SDS IN FLUX

SDS Lumber in Bingen, a major employer in Klickitat County, is undergoing significant changes

Part 2

The recent announcement by SDS Lumber that it is contemplating a sale of its Bingen mill and timberland has stirred strong emotions in the community. Betty Barnes, mayor of Bingen, Washington, where the SDS mill is located and employs approximately 350 people, stated, “I don’t see the mill going away,” explaining that “the Stevenson family has been very loyal to the town, and I will try to see that [the mill] stays in place.” Similarly, County Commissioner Jim Sizemore said that SDS CEO Jason Spadaro is “trying to get another private timber company to buy [the SDS operation].”

SDS’s 350 employees represent about 5.5 percent of Klickitat County’s non-farm workforce, or more than one out of every 20 workers in the county. Wages range from $15 to $20 an hour, excluding executives. Benefits are generous for work in Klickitat County and include medical, dental, and vision benefits, a 401(k) plan with matching employer contributions, life insurance, short term disability, and an employee assistance plan. Using an average hourly wage of $17.50, SDS workers contribute an estimated $13 million to the region’s annual economy.

SDS Lumber and its related companies are privately held, which means they do not have to report their income or profits to any public body. Still, using public documents such as agreements with the Department of Natural Resources, litigation with public entities such as Bonneville Power Administration, family memoirs, and industry averages, it is possible to calculate a rough estimate of the company’s operation and financial condition.

SDS says it owns 101,000 acres of timberland within a short distance of it mill operation. Based on its 2012 Safe Harbor Agreement (on spotted owls) with the Washington Department of Natural Resources, SDS is targeting a 60-year harvest rotation, which means it plans to harvest 1/60th of its acres, or an estimated 1,700 acres, annually. The 60-year harvest rotation is actually longer than the industry standard of 45 years.

SDS’s 101,000 acres of timber, assuming a harvest of 1,700 acres annually, yields about 22 million board feet. SDS also says that “SDS-owned timberland produces about half of the mill’s annual needs.” Put another way, SDS must buy half of the timber it processes (estimated to cost about $8 million) in order for the mill to be profitable. According to the Northwest Farm Credit Services, the average sale price for No. 2 Doulas Fir in 2018 was $850 per thousand board feet. Counting the company-owned and the other private landowners’ timber, SDS’s gross revenue is probably between $35 and $40 million annually. From that they must subtract labor costs, the costs of mill operation, and the cost of logs from other landowners.

How valuable is the SDS mill and timberlands? The mill itself may not be that valuable. While it processes timber into lumber, plywood, and other products, it does not use the latest technology or equipment and has been described as “derelict.” Modern timber mills are amazingly automated, computerized, and efficient. So the lumber company’s annual revenues are a proxy for the value of the mill.

On the other hand, the mill is extraordinarily well-sited, comprising 80 acres adjacent to the Columbia River on one side and the Burlington Northern rail lines on the other. A few short miles away over the Hood River Bridge (which is in the process of being upgraded) is U.S. 84, providing direct highway access to Portland and Vancouver. SDS ships its products by barge, using its own barges and tugboats, and by rail, both of which are cheaper than trucking. The SDS Marine Division also carries timber for other companies, not only its own products. It probably contributes to the profitability of SDS.

What is an acre of timberland worth? It’s complicated, partly because of the long 50- to 60-year time frames, low interest rates which create upward pressures on the value of timberlands, and the market for wood products, which is complicated these days by tariff wars with China. But industry analysts report that timberland value in the Pacific Northwest is $1,700 to $1,800 per acre, which would means the SDS timberlands alone could be worth between $175 to $185 million dollars.

The commercial properties owned by the Stevenson heirs, primarily hotel, restaurant, and retail properties are likely to be separated from any acquisition of the mill and timberlands, and any financing role or loan guarantees by SDS would be transferred to the heirs. Similarly, the Whistling Ridge wind energy project, which has yet to break ground, might not be included in any transfer of the mill and timberlands, although the Portland attorney handling the wind turbine litigation and regulatory issues sits on the board of SDS.

If county and city officials are counting on another timber company to buy SDS, who could it be? Two candidates come to mind. The most likely is Sierra Pacific Industries (SPI), a California-based timber company with Washington and Oregon timberlands, whose operations are strikingly similar to SDS but much larger. Rumors have been circulating about SPI for several weeks. Weyerhaeuser Company, a behemoth of the timber industry, could be another candidate, primarily because two of the three new board members of SDS, its new chairman Sandy McDade and Bill Brown, both have ties to Weyerhaeuser. Brown’s former company, Plum Creek Timber Company, was acquired by Weyerhaeuser in 2016.

Based on land holdings, if these three timber companies were animals, SDS would be the size of a beaver, Sierra Pacific would be a moose, and Weyerhaeuser would be an elephant. Yet, Weyerhaeuser’s footprint in Klickitat County is surprisingly dainty. They maintain a log-buying operation in Dallesport, described as “a log scale, two temporary buildings, and a porta-potty.” Their closest mill is in Longview.

Sierra Pacific, on the other hand, might be just right for the job. They own 1.9 million acres of timberland and have six mills in California and Washington, the newest in Shelton, Washington, which SPI rebuilt and modernized. SPI is a closely held family company like SDS. George Emmerson, SPI President and CEO, said in 2016 that “We are quite excited about our growth in Washington State and anticipate that we will continue to grow our presence in the region.”

For the next chapter in SDS’s long history, employees and public officials will have to wait for a while, noses pressed against the window, until the company’s next press release. In the meantime, Liz Fuller, a public relations representative for SDS, answered a question about possible changes in SDS operations while its course is determined—for example, would there be layoffs?—responded by saying, “No. It’s business as usual.”

Note: Last week’s article describing SDS Lumber Company and its related companies misstated the name of the Stevenson heirs’ investment company, the correct name of which is D.M. Stevenson Ranch, LLC. In addition, the number of acres estimated to be harvested from SDS’s 101,000 acres of owned land is 1,700 not 17,000.