Blazer (West Oregon Wood) closed their doors this week

Oh, I fully admit I am guessing!

 

Actually meant Educated guesses.

 

Hate to get into this, the very long posts have covered everything pretty well.
But this particular post speaks volumes...
I have been saying forever... Selling pellets is NOT the big money deal people think it is.
Mills can only discount so much... retailers cannot "adjust" their prices all that much.
There are so many steps and people, involved, from tree to a pellet bag in your basement..
there just isn't that much wiggle room in a $5 bag of product.
People get used to seeing BOGO's or 40% off at Kohls and Sears, and think that is
the way that all businesses work..
If someone thinks "why don't you do a 10% sale?" or
"Will you do free delivery of a ton 40 miles?"
Sure.. we can do that.
Come back next season when we are selling used cars and lawn furniture.......

Dan

 

I think lousyweather has nailed it! what is a mountain. it's perception. Last year if I had 1,000 tons I'd be under inventoried this year 200 tons I'm over inventoried. lol While there is a large oversupply, or so it seems in the market at the moment that can change drastically over the next few months. I don't believe there a many mills that can carry more than 10% of their annual production in inventory, for two reasons, space and money. They have to curtail, or shutdown. Until the box stores purge their last bit of inventory, everyone is sitting on their hands. And that has the potential to come back and bite us. ( the piggies are safe, but they are a small part of the market). I don't know lousyweather but he is expressing a sentiment of many of my dealers. No one is prepared to make a move until the market settles out, I can't blame them. But let's look at what we do know. Many mills are shut down and will continue to stay that way. And for everyday they are shutdown. it is a days production that can never be recovered. Given that oil is close to $40 that is only $2 below the $42 per barrel last August when we were paying high prices.. Dealers only have so many trucks to deliver pellets. They normally start delivering in May/June. The mills, the distibutors and the dealers will not be able to deliver to everyone that needs pellets in October due to supply of pellets and equipment. There's rumored to be 10,000 sitting in Upton. Sounds like a lot! that's just enough to supply Lousyweather for 1 year. There's hundreds of other dealers out there. If this were any other year, I can tell you my dealers would be panicking as they would be under inventoried for this time of year. This year they think they are drowning in pellets. Normally by this time of the year I have commitment for 10's of thousand's of tons for the upcoming season. This year only about 1,000 tons. We know that no pellet mill can survive by cutting his price to the point where a dealer can retail @ $200 per ton. I am not saying the market is running away, but this thing is going to take months to sort out. All I'm saying is the pricing today bears no relationship to the real world. And over the months it will change and does have the potential to make the market very volatile next december/ jan. We should do a little contest on, an over /under on where box store pricing will be Feb. 28. and what's the number 229 or 234?

 

Cant LIKE this one enough!

Other than the enlightened folks here, many of the "regular" public think retailers are making money hand over fist.....that ton sells for $250? Well, it probably cost the retailer $125! A gold mine! Yea.....doesn't work like that.

Like I said though, say you decide to make, oh, $15/ton. that's GROSS, by the way, not net. Tie your money up. Break a bag or two. Get $crewed by a bad check. Gotta get paid to hand-load it into someones Plymouth van, right? Not to mention rent, taxes, insurance, fuel, payroll (oh, wait, the trucker who brings it is gonna get $15 a ton, if the mill is really close!)......meh, we've done this before....no reason to beat a dead horse. Anyhow, once you sell 22-26 tons and have a couple hundred bucks to show for it, without paying everyone......doesn't it seem easier to make money doing something else? With a lot less risk?

 

nope.....you pay before, or when the pellets are delivered! And I have NEVER seen a pellet company give money back if the price drops!

