Malheur County Hybrid Poplar Project

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December, 1998                                    Hybrid Poplar.

Marketing Study for a Multi-Region
Plantation Hybrid Poplar Project

Executive Summary

December, 1998


In the summer of 1998, the Baker-Malheur Regional Alliance and Potlatch
Corporation, in an unusual public-private contract partnership, retained
Mater Engineering out of Corvallis, Oregon to evaluate the market
potential of plantation-grown Hybrid poplar (HP) in the solid wood
products markets. In December of 1998, an added funding source for the
project was provided by the Mid-Snake RC & D in Idaho, allowing for
expanded markets research and increased potential buyer interviews.

Interest in undertaking the project from each of the funding entities was
prompted by several factors:

þ     In 1996, 70 acres of Hybrid poplar were established in the Malheur-
Baker County region; in 1997 - 400 additional acres were planted; and in
1998, another 400 acres were scheduled to be planted. Spacing of the
trees planted is 14' x 14' to allow trees to reach intended sawlog size
(vs. fibre size) of 14" to 18" dbh in eight to ten years when the trees
are planned to be harvested.

Eastern Oregon's interest in Hybrid poplars is mainly for sawlogs as an
alternative crop, although wastewater treatment, floodplain and riparian
protection, and creation of wind breaks might also be important results
of the project.

þ     Similar to Oregon, the Mid-Snake RC & D has also developed a keen
interest in evaluating the potential of Hybrid poplar for solid wood
products development.

þ     Potlatch is one of the leading forestry and forest products
corporations in the State of Oregon with approximately 22,000 acres of
Hybrid poplar plantations in and around the Boardman-Hermiston area. The
plantations, originally planted for fiber production for use in the pulp
and paper industry, range in age with a substantial percentage in the 6-8
year old range. The continued drop in the chip markets coupled with the
downturn in the Asian markets have prompted the corporation to evaluate
other options for their Hybrid poplar resource.

For this study, all three entities were interested in ascertaining the
highest and best use of the Hybrid poplar resource as a solid wood
product based on current potential buyer interest.


The research undertaken for this study was conducted under several
methodologies which have been successfully employed by Mater Engineering
on other similar projects:

*     Identification and comparison of wood species characteristics
through review of technical literature and direct interviews with
worldwide specialists in the industry;

*     Evaluation of general product market trends through prior product
research conducted by the firm, coupled with new product trend
information researched for this project;

*     Determination of specific market demand for targeted products based
on direct buyer interviews with primary and secondary wood product
producers, and brokers throughout a western multi-state region;

*     Analysis of new resource sales and distribution options which might
be employed in the region to capture the highest value off the harvested
Hybrid poplar resource; and

*     Evaluation of the potential for new value-added processing options
in the area employing HP based on the firm's direct facility and
equipment engineering and design expertise in the industry.

     General Conclusions and Recommendations:

Over 175 in-depth interviews with primary and secondary wood product
producers, wholesalers, and by-product (bark, residue, etc.) buyers in an
eight-state study region were conducted for this project. Overall, the
in-depth interviews demonstrate a solid opportunity for taking the next
steps in moving Hybrid poplar into solid wood products markets. The
interest identified through the project interviews confirmed a volume
demand that is higher than projected production, though current price
structures appear to indicate a moderate return on investment. Projected
volume of Hybrid poplar to be available to the market through this
project is as follows:

þ     Potlatch estimated annual Hybrid
poplar wood volume                            =    17.4 mmbf

        (Volume to be available by October,

þ     Grower's Association estimated
annual Hybrid poplar wood volume          =   5 mmbf

      (Volume to be available by 2004;
assumes 500 acres to be harvested

þ     Potlatch estimated annual wood
residue volume                                =    57,000 bdt.

