In Minnesota timber country, there's no love lost between a logger and a giant paper mill

At a recent timber auction in the small town of Cotton, bidding for rights to harvest a 109-acre tract of Minnesota aspen soared to three times the appraised value, and that wasn't the end of it.

Just as the auctioneer said "going once, going twice," a logger named Dennis Wagner raised his hand and pushed the price up one more time against the only bidder still in — the giant Boise paper mill in International Falls.

Wagner, a wealthy, outspoken figure in the state's timber industry, says he likes to put in last-second bids. He thinks it forces others to ponder the money at stake and hopefully decide to drop out.

"When it goes that long," he says, "you try everything."

For nearly two years, Wagner and Boise's owner, Packaging Corp. of America, have tried to outbid and outsmart each other in a feud that's distorted wood prices in northern Minnesota, drawn the ire of other loggers and caused anxiety in International Falls, where residents worry about the mill's future.

"They're trying to run me out of business," Wagner said. "Don't tell me they're not. Everybody knows it."

Packaging Corp. of America, or PCA, declined several requests to discuss the situation. "We have no comment," a spokeswoman said via e-mail.

The dispute began when PCA bought Boise in 2013 and told loggers they would have to take a cut in pay for the wood they sell to it.

Wagner, who has built a fortune in logging, construction and concrete and is also the mayor of tiny Ranier next to International Falls, refused and began trucking Minnesota wood to a mill in Wisconsin.

PCA's Boise mill needs hundreds of thousands of cords of timber each year to transform into white paper and, in a quirk of the forest industries, often bids at auctions against the very loggers who supply it. At nearly every auction since Wagner went his own way, PCA has had representatives square off with him for logging rights — and usually won. In the process, wood prices in northern Minnesota have climbed well above state and national averages.

"Yeah, there's tension," said one logger who is frequently at the auctions and asked not to be identified. "It's just not good for the industry, it's not good at all."

Paper mills must keep their costs low or they get shut down, said Bob Anderson, the mayor of International Falls and a former Boise employee. Wagner is a key player in the community and employs a lot of people, Anderson said, but for him to send local timber to Wisconsin is not in the community's best interests, especially as the mill fights to survive in a low-growth industry.

"They both have got their position, but we need cooperation more than we need people staking out their positions, and hopefully they can work together," Anderson said.

The feud

Wagner went crosswise with the paper mill when PCA in 2013 bought Boise Inc., the former paper unit of Boise Cascade that was sold to an investment firm in 2008. PCA cut 265 jobs in International Falls and promptly told area loggers they'd earn about $3 less per cord they sold to the mill at the beginning of 2014. A cord is a stack of wood 4 feet high by 4 feet wide by 8 feet long.

The timber industry had just emerged from a recession that permanently closed several mills in Minnesota. Margins for loggers were already thin. Some weren't even making a profit.

"The fact was, we were all making no money cutting wood for Boise Cascade," Wagner said. "For nine years we never got a raise, except for a fuel adjustment here or there. Nobody could do it anymore. They were living on equipment depreciation."

For the new owners to cut prices as soon as they took over seemed draconian, and not just to Wagner. Other loggers grumbled, but the business is local, loggers are leery of collective action, loyal to the mill and most of them lacked the means to run afoul of their primary customer.

Wagner, who says logging represents less than a tenth of his business interests, could afford to challenge the mill. So he did.

He informed PCA he wouldn't sell it wood at that price and started trucking his timber 250 miles to a siding factory in Hayward, Wis. He told the International Falls newspaper the mill's new owners were loyal only to their shareholders and profiting at loggers' expense.

"He said what a lot of loggers were thinking, but loggers are reluctant to speak up against a mill that they supply, for fear of being blacklisted," said Scott Dane, director of the Associated Contract Loggers & Truckers.

A bidding war

Despite their struggles, mills hold most of the cards in the relationship with the people who cut down trees.

