as Alaska and logs being trucked more than 1,000 miles.
As Montana producers began reaching outside of the state to a greater degree, log home producers in other states utilized more timber harvested in Montana. As recently as 1993, only 2 percent of Montana's house log harvest left the state, mostly for mills in Idaho. In 1998, however, 23 percent of Montana's house log timber harvest was processed outside Montana's borders, with just under 90 percent of this going to Idaho mills.
Surprisingly, and in spite of substantial declines in national forest harvests throughout the West, national forest lands remain the largest source of timber for Montana's log home industry. In 1998, the proportion of timber from national forests fell to under 50 percent, while in other census years national forests supplied 53 to 78 percent of the timber used to manufacture house logs (Table 6). Private lands throughout the United States have supplied log home manufacturers with an average of 25 percent of the timber used--other U.S. public and tribal timberlands have supplied less than 5 percent.
Various Canadian ownerships also supplied 24 percent of timber receipts in 1998; substantial volumes of Canadian timber also came to the log home industry in 1988 but the other census years reported only very small volumes from British Columbia or Alberta.
House logs are one of the most valuable timber products, but this has not always been the case. In 1976, delivered log prices for timber suitable for house log manufacturing expressed in 1998 dollars were about $1000 per thousand cubic feet (mcf) for a 34 foot 6-8 inch top diameter lodge-pole pine house log. This price was substantially below the mill-delivered prices paid for sawtimber of about $1500/mcf. The low price for house logs represents the fact that as the industry was developing in the 1970s it was using a material--dead lodgepole pine--for which there was little or no demand. By 1988, the price for house logs had risen to over $2300/mcf (1998 dollars), far exceeding the mill delivered price for sawtimber of approximately $1250/mcf (FIDACS, 1976 and BBER Log Price Reporting System). Prices for mill-delivered house log timber in 1998 averaged just over $3,500/mcf, compared to an average of $1900/mcf for sawtimber.
A number of industry representatives were recently questioned about the outlook for Montana's log home industry both by personal interview and a formal questionnaire administered annually to the major producers. They generally predicted modest increased production through the next few years but said industry growth would be slower than in the past, with new firms continuing to be small. They expected gross sales and log home prices to continue to increase, with profits remaining stable. Manufacturers generally agreed that employee numbers would increase moderately. Timber availability is expected to be the major limiting factor and, overall, the majority of Montana's log home manufacturers expect increased competition for a continually expensive raw material. Firms expect to continue to expand the use of timber species other than lodgepole pine and to further recent innovations such as kilns for drying whole green logs.
Are the Fires an Opportunity?
The 2000 fire season, which saw over 900,000 acres bum in Montana, does offer the possibility that increased volumes of dead timber may be available. Fire-killed timber has and can be used by the log home industry. However, the degree of damage from the fire is a key factor in product potential. Light fires that killed trees but did not burn deeply into the stem can be processed easily. Severely burned timber is often unusable because it contains charred wood in cracks and checks, which can bleed and produce an unpleasant aroma.
As with questions related to overall timber availability, most of the questions relate to the national forests. The species most in demand by the log home industry--in particular lodgepole pine, Engelmann spruce, and subalpine fir--are most commonly found on national forest lands. The timing and degree of product recovery on these lands remains in question. These questions are particularly important in Ravalli County, the state's major log home processing center, that saw fires burn hundreds of thousands of acres of timberland in that county and adjacent areas.
Charles E. Keegan III is the Bureau's director of forest industry research; Al Chase is a Bureau research forester; Steve Shook is assistant professor of forest products marketing at the University of Idaho; Dwane D. Van Hooser is program manager of the Inventory and Monitoring and Evaluation Program, Rocky Mountain Research Station, USDA Forest Service.
FIDACS - Forest Industry Data Collection System, 1998. The University of Montana Bureau of Business and Economic Research, Missoula, MT.
Koch, Peter. 1996. "Lodgepole Pine in North America," Volume 3, Forest Products Society, Madison WI. 1,096p.
Montana Department of Natural Resources and Conservation, 1969. Review list of sawmills and other primary wood-using plants. Missoula, MT Division of Forestry. 13 p.
Montana Department of Natural Resources and Conservation, 1973. Montana wood processing plants, 1972. Missoula, MT: Division of Forestry. 28 p.
Montana Extension Service, 1960. Timber Sellers Guide: a Directory of Forest Products Plants. Circular 1061. Montana State University, Bozeman, MT. 32 p.
PRICE - A log price reporting system. The University of Montana, Bureau of Business and Economic Research, Missoula, MT.
Wichman, Daniel P., Charles E. Keegan III, and Dwane D. Van Hooser, "Montana's Log Home Industry: 1976-1993," Montana Business Quarterly, Volume 32, Number 4 (Winter 1994).
