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Montana's forest products industry.

Recession and Recovery

Two major factors are affecting Montana's forest products industry:

* national markets, and

* the local timber supply.

In many respects, the past three years show a typical recession decline-and-recovery pattern for both Montana and the nation.

National markets certainly were impacted by the recession. In 1989, U.S. softwood lumber consumption was 48 billion board feet; and as the recession deepened in 1991, consumption dropped to 43 billion board feet. Preliminary estimates for 1992 show lumber consumption rose to 45 billion board feet as the U.S. economy recovered somewhat.

Montana's forest products industry showed a similar pattern of decline and recovery over the same period. As Figure 2 illustrates, the sales value of Montana primary wood and paper products fell from just over $1 billion in 1989 to $950 million in 1991. In 1992, sales had climbed to $1.1 billion. The same cycle is also apparent in Montana industry employment. Worker numbers declined by about 1,000 (to 10,130 workers) in 1991. Estimates suggest 1992 worker levels have rebounded to over 11,000 workers, approaching late 1980s levels. Impacts of the recent recession were mild compared to the substantial declines during the severe recession of the early 1980s.

Prices and Revenues

U.S. prices for manufactured wood products and for Montana timber rose dramatically in 1992.

* By year end, lumber and plywood prices were about 40 percent higher than year end 1991 levels.

* Stumpage prices increased 60 percent from 1991 to 1992, and were more than four times the average price purchasers bid for Montana national forest timber on the stump in 1986.

Nationwide, the sharp upward trend in 1992 prices for manufactured wood products such as lumber was due more to limited timber supply in the Pacific Northwest and other parts of North America than to the modestly increasing lumber consumption. U.S. construction activity is still well below late 1980s levels.

The price of timber in Montana is being influenced by current and anticipated prices for lumber and other manufactured wood products, and by lower volumes of timber available in the state.

Not surprisingly, revenues to timber owners have increased as well. In 1985, payments to timber owners in Montana were estimated at about $35 million. Estimates for 1992 indicate that revenues will total nearly $100 million, with dramatic increases to all ownership categories. Estimated revenues nearly doubled between 1991 and 1992.



The U.S. economy is expected to improve and that should increase construction activity and push prices for manufactured wood products even higher in 1993. Paper prices, which have been very low in 1990, 1991, and 1992 should also improve in 1993.

Timber Availability in Montana

A timber supply analysis recently completed by the Montana Department of State Lands, the U.S. Forest Service and The University of Montana, estimates timber processed by the industry will decline by about 25 percent during the 1990s relative to 1986-1990 levels. Crucial elements influencing that decline are as follows:

1. Much lower timber offerings from the national forests. Constraints include threatened and endangered species protection, appeals and litigation, and cumulative impacts of past harvesting, as well as U.S. Forest Service budget levels.

2. Substantially lower harvests on industrial timberlands, because the volume of standing timber is not sufficient to sustain the harvest levels of the late 1980s.

Harvest levels from nonindustrial private forest lands (NIPF) are likely to rise substantially. Without projected increases from NIPF, the overall decline would be much greater than 25 percent.

Employment Impacts

A 25 percent decline in timber processed would lead to an estimated employment decline of 2,500 direct and 4,000 indirect jobs during the 1990s, according to this analysis.

The declines in timber harvested and processed and in employment would be in western and southwestern Montana. Timber harvesting and processing levels and related employment in Montana's eastern two-thirds are expected to increase 2.5 fold in the next ten years as nonindustrial private timberland owners respond to higher prices.

Many factors influence employment levels. For instance, in 1992 Montana's timber harvest was about 8 percent less than late 1980s averages. But overall employment did not appear to decline because, at least temporarily, the industry is employing more workers per million board feet, Scribner of timber harvested. Reasons for this include:

1. Increasing net importation of timber from adjacent states led to more timber being processed than was harvested in Montana.

2. Higher timber costs and product prices can encourage employers to use more labor per unit of timber input.

3. Harvest of timber that was considered unrecoverable under the late 1980s price and timber supply situation; some of this material does not "register" on the Scribner scale used to measure timber.

4. "New Forestry" harvesting practices often involve more labor intensive logging operations.

5. Additional secondary manufacturing and employment associated in part with increased construction activity in the state.


The timber supply analysis indicated a range of expected harvest levels from a low of 50 percent to a high of 85 percent of 1986-1990 levels. Price trends and policy directions on the national forests will be the main determinants of the degree of decline in the industry and related employment.

Charles E. Keegan III is director of forest products industry research at the Bureau of Business and Economic Research, The University of Montana.
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Title Annotation:focus on major Montana industries
Author:Keegan, Charles E., III
Publication:Montana Business Quarterly
Article Type:Industry Overview
Date:Jun 22, 1993
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