Story by Rich Donnell,
This issue focuses on our Sawmill Capital Expenditure Survey of softwood and hardwood lumbermen throughout the United States. The results coming out of the survey are quite interesting. I won’t delve into those results in this space, but what I will hash about is a similar survey we conducted almost exactly three years ago, in early 2008.
Do you remember early 2008? The building industry had spiraled downward and the worst was yet to come with the crash that began that September with the bankruptcy of Lehman Brothers due to the subprime mortgage crisis. We haven’t emerged yet from the demise of the housing industry, which immediately went into a free-fall.
I’ll just focus on the survey results in 2008 that we gained from you softwood lumbermen (the hardwood lumbermen results were about the same). We asked you how you rated the lumber market situation of the past year (which would have been 2007). More than 65% of you said it was the worst you had ever seen. Fifteen percent of you said it was terrible, but you had seen worse. Nine percent said it had been pretty terrible. About 11% of you said it hadn’t been that bad and you were making out okay.
We asked you how you would forecast the lumber market situation during the remainder of the decade (the decade that ended only a few months ago). About 42% of you said it would be bad but with some “sun starting to shine through.” Another 38% of you said bad for a while but “plenty of sunshine by 2010.” Ten percent said the “sun will shine sooner than most people are expecting,” and the remaining 10% of you said it will be “terrible with no sunshine in sight” for the remainder of the decade.
Look at those numbers for a moment. Ninety percent of you held some degree of optimism. Ten percent of you were expecting the worst. I suppose those 10% got it more right than the other 90%, if you discount the couple of brief upticks the market experienced in the past couple of years. I looked back at some of your survey comments in early 2008 about your concerns for the lumber market. One stands out hauntingly so: “I’m concerned about the uncontrolled flow of capital around the world with inadequate controls.” Talk about hitting the nail on the head! Another one of you declared: “We have to get housing revved up, and for goodness sakes we need to elect a smart president!”Still in play.
And one of you asked the question: “Will the market turn around before we run out of money?” Still relevant. Also in the survey of early 2008, 53% of you expected your respective softwood lumber sawmills to spend at least $1 million on machinery and systems by the end of the decade. Did you? What is the lesson in all of this? I suppose it’s the premise that we never know when an ambush is lurking around the next corner. The last ambush that began in September 2008 was armed with mortgage backed securities, collateralized debt obligations and bundling mortgages. Who knew?