Number of Montana Log Home Manufacturers, Production, and Sales Values, Selected Years Thousand Lineal Sales Value in Number of Feet of House Thousands of Year Producers Log Output Constant '98 $ 1998 75 6,813 99,946 1993 59 5,322 65,636 1988 38 5,500 41,065 1981 28 4,000 18,737 1976 19 3,000 18,961 1972 5 500-1,000 4,100 1969 5 500-1,000 4,100 1960 3-5 500-1,000 4,100 Full-Time-Equivalent Production Employment in Montana's Log Home Industry Production Thousand Cubic Employment per Total Production Feet of Million Cubic Feet of Year Employment Timber Output Timber Processed 1998 605 4604 130 1993 526 3980 132 1988 404 4027 100 1981 210 2719 74 1976 103 2133 48 Sales Destination of Montana Log Homes Percentage of Total Sales Value 1998 1993 1988 1981 1976 Montana 23 20 13 16 23 Other Rocky Mountain States [a] 31 28 19 24 37 Far West [b] 21 16 15 21 20 Other Destinations [c] 25 32 46 38 20 Export [less than].5 4 7 1 0 (a.)includes Arizona, Colorado, Idaho, New Mexico, Utah, Wyoming. (b.)includes California, Oregon, Washington. (c.)includes North Central, Southern, and Eastern States. Volume and Species of Timber Used by Montana House Log and Log Home Manufacturers Species Percentage of Total Thousand Cubic Feet Lodgepole Douglas Ponderosa Western Western Year Processed Pine Fir Pine White Pine Larch 1998 4,604 53 5 a 1 6 1993 3,980 59 15 1 1 1 1988 4,027 65 13 1 1 2 1981 2,719 62 10 8 3 9 1976 2,133 95 1 0 1 1 Western Engelmann Year Red Cedar True Firs Spruce 1998 a 6 29 1993 2 a 21 1988 6 0 12 1981 2 4 2 1976 0 a 2 a=less than 5 percent Geographic Source of House Logs Received by Montana House Log and Log Home Manufacturers, Selected Years Percent of Total Receipt Source 1998 1993 1988 1981 1976 Montana 37 80 71 81 100 Idaho 20 10 2 19 [less than].5 Canada 23 2 27 [less than].5 [less than].5 Other States 20 8 [less than].5 [less than].5 [less than].5 Other states include Washington, Alaska, Wyoming, Utah and Oregon. Ownership Source of House Log Timber Received by Montana House Log and Log Home Manufacturers Percent of Total Receipts Ownership Source 1998 1993 1988 1981 Private 24 19 17 39 National Forest 47 78 53 57 State [less than].5 [less than].5 3 2 Tribal (U.S.) [less than].5 1 [less than].5 [less than].5 Other Public [less than].5 [less than].5 [less than].5 [less than].5 Other [*] 23 2 27 [less than].5 Unknown 4 [less than].5 [less than].5 [less than].5 Total 100 100 100 100 Ownership Source 1976 Private 27 National Forest 73 State [less than].5 Tribal (U.S.) [less than].5 Other Public [less than].5 Other [*] [less than].5 Unknown [less than].5 Total 100 (*.)Canadian timber mixture of provincial, tribal, and private holdings.
More House Logs, Less Lumber?
Why doesn't Montana's forest products industry process more of its harvested timber into house logs instead of lumber since house logs have such high value? For a couple of reasons.
First of all, the sawmill sector and the log home sector often use different types of timber. Secondly, log homes are a specialized product.
Montana's sawmill sector--which uses most of Montana's timber harvest--currently processes over 30 times more timber by volume than the log home sector. Log home builders and sawmills do not use the same type of timber and are generally not in competition in the timber market. In fact, log home manufacturers and sawmills often have complimentary relationships.
House log producers have stringent specifications for raw material logs, but they are not the same specifications that sawmills require. House log producers use primarily dead timber, while sawmills prefer green, or live, timber. Timber processed for house logs can tolerate some defects, such as considerable checking (lengthwise separations in the wood in a log), which would result in considerable losses in value in lumber production at sawmills. Timber for house logs generally has to meet more stringent requirements related to log straightness.
Also, trees with attributes desired by the log home industry are often scattered, rather than concentrated, throughout the forest and the majority of material used by the log home industry is a by-product of timber harvests to supply sawmills. Some house logs are partially processed by the sawmill industry, with final processing then done at the log home facility.
The increasing price for house logs may lead to expanded use of green timber by the industry, causing some increased competition between the sectors. However, drying of timber is expensive and presents a number of technical difficulties, which could lead to considerable loss in log value.
While Montana's log home industry has grown rapidly with nearly $100 million in annual sales, questions remain concerning the degree that it could expand by orders of magnitude and remain sustainable.
Clearly, market forces have not supported a broad scale shift in timber between the two sectors. Rather than compete with the sawmill sector for timber in the immediate area, house log producers have broadened their supply area enormously (Table 5).
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|Author:||Keegan, Charles E. III; Chase, Al; Shook, Steve; Van Hooser, Dwane P.|
|Publication:||Montana Business Quarterly|
|Date:||Dec 22, 2000|
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