HARDWOOD RECORD 



23 



live, is just as dear to the investor in stumpage as it is to the in- 

 vestor in farm mortgage or municipal bonds. The pressure is great- 

 «8t on the man in debt, but it is there also with the man who is not 

 in debt but fears to lose the legitimate interest which is his due. 

 LoxG Time Timber Investments a Serious Burden 

 About all of this pressure on the lumberman to manufacture more 

 lumber than the country wants arises from exceptional features 

 which are the foundation of the business and which create a unique 

 situation in the commercial world for the lumberman. I refer to the 

 fact that a majority of the lumber manufacturers of this country are 

 obliged to own and carry on hand the raw material with which to 

 run their mill for from ten to twenty years. Consiiler this a minute. 

 How many manufacturing concerns outside of the sawmilling Imsi- 

 ness do you know of that liave more than a few months' supply on 

 hand of raw materials? There are a few minor industries, such as 

 quarries, clay working concerns, cement works, etc., that have a 

 stock of raw material sufficient to support their operations for many 

 years, but these supplies are of the cheapest character and represent 

 very small investment of capital. Fifty-five per cent of the steel 

 and iron industry of this country carry only a few months' supply 

 of ore on hand, while only about forty-five per cent carry any con- 

 siderable reserves, but in this latter case the value of the ore in the 

 ground is only about five per cent of the value of finished pig iron, 

 while the lumberman's raw material represents from fifteen per 

 cent to forty per cent of the value of the finished lumber. Probably 

 ninety per cent of the manufacturing concerns in this country carry 

 only a few months' supply of raw materials on hand, the carrying 

 charge of which is a very small tax on their business. If by any 

 ■chance the directors of a furniture factory found themselves in the 

 position of having ten years' supply of lumber on hand and heavily 

 in debt for the purchase, what would they do? They would prob- 

 ably go into the lumber business at once and get rid of it as quickly 

 ■ as possible by selling it on the open market, but if they found they 

 could not do that at a profit, they would undoubtedly run their fac- 

 tory night and day and make it up into something salable as fast 

 as possible and get down to a few months' supply, expecting the 

 sawmill man to carry the raw material and supply it to them as they 

 are ready to cut it up and make it into furniture. The factories 

 that use lumber, the railroads and the contractors would regard 

 a proposition to carry in stock a few years' supply of raw material 

 as a ridiculously unbusinesslike proposition, involving the use of 

 large amounts of capital, expense of interest, taxes, risk of fire 

 losses and det.erioration. Why carry such a stock when the lumber- 

 men are there to do it for us? The lumberman has always done this 

 and why should he not continue to do so indefinitely? The answer is 

 that the lumberman has done this in the past because he could af- 

 ford to and the holding of large stocks of timber was in the past a 

 profitable part of his business. Large groujis of land acquired from 

 twenty to thirty years ago at $1.2.5 to .$.5.00 per acre could be carried 

 twenty years at compound interest and still show a good profit, 

 but the lumberman who bought his stumpage at prices ruling in 

 1907 does not find himself in the same position. He paid $2.00 to 

 $2.50 in 1907 for hemlock and he finds that this stumpage today has 

 cost him about $4.60 and if carried eight or nine years more will 

 cost him close to $9.00. He also finds that the average cost of log- 

 ging is greater and also the cost of his stumpage has doubled. He 

 cannot sell his lumber for enough more in 1914 to equal the increase 

 in the cost of the stumpage and the cost of logging and producing 

 the lumber. With the menace of constantly advancing cost of raw- 

 material what does the average lumberman think? He thinks that 

 he must cut this timber or it will eat his head off. lie runs his mills 

 night and day and doubles his cut. His neighbor does the same and 

 the result is an overstocked market, intense competition for busi- 

 ness, falling prices, no profit, temporary cessation of production; 

 then, when the market commences to show a little strength, all go 

 at it again, driven on by interest and taxes. This process has been 

 in full swing for some time back and the question is — what will it 

 do to the timber resources of the country? 