Several other indicators demonstrate positive potential for Hybrid
poplar. First, many primary and secondary processors are either familiar
with poplar/cottonwood and are currently using it in their products, or
they are interested in obtaining or testing it for the future. Second,
there is a shortage of traditional hardwoods similar to Hybrid poplar
that invites producer interest in species substitutions. Third, Hybrid
poplar has the potential to substitute for both hardwood and softwood
species in a range of non-structural products. Selling points are its
light color, clear smooth grain and appearance, light weight, lower
price, and its acceptance of a wide variety of finish applications
(painting, staining, and surface laminates).

        Potential Opportunities:

Although many issues must first be resolved before bringing a new
material like Hybrid poplar into the wood products markets, the following
indicators point to a market-driven pull:

þ     Buyers of basswood are looking for substitutes. The national
shortage of Basswood is supporting high Basswood prices (relative to
Hybrid poplar) and buyers are actively searching for new sources and
considering substitutes of similar species.

þ     Buyers of alder are looking for substitutes because of Alder's high
prices. They will consider Hybrid poplar if it fits the application.

þ     Buyers of Yellow poplar are also looking for substitutes in certain
applications which need a bright light-colored wood. Yellow poplar
heartwood has greenish tones and grayish/purplish streaks that negatively
affect its painting and staining qualities.
þ     There is growth in demand for sanded core panels made from
cottonwood; these are plywood panels laid up with cottonwood or Hybrid
poplar core veneer without a protective surface veneer. Sanded core
panels can be overlaid with hardwood veneer, plastics, foils, or other
laminates and used for a very wide variety of products from cabinet doors
to interior sheathing.

þ     There is growth in demand for other products where buyers have
indicated an interest in Hybrid poplar application. Those products
include furniture, cabinetry, moulding and millwork, window coverings
(especially wood venetian blinds), specialty wood products such as
picture frames, caskets, toys, etc., and log home production.

þ     There is a shortage of appearance grade knotty pine for decorative
uses such as paneling, picture frames, finish moulding, and rustic and
contemporary furniture. Less intensively-manager Hybrid poplar
plantations produce wood with numerous small knots that are uniformly
distributed--a preferred quality among buyers of knotty pine.

þ     The Hybrid poplar resource may be able to accommodate the main
market drivers of price and supply--buyers are looking for the best price
and the most reliable long-term supply. As a result, buyers are pulling
logs and lumber from a multi-state area, from 200 to 2000 miles. Buyers
are also looking 5 years ahead for new supplies.

þ     Among cottonwood buyers, there is a demand for "new improved"
cottonwood, meaning: more clear high grade material with less defect,
less tension wood, and higher sawmill recovery. There is a perception
that hybridization and plantation culture will provide these
improvements, avoiding the losses experienced with "old growth" or
naturally-grown native cottonwoods. New mechanical and working
properties testing of Hybrid poplar conducted for this project document
significant improvements over native cottonwoods which will prove
beneficial in moving the species into targeted solid wood products

þ     Among some buyers, there is a growing interest in "green"
certification (wood that is certified as being sustainably-grown), a
preference for a domestic wood supply, and a strong desire for a reliable
wood supply that won't be blocked by environmental barriers. The concept
of growing a consistent supply of crop trees on farm land, reducing
harvest pull from native and primary forests, is very appealing.

     Potential Barriers to Investment and
     Suggested Mitigation Measures:

þ    There is a negative perception of cottonwood:
a.    In the wood products industry, it will be necessary to target
manufacturers already familiar with cottonwood and provide them with
useful detailed information on HP's working characteristics in various
manufacturing processes, e.g. technical information about drying
schedules, knife angles, feed rates, etc.   Buyers will also appreciate
some information describing how plantation culture and Hybridization has
improved the quality of this material and the consistency of its supply.
Wood samples should be sent to all interested buyers.

b.    In the marketplace, improve the perception of HP with information
pertaining to its many qualities: light weight, light color, acceptance
of a wide variety of stains and finishes, etc. Describe some of its uses
in higher value products like furniture panels, mouldings, and wooden
blinds. It may also be valuable to describe how the plantations are
cleaning up water in rivers and streams.