Because most raw timber isn't valuable enough to justify long-distance shipping, logging is a regional business, with most lumberjacks tied to specific nearby mills. Mills bid on uncut timber in the open market against loggers, and they set the prices loggers are paid for the timber they cut down. Also, if a mill wins a tract at an auction, it generally hires one of those same loggers to cut down the trees.

PCA, which is based in Lake Forest, Ill., and whose main business in the U.S. and China is cardboard boxes, posted a $393 million profit in 2014. When it reported a record second-quarter profit last week, executives said wood costs were even with last year, paper output was slightly higher but the price it was getting for paper was down. PCA is investing in a new turbine generator to make the International Falls mill more productive.

Wagner says the company is bidding him out of the market at almost all the oral auctions he attends. He's able to win some sealed bid auctions, where nobody knows what anyone else is bidding, but he's only won two oral auctions in the past two years out of hundreds. His inventory of uncut timber has shrunk from about two years' worth to about a year's worth.

A roiled market

The feud has distorted the timber market around International Falls.

The average price for a cord of aspen at auctions in Littlefork, where the Minnesota Department of Natural Resources sells timber on land near the Canadian border, has risen $15, or 57 percent, this year to $40 a cord, according to the DNR. That price is 30 percent higher than the statewide average.

And as the auction in Cotton showed, that effect is spreading south and east. Wagner's last-second tactic paid off: he won 109-acre tract with a bid of $75 a cord.

Several loggers present at the auction in Cotton declined to go on the record. They were afraid to run afoul of PCA, or be labeled gossips. One feared that if northern Minnesota landowners heard about auctions reaching more than $70 per cord, they'd come to expect those prices. Mostly, other loggers just wish Wagner and PCA would reconcile, so things can quiet down.

"PCA made a mistake, you know, or whatever. I'm hauling my wood up there right now, and everybody makes mistakes," one logger said. "Wagner's a wealthy man, but he's got millions. PCA's got billions."

Larger forces

The feud isn't the only factor driving up prices. Demand for aspen, the key wood for paper mills, is rising in both Minnesota and Wisconsin. Loggers complain that private landowners aren't auctioning off enough timber.

Wood was up around $70 a cord before the collapse of the housing market in 2007. The price dropped to $20 or so, and landowners are staying on the sidelines, waiting for prices to recover more, said Dane, director of the Associated Contract Loggers & Truckers.

"We've got a void created by the lack of private wood availability," he said. "The mills in Minnesota for the most part are all short of wood based on what their inventory should be."

Wisconsin, where Wagner ships the timber cut by his crews or lumberjacks, lost a lot of loggers in the recession. Mills there are even more desperate for supply. Futurewood Corp., a forestry firm based in Hayward, Wis., paid quadruple the appraised value for one tract of land auctioned in Cotton.

Aspen that can be cut in the summer, when the ground is too soft for loggers to work in large swaths of forest, is especially valuable, because loggers have to stay busy in the warm months in order to pay the bills and the winter stockpiles at mills start to run thin, said D.J. Aderman, president of Futurewood Corp.

"The next five years we're not going to have as much aspen available as we've had in the past," he said.

Wagner's doubts

Wagner, whose daily uniform is a button-down shirt and bluejeans, admits to feeling conflicted about challenging the old Boise mill.

"I logged for these guys for 40 years, and my dad logged for them 30 years before that," he said. "I understand that they're critical to this town."

He worries that others will hold him partly responsible if PCA cuts back in International Falls or lays off more workers.

Meanwhile, he's running out of wood to cut. In Cotton, he says he was able to outbid the mill because the land was closer to his customer in Hayward, reducing some of his transportation cost. He came up empty at an auction in June, and one of his men got nothing at an auction in July.

He said the mill is now listening to other loggers, "treating them like kings." He says he'd be willing to negotiate.

"I'll come back and sell wood to you tomorrow morning. It's just that I need a profit in it," Wagner said. "It's good for you if your customer is making money too. That's sustainability."

Adam Belz • 612-673-4405 Twitter: @adambelz