Duluth News Tribune
Duluth, MN
Saturday, Mar 06, 2004
FORESTS: Two groups hope silent bidding will help keep timber prices down in St. Louis County.
BY JANE BRISSETT
NEWS TRIBUNE STAFF WRITER
People in the woods products business are still buzzing about a St. Louis County timber auction that took place a couple of weeks ago where stumpage prices were bid as high as 380 percent more than the appraised value. In fact, only one tract was sold at appraised value and more than
half sold for 200 percent more. "I think it's been a problem that's been building," said John Gephart, a forester for North Shore Forest Products. "It didn't happen overnight."
"In my 25 years of experience, I have never seen a time that's as difficult as this," said St. Louis County land commissioner Dave Epperly. Gephart said the declining supply of timber is to blame. But officials of Forest Management Systems, a logging cooperative registered in Gilbert, assert that it's an attack by large paper companies on independent loggers. "They don't want the independent logger to survive," said co-op member Jerry Birchem of Birchem Logging.
North Shore and Forest Management Systems want to see an end to the oral bidding process that was used Feb. 19.
While St. Louis County stands to make a great deal of money
on the sale, Epperly fears how high prices will affect loggers and the county.
Loggers, he said, will have to sell the very expensive wood at a loss. Also, the county doesn't get paid until the wood is cut. "When timber is sold this high, there's a risk that it might not be cut," Epperly said. If that happens, the forests become overgrown, and the county loses money. The total appraised value of the timber, sold in 22 tracts, was about $600,000. But at the end of the auction, it had been bid to nearly $1.7 million.
The Feb. 19 sale was one of the county's two annual oral auctions. Two others are conducted annually through sealed bids. "We don't have an ability to change what's happening in the marketplace," he said, indicating the county isn't responsible for the high bids. "Anyone could have stopped bidding at any time."
Ironically, the county made an effort to restrain timber prices by updating the appraisal formula last year.
"We felt we were very responsible in advertising a lower base price... but it had no net effect," Epperly said.
An auction yielding such high prices is "very rare," said Wayne Brandt, executive vice president of Minnesota Forest Industries, a trade group that represents the region's paper companies, and Minnesota Timber Producers, which represents loggers.
Like Gephart, Brandt believes the bottom line is a shortage of timber available for sale. That is the No. 1 impediment to competitiveness in Minnesota, according to Gov. Tim Pawlenty's timber advisory task force. Much of that problem has to do with a shrinking volume available for
auction in national forests, plus other factors.
"At the auction, Forest Management Systems was singled out," said the co-op's president, Dave Wallin, who was there. The way he saw it, when Forest Management Systems was bidding, a war would break out. Last year, Birchem Logging and six other independent logging companies formed Forest Management Systems to help reduce expenses and provide them capital to buy large stands of timber. Birchem
believes the region's paper mills look negatively at the
cooperative because they can't control it.
Forest Management Systems paid 290 percent or more above the appraised value on all six tracts it won through the bidding. It won more tracts than any other single bidder at the auction. "We won't make any money," Birchem said of the tracts won at last month's auction. "But we won't make any money if we don't cut any trees, either."
Forest Management Systems consultant Gary Cerkvenik said he intends to ask Minnesota's attorney general to review the auction as an uninterested third party to ensure it was fair, open and transparent. Reports that St. Louis County was canceling contracts because of the high prices are untrue, Epperly said. But North Shore Forest Products and Forest Management Systems would like to see the county go to a sealed bid auction exclusively.
Birchem said that would mean no one would know who was bidding or the price others offer. The next one is scheduled in June. "We fully intend to look at that (auction) and do an evaluation," Epperly said.