þ     There is significant confusion between Hybrid poplar (Populus
species) and Yellow Poplar (Liriodendron tulipifera):

It will be important to clarify the species distinction up front because
HP is a weaker wood than Yellow poplar. Focus Hybrid poplar on specific
applications for which a softer/weaker wood is appropriate (furniture
panels, window/door parts, interplys, sanded core, some finish mouldings,
paint/stain grade mouldings, laminated mouldings). It may be possible to
take advantage of HP's positive features by comparing its better price,
weight, and availability to the more familiar Yellow poplar. Avoid
applications for which HP has not been tested (some furniture parts and
other uses where strength or hardness is desirable).

þ     There is a lack of information on the actual working
characteristics of Hybrid poplar:

Buyers and manufacturers will want detailed technical information on HP
such as: gluing abilities in a variety of processes, drying schedules
for solid wood and veneer, peeling and milling techniques, laminating
techniques (surface laminating of hardwood veneer and synthetic
laminates). This calls for testing.

While there is little information about Hybrid poplar, there is
considerable information about its parents, Black cottonwood (Populus
trichocarpa) and Eastern cottonwood (Populus deltoides). There is also
considerable expertise on manufacturing, drying, and finishing
cottonwood/poplar in the southern U.S., Europe, and New Zealand. For
example, Genebank International Ltd. in New Zealand makes chairs and
tables from Italian Hybrid poplar that it stains to look like a variety
of other woods.

þ     Lack of solid market information and utilization of bark and
A new non-profit research organization can follow several lines of
research on the properties and potential of residuals for: water and
soil protection (filtration material, mulch); bark board production;
composite product manufacturing combining bark and residue with an
adhesive filler under pressure to produce plastic-like parts for
furniture or other items; and on-farm uses such as biofuels, compost,
feed, and litter.

þ     Stump and root removal/treatment appears more difficult than
originally thought, especially for older trees:

Several methods have been used successfully employed in Europe and should
be tested domestically: 1) Cutting off stumps at ground level and
drilling them out or grinding them up to sever basal roots; 2) Stump
pulling using various types of equipment. Resources and information are
available through the International Poplar Commission.
þ    Juvenile wood from small log diameters:

There is a preference for larger log diameters because of higher mill
recovery, higher value, and improved mechanical characteristics from
mature wood. Current research suggests that HP matures at 12 years, with
sawlog quality growth following. This may lead to efforts to increase
the allowed rotation age from 12 years to approximately 15 years on
agricultural lands. Under current law, if HP plantations are allowed to
grow beyond 12 years, they will fall under the jurisdiction of the Oregon
Department of Forestry and the Oregon Forest Practices Act (ORS 527.620)
with its stricter regulations and higher costs.

þ     An effort to change the law to allow up to 15-year-old HP trees to
remain as an agriculture crop may result in political resistance:

If a legislative effort is made to change the law and increase rotation
age, proponents can expect political resistance from timber and paper
industry interests who may likely oppose the change on the following

*     increased competition
*     lack of "a level playing field" in regulatory and tax structures
*     lack of access to the land resource and to subsidies enjoyed by the
agriculture community.

Two things might occur to mitigate this resistance:

1)    Develop expertise and capacity to process smaller logs through
existing forest products companies in order to quickly nurture Hybrid
poplar's economic infrastructure and generate cash flow under existing

2)    Develop a strategy to address political resistance to increased
rotation age by facilitating collaboration between the timber industry
and with conservation interests, because both may ultimately gain. The
timber industry wants access a reliable, high quality wood supply and
markets. Conservation interests want to improve a host of ecological
conditions by restoring the following: streams, soils, plant and animal
habitat, biodiversity in plant and animal communities, soil organic
matter, and surface and groundwater quality (temperature, volume, timing
or flow regime, purity, suspended solids, biological oxygen demand,