 

Couple of observations. First, there are some retailers that do mark up and make more than $5 a ton, especially this heating season. Also, when you notice auto body shops and high performance tire establishments all of a sudden start selling pellets this year, they are not jumping in to make $5 a ton. Unfortunately for them, they picked the wrong year to roll the dice. I'm not against the concept, it's just capitalism, but to say there isn't gouging by some retailers is not accurate. A manager of a big box store told me their corporate office was doing just that, trying to take advantage of the shortages last year. El Niño and low oil prices saved the day for many buyers. Second, I've read about the "out the gate" price for wood so there is nothing retailers can do. The out the gate price is not set in stone and can change, up or down, year to year. Wood is a commodity and is subject to the same supply and demand economic pressures as other commodities, nothing special about it.

 

Wrong.
Stumpage,production costs and contracts keep it pretty stable.Its a low grade high volume waste product. I've seen the price of chips vary up and down $15/ton over a 30 year period.
Sawdust shot up rapidly in the late 90's and hasn't varied much since then. If it does its brief like last years big demand and most of the time it's brokers keeping the price up. This year they will get spanked but don't look for a lot of $ to shake out of the price of pellets due to raw material prices dropping. Raw material is priced too close to production costs to vary much.

 

Certainly has been true but it is a waste product and the market changed this year and the downward pressure from lower alternative energy options might change their thinking when demand for their waste drops.

 

When the price drops below the cost of production for whole tree chips they will stop producing.
The mills with waste chips and dust will eat the loss to an extent. There are other markets in most areas ,,, mulch , chip and press board and boiler fuel. Sawmills get backed into a corner on price and they will just burn it all themselves and make power.
Have read some articles the last few years trumping the emissions benefits of mixing wood with fossils .
There are alternative markets for wood waste and the forest products industry has been forced to adapt over the years. They are well educated and adept to changing markets.
There is not a lot of wiggle room in the price of raw material.

 

See if they sell them next year...

 

I think it's a write off

 

The cost of loss is simply a line item in the books. The bean counters will know where a particular bit of red ink originates but for tax purposes it is all one lump the relatively few loss lines simply lower the aggregate profit of the overall inventory.

Unsaleable inventory is written off as a loss and has to be accounted for for internal purposes, but it still is simply a function of the aggregate P&L statement. It is mostly semantics for tax purposes.

The taxing bodies are rarely interested in pieces of the equation and only care about the gross profit that is subject to tax, (unless of course they are putting a microscope to a businesses tax return).

From a macro management perspective it is more than semantics however. A warehouse manager might be judged by how much product is ruined in storage or handling. A district manager might question why product was not covered with plastic for further protection when it became apparent the inventory was stale.

The purchase manager will have his judgement called into question (despite much of the situation being out of her control). Most likely the inventory build was discretionary by the VP in charge of purchasing based on input from his serfs.

Marketing people might be called to task for sitting on inventory too long if the back-up caused spring stocking problems. Their VP will claim they delayed in reducing price too long and failed to recognize market indicators.

If these BBS took a big hit on the bottom line (and that is unlikely due to their mass) then top management will be looking to place blame against those whose bailiwick the issue fell under. Those getting scolded from the top will of course work the poop downhill. That is just how it works with these megaliths.

 

Ok my experience with upton. Been driving by it since dec 2012 when i got a stove. They have always been a just in time manufacturer. Never had more than 100-200 tons on the ground. Usually more towards 0. This spring they began to build mt upton. My guess is right now they have ~25,000 tons on the ground. Again always a just in time operation to having 25,000 tons on the ground, and all the product seems to be high end softwoods. In the attached pic i believe their is a whole other area of ~45,000 sq ft that is covered. Also the 4x4 pallet foot print is overestimated and the 2/3rds coverage is conservative based on my eyes and how areas are packed in the google maps images. Could be closer to 35k tons for a just in time manufacturer.

 

I doubt big boxes will discontinue pellets as a sales sku as long as they can make a marginal profit.

The plant overhead is in place (the garden shop is empty, the fork lift, truck, operator, and utilities are all in place). Those basic costs are going to be in place for the most part with or without pellets. The only thing that could change that equation would be another winter product that utilized those accrued costs at a better margin or was more symbiotic than pellets.

 

"................Could be closer to 35k tons for a just in time manufacturer................"

If that is widespread across the country it is the makings of a pellet industry recession.