Lumbermen Favor Conservation but Find It Impossible 

 Conservationists employed by the government preach the gospel 



of saving the timber for future generations, and the lumberman would 

 hail with delight the means which would make it practicable to cut 

 timber closer, utilize waste and conserve his raw material. The luni- 

 herman knows how to do it if he is allowed to do it, but on the pres- 

 ent cost of jiroduction and the present margin of profit— or I might 

 say lack of profit — no lumberman can adojit any conservation methods 

 in the conduct of liis business, as it would certainly increase the cost 

 of production and cause a loss instead of a profit at the end of the 

 year. The lumbermen know what ought to be done and would bo 

 glad to co-operate with the government foresters to the end that 

 their raw material might be conserved, but the same government 

 which advocates conservation also employs trained lawyers whose 

 business it is to prosecute all who by agreement among themselves 

 atteni])! to manage their businesses so as to accomplish what the 

 government conservationists advocate. The lumberman is certainly 

 being driven from the front and rear and there does not seem to 

 be any place to sidestep. 



Here is a commodity necessary for the welfare of the country. 

 The supply each year becomes less. The growth of new timber in 

 most cases is a negligible quantity. The end is not far off ; yet the 

 owners of this timber cannot afford to conserve it under present 

 conditions. 



I have enlarged ujion the conditions existing in the lumber busi- 

 ness because I believe it neeesary to outline wlutt effect the un- 

 settled state of the lumber business has upon the cost of carrying 

 timber, for certainly a loss in value on standing timber is part of 

 the carrying charge. 



Many owners of stumpage claim that the value of lumber is in the 

 end determined by the price of stumpage and the increasing cost of 

 timber will force lumber prices constantly higher. This I believe 

 to be a fallacy. We hope it will be true, but in reality competition 

 among lumber nmuufacturers is actually competition between stunqi- 

 age owners to sell their trees in another form, and just so long as 

 lumbermen stumpage owners offer their converted trees upon the 

 market at low jirices, just that long will the value of standing timber 

 be depressed and thereby entail losses in carrying timberlands. In 

 the last analysis lumber and standing timber are the same. An owner 

 of standing timber in the upper peninsula of Michigan cannot sell 

 his trees to the man in Illinois who wants to build a house. He must 

 sell to the lumberman and the lumberman nmst buy the trees at a 

 price determined by the value on the competitive market of the lumber 

 which he can make from the trees offered to him. 



If we are to secure any advance in the value of standing timber 

 to compensate owners for the annual increase in cost, this increase 

 must come through increased value of the finished jjroduct lumber, 

 but the tendency of the lumber business at present is against this in- 

 crease, against conservation of timber resources. In the absence of 

 any regulating medium, we have an era of unrestricted competition; 

 ]>rices will decline, costs will increase and the lumberman will feel 

 driven to get out from under as fast as possible. So long as this 

 condition exists the cost of timberlands will bear no relation to the 

 price of the finished product and timberlands will be carried at a 

 loss. 



Increasing Cost of Cahkying Tlmber 



The cost of carrying timberlands presents many interesting factors 

 and in the following jiages I have endeavored to trace the cost of 

 carrying stumpage in the upper peninsula of Michigan, commencing 

 with the year 1907. 



We frequently read and hear references to the growth of timber as 

 an offset to the cost of carrying stum])age. In some sections of the 

 country, in certain classes of timber, this annual growth may be 

 reckoned as of value during a period of twenty years, but in the ter- 

 ritory which we have under consideration — the upper peninsula of 

 Michigan, I think the experience of the past twenty years indicates 

 that this growth is more than offset by the deterioration of timber 

 which has reached its maturity and has started on the down grade. 

 Certainly the growth of the younger timber would bo offset by the 

 deterioration of timber which has reached its maturity. I have so- 

 licited the opinions of many lumbermen in the upper peninsula of 

 Michigan on this subject and they are unanimous in the opinion 