     New Resource Sales and Distribution Options:

The project evaluated the advisability for Eastern Oregon to implement
innovative sales and distribution options that could promote rural
economic development in the region by:
þ    capturing the highest value from the HP resource
þ    spreading resource offering costs; and
þ    adding product value for the buyer of HP

Based on the survey results, best bet opportunities for Grower
Association focus are:

þ     Implementation of a wood resource cooperative
þ     Consideration of "certified" wood sales
þ     Development of "characterwood" grades
þ     New business development options including cant production and
possible compost production.

     New Smaller-Scale Processing and
     Value-Added Production Options:

New Smaller-scale processing options evaluated for this project included:

*    Stump/root grinding systems
*    Portable single-pass cant production systems
*    Smaller-scale composite product manufacturing systems

Value-added productions options evaluated for this project included:

*    Barkboard production
*    Activated carbon production
*    Bark as a substitute for peat moss
*    Pellet production
*    Agroforestry options

     Recommended Short-Term Actions:

This project was initiated on the premise that HP logs would not become
available in the region until the year 2000 from corporate (Potlatch)
resources, and year 2005 from Grower's Association resources. However,
the interview results underscore the need to initiate short-term actions
which can dramatically impact overall long-term success. Based on the
study results, there are eleven (11) key short-term actions which deserve
immediate attention:

1)    Increase familiarity with key contacts and players currently
working in the HP arena:
2)    Expand the existing Grower's Association to a region-wide
organization (OR, WA, ID) with two arms: a non-profit arm with a
research, education, and grower support role; and a for-profit
cooperative with a marketing and business incubation role.

3)    Initiate immediate business development opportunities based on in-
depth interview results:

4)    Evaluate options for value-added processing in the region based on
immediate development opportunities:

5)    Initiate additional wood working properties testing with interested

6)    Focus in-field testing on affordable, efficient stump/root
treatment options:

7)    Identify and evaluate immediate private investment access

8)    Build public-private linkages:

9)    Develop sample packets for distribution to potential
product/resource buyers:

10)   Build public-public linkages:

11)   Initiate additional feasibility analyses with immediate and future
solid wood products markets in mind:

      Recommended Long-Term Marketing Strategies:

Six (6) key strategy areas have been identified which can help facilitate
long-term interest in investing in HP:

1)    Secure funding for on-going research and testing for non-
traditional product development and long-term plantation research:

2)    Consider development of a HP manufacturing and marketing co-op:

3)    Evaluate options for value-added processing in the region based on
longer-term development opportunities:

4)    Look at the application of a "Forest Bank" concept for HP
plantation development:

5)    Evaluate opportunities and constraints for application of carbon
sequestration designation and investment on HP plantations:
6)    Analyze potential new policy changes and incentive programs which
could impact HP plantation growth:

To inquire about receiving a copy of the full report, please contact:

Catherine M. Mater
Vice President
Mater Engineering, Ltd.
101 SW Western Blvd
Corvallis, Oregon    97333
Tel: (541) 753-7335
Fax: (541) 752-2952

Dave Jensen
Community Economic Developer
Malheur County
676 SW Fifth Avenue
Ontario, Oregon   97914-3436
Tel: (541) 881-0327
Fax: (541) 881-0329

Terry Drever-Gee
Baker-Malheur Regional Alliance (BMRA)
Route 1, Box 54
Baker City, Oregon    97104
Phone/Fax: (541) 523-6228
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ÜÜÜÜÜÜÜÜÜÜÜÜÜÜÜÜÜÜÜÜÜÜ 8 G V W X Y a i Malheur County Hybrid Poplar
Project       M. Scott Mater M. Scott
Mater     02/04/9912/08/98¯H ÜÜÜÜÜÜÜÜÜÜÜÜÜÜÜÜÜÜÜ

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