Oct 22, 2013
Executives
Michael Covey - Chairman and CEO Jerry Richards - CFO Eric Cremers - President and COO
Analysts
Michael Roxland - Bank of America Merrill Lynch Gail Glazerman - UBS Securities Chip Dillon - Vertical Research Mark Weintraub - Buckingham Research Paul Quinn - RBC Dominion Securities Inc. Steve Chercover - D.
A. Davidson
Operator
Good morning. My name is Melinda and I will be your conference operator today.
At this time, I would like to welcome everyone to the Potlatch Third Quarter 2013 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the call over to Mr.
Michael Covey, Chairman and Chief Executive Officer for opening remarks. Sir, you may proceed.
Michael Covey
Thank you, and good morning. Welcome to Potlatch's Investor Teleconference, covering our third quarter 2013 earnings.
With me this morning in the room are Jerry Richards, Potlatch’s new Chief Financial Officer; and Eric Cremers, President and Chief Operating Officer. Before we begin, I would like to remind you that this call may contain forward-looking statements with regard to our business and operations.
Please review the warning statements in our press release, on the presentation slides, and in our filings with the SEC concerning the risks associated with these forward-looking statements. Also, please note that segment information as well as a reconciliation of non-GAAP measures can be found on our website potlatchcorp.com as part of the webcast for this call.
We are happy to report another quarter of solid earnings. Resource posted seasonally strong results in spite of the fact that we pulled harvest forward into the first half of the year to take advantage of strong sawlog demand.
The pulpwood market however continues to be oversupplied in the North and we have not yet seen an improvement in the pine, sawlog prices in the South. Our wood products mills operated well in the third quarter, while average lumber prices were lower than the second quarter.
They are currently higher than they were at the start of the third quarter. We are on-track to complete several high return capital projects this year, which will reduce costs and improve recovery and productivity at each of our mills.
Interest in our HBU and rural recreational properties continues to be strong. We closed 53 transactions in the third quarter which is one of the highest transactions totals since we converted to a REIT in 2006.
We continue to be encouraged by the long-term fundamentals that drive our performance. Housing starts have improved although at a bit more of a measured pace than was anticipated earlier in the year.
End-Use Wood products demand is steady and we anticipate a normal seasonal pattern in the fourth quarter as buyers look to end the year with lean inventories. Lumber prices have stabilized and it appears they will continue to strengthen well into next year.
Ultimately, we look to the end of the year with solid results and anticipate operating conditions will continue to improve through 2014. We will provide more thoughts about 2014 on our fourth quarter earnings call.
After several quarters of improved performance especially in wood products in Northern resource, it is clear that we are building cash and believe a return of capital to our shareholders in the form of a higher sustained dividend is important to shareholders. Our Board has taken a cautious approach to raising our dividend and we will meet later this quarter to make our determination.
Any updates will be communicated in the form of a press release. Now I would like to turn the call over to Jerry Richards who has been on his role of CFO for the last three months.
He will provide more detail and then we will put it up to questions. Jerry?
Jerry Richards
Thank you, Mike. I am excited to be at Potlatch and look forward to working with those of you on today’s call.
As shown on Page 3 of the slides accompanying this call, our third quarter net income was $22.2 million or $0.54 per diluted share. This compares to a net income of $19.2 million last quarter or $0.47 per diluted share.
We recorded a pre-tax charge of $1 million during the third quarter for environmental remediation at one of our properties in Northern Idaho. The after-tax effect of the environmental remediation charge was $0.02 per diluted share.
We recorded a charge of 1.8 million on a pre-tax basis or $0.03 per diluted share in the second quarter. We are pleased to report that the physical cleanup activities at the site were completed during the third quarter.
Now, I'd like to review the results of our operating segments for the quarter. Information about the performance of the Resource segment is displayed on Slides 4 through 6.
Third quarter income was $25.4 million compared to $14.5 million in the second quarter, as you know the third quarter is typically Resources’ seasonally strongest quarter. Northern sawlog prices were 3% lower than the prior quarter.
The modest price decline was a result of the lumber indexed arrangements that currently cover approximately two-thirds of our harvest volume in the region. Because the contractual agreements are set on a one-to-three month lag, the declines in lumber prices experienced during the second quarter affected our average third quarter of sawlog prices.
