The attached is a short narrative of the TB sales caused by speculative bidding in the 1980's. During my career with the Forest Service, this was very prevalent on both the Gold Beach and Cottage Grove Districts where I worked.
THE
GOVERNMENT BAIL-OUT OF THE TIMBER INDUSTRY
In the
1980’s there had been much speculative bidding on National Forest timber
sales. Most of the large timber sales
had a five-year contract period depending on how much volume (board feet of
timber) on each sale. Bidding on these
sales was very competitive because of the number of mills dependent on
government timber to stay in business. Many
purchasers acquired these sales by biding more than what they could get for the
price of their finished products but were hoping that the market would go up
during the contract period. The first
couple of years they would construct the roads on these high-priced sales, deck
the right-of-way timber for later removal and
Over the
next three or four years the housing market went down and many purchasers were
sitting on timber sales they could not afford to log with only a year left to complete
their contracts. Some purchasers requested
contract term extensions, but did not qualify under terms of the contract.
They lobbied
their Congressional representatives for the government to buy back these
sales. The government agreed under certain
conditions. First, the right-of-way log
decks would be put up for sale and any defect caused by delay in their removal
would be paid for by the original purchaser.
The original sale volume was
reappraised and put up for a second bid and called “turn back volume”
(TBV). This “turn back volume” would count toward
that District’s annual allowable cut again, which the timber industry strongly disagreed
with, but to no avail, keeping the Forest Service from putting up additional new
sales to meet their allowable cuts. Plus
it cost the Forest Service money and time to reappraise, modify and prepare
these “turn back” sales for auction again.
Many of
these “turn back” (TB) sales were purchased a second time at a lower bid rate
by the original purchasers. To prevent
speculative bidding in the future the Forest Service allowed only a two year
contract period for most sales.
Very interesting!
ReplyDeleteYes, I remember the timber sale buyouts of the 1980s. It’s interesting to think about what led up to them. From 82-84, I worked in BLM’s Medford District as their district environmental coordinator. When I got there in 1982, I recall hearing that some timber buyers had contracts obligating them to pay about five times more than the timber’s current value at that time. BLM (and USFS) were taking heat for letting industry bid timber prices up to nonviable levels, but who were they to say what could be bid? And policymakers were also being criticized for engineering the recession that was driving demand for wood products to unexpected lows.
ReplyDeleteSome buyers were saying that they weren’t being “speculative.” They claimed that the timber contracts would have been profitable under the macroeconomic policies in place at the time the overpriced contracts were written. I think federal timber sales procedures were the primary cause of the fiasco. But it’s also unlikely that the calamity could have been avoided by the adoption of a more predictable macroeconomic policy.
Timber prices kept growing and growing in the late 1970s, and finally the bubble burst! Timber contract prices were continuing to increase at a rate greater than 20 percent per year, but lumber prices were beginning to fall sharply as the demand for wood for housing construction substantially softened. During the first quarter of 1980, the average timber contract price peaked at roughly $300 per MBF. And no rebound in housing construction was in sight.
I remember hearing that widespread defaults on federal timber contracts were imminent. BLM and USFS first changed its contract extension policy. We allowed contract extensions for two years upon payment of interest on the total liability. Timber industry lobbied Congress for a law to nullify the overpriced timber contracts.
In 1982, many of the timber contracts that had been written in late 1979 and in 1980 were due to expire. On average, when costs of converting timber into lumber were taken into account, timber in 1982 was worth less than S60/MBF. The difference between what timber contract buyers had agreed to pay for federal timber and what they could profitably afford to pay for the timber was roughly S250/MBF. This difference was so large that many timber buyers faced insolvency.
Contract extensions granted in 1981 allowed timber buyers to delay harvests. However, delays severely disrupted local community services because the counties depended on their share of federal timber revenues for a primary source of income. Citizens in western Oregon increasingly joined the lobbying for contract modification as they struggled to keep schools open, sheriff offices funded, and other community services intact.
The 97th Congress considered several bills to allow termination of timber contracts. In August 1982, public hearings were held on the merits of contract modification, and many timber buyers went to D.C. to plead for relief. None of the bills made it through the Ninety-seventh Congress, partially because Sen Howard Metzenbaum of Ohio strongly objected to any legislation that provided significant benefits to the few large forest products firms that were still quite well capitalized.
The timber industry had better luck with the 98th Congress but only after long, heated debate. More public hearings on contract modification were held in spring 1983. Neither of the two bailout bills being considered made it out of committee by the end of July so President Reagan authorized the extension of timber contracts for up to five years, and interest payments on the contracts were waived. Congress ultimately passed the Federal Timber Contract Payment Modifications Act of 1984 (FTCPMA), and this act was signed into law by President Reagan in Oct ‘84.