A buzz saw of adverse market conditions cut into the lumber industrys production this year, and the industry doesnt expect things to get better until late 2007 or early 2008.


U.S. housing starts plunged to an anticipated 1.88 million units this year, down from almost 2.07 million units in 2005, and next year are projected to fall to 1.69 million units.


We see 2007 as a continuation of the difficulties weve experienced in the second half of 2006, says Mark Benson, vice president of public affairs at Spokane-based Potlatch Corp.


In 2005, the industry enjoyed a fourth straight year of record production. Then, in early 2006, with mill output ramped up to serve the highest level of housing starts in a quarter-century, the housing market began to weaken, and lumber markets became as jelly legged as a new mill hand on top of a high log stack.


In August and September, as a long dispute with Canadian producers appeared close to being settled, the Canadians pushed a lot of lumber into this market under terms of an old agreement, Benson says. The dispute was resolved Oct. 13 with a new agreement that calls for Canadian governments to collect tariffs on lumber thats export to the U.S.


Theyre paying the tax, but it hasnt slowed shipments down, says Duane Vaagen, president of Colville, Wash.-based Vaagen Bros. Lumber Inc. Employment is near and dear to them, and governments in Canada try hard to keep people working, Vaagen says. Also, insects have killed big stands of timber in western Canada, and producers are salvaging large amounts of that timber, adding to supply, Vaagen says. Even though lumber prices have come down dramatically, U.S. producers still are paying high prices for logs to ensure theyll have supply, he says.


Random Lengths, a Eugene, Ore., publication that reports price information, says its monthly composite price for framing lumber plummeted to $275 per thousand board feet in November from a high of $382 in January. The publications monthly composite price for 1,000 square feet of structural panel fell to $260 in October from a high of $389 in January.


Certainly, at the trough we hit some of the lowest price levels in a decade, says Shawn Church, editor of Random Lengths. Wood-products makers expect prices to stay low in the first half of 2007, but think the market might have bottomed, Church says.


Thanks to production curtailments, prices have bounced off those lows, but not by much, he says. Random Lengths Web site includes a long list of production cutbacks. On Oct. 11, Longview Fibre Co., of Longview, Wash., announced it would close and continue to attempt to sell its Leavenworth, Wash., lumber mill.


Robert Butch Bernhardt Jr., spokesman for the Portland-based Western Wood Products Association, says U.S. lumber production is expected to fall by 4 percent this year then decline again, by 7.2 percent, next year.


Next year will be a period of adjustment, Bernhardt says. Our members are curtailing production and taking more downtime during the holidays. Thereve been some shutdowns, including some permanent mill closures, such as at Pony Lumber Co., in Tacoma, he says.


When Potlatch reported its third-quarter results Oct. 31, it said markets for its lumber products had deteriorated significantly, with sales of its southern yellow-pine products falling 21 percent from the year-earlier quarter. The companys two Arkansas mills took temporary downtime in both the third and fourth quarters.


In the 12 Western states, lumber production fell by 6.7 percent through October, and its expected to fall by 6.7 percent next year, Bernhardt says.