Adequate log yard inventories at mills also played a role in the minor price decline. Harvest volumes increased nearly twofold from the prior quarter as the third quarter is generally the optimal harvest season in our Northern region.
Third quarter sawlog harvest volumes were slightly under historical third quarter volumes, primarily due to the strategic decision to pull forward a portion of the planned third quarter harvest volume earlier in 2013 to capitalize on attractive sawlog prices. In the Northern region, we continue to execute the strategy of minimizing pulpwood production due to weak demand.
Southern sawlog prices rose 9% and harvest volumes increased 30% compared to the second quarter due primarily to a higher mix of hardwood sawlogs in the third quarter. Adverse weather negatively affected hardwood sawlog production in the second quarter.
Southern pine sawlog and pulpwood prices were flat quarter-over-quarter, while harvest volumes increased seasonally. Information about the performance of the real-estate segment is displayed on Slide 7 through 10.
Third quarter revenues for our real-estate division were $8.9 million for the quarter compared to $5.8 million in the previous quarter. We sold more HBU property in the third quarter, which sells at a higher price than non-strategic timberland or real-estate.
Operating income for the third quarter was $6.5 million compared to $4.1 million last quarter. Overall, we’re pleased with the continued strength of demand for HBU and rural recreational properties which has supported firm real estate prices throughout the year.
Information about the performance of our wood product segment is displayed on Slides 11 and 12. Operating income for the third quarter was $11.3 million compared to income of $19.7 million in the prior quarter.
Average lumber prices realized in the third quarter were 14% lower than the second quarter. Lumber prices declined in the second quarter after hitting a peak in April, stabilized and increased during the third quarter.
Lumber shipments for the third quarter were up 14% over the prior quarter reflecting resumption of buying after prices bottomed near the end of the second quarter. Corporate administration costs, excluding net cash interest expense were $10.8 million compared to $7.7 million in the second quarter.
Second quarter results included favorable non-cash mark-to-market adjustments related to our deferred compensation plans. We also increased our incentive compensation equivalent to third quarter as a result of our strong 2013 performance.
Overall, our financial position remained sound and we have ample liquidity. We ended the quarter with $63 million in cash and short-term investments and almost $250 million of borrowing capacity on a revolving line of credit.
And we have not debt maturing until the end of 2015. Capital expenditures for the quarter were $6.5 million and we continue to anticipate full year capital expenditure will be approximately $24 million.
Next, I would like to discuss our outlook for the final quarter of 2013. In our resource segment, we expect to harvest approximately 3.7 tonnes in 2013.
Prices for Southern pine and sawlogs remain largely unchanged. And we do not foresee meaningful price improvement in the near-term.
We anticipate that Northern region sawlog prices will decline slightly in the fourth quarter due to seasonal factors and lag affect of lumber price changes earlier in the year. We should see modest improvement in wood products prices during the fourth quarter consistent with industry forecast.
We anticipate shipment volumes will decline slightly from the high level we’ve reached in the third quarter, but remain above the first two quarters of the year. We expect fourth quarter wood products earnings to be comparable to the third quarter.
We expect our real-estate business will sell between 18,000 and 20,000 acres for the year consistent with our original 2013 estimate. Pricing should remain steady at an average price per acre of approximately $1,400.
Land bases should approximate 15% to 20% of our land sales revenues for the full year. In closing, we’re pleased with our operating results for the first three quarters of 2013 and we anticipate continued solid results in each of our operating segments for the fourth quarter as industry related economic fundamentals continue to improve.
That concludes our prepared remarks and Melinda I would now like to open the call up to Q&A.
Operator
(Operator Instructions) Your first question comes from Michael Roxland.
Michael Roxland
First question I had was what was the biggest driver behind your lumber pricing improvement we had to witness in 3Q, was it a matter of inventory tightness, no downtime, weather impact, it was logging conditions, is there any way to really qualify what’s been driving the lumber prices up?
Bank of America Merrill Lynch
First question I had was what was the biggest driver behind your lumber pricing improvement we had to witness in 3Q, was it a matter of inventory tightness, no downtime, weather impact, it was logging conditions, is there any way to really qualify what’s been driving the lumber prices up?
Eric Cremers
So it’s really tough to know, but our gut feeling is that, what drove the price decline from between the quarters had to do with inventories out of the dealers. If you recall early in the year, there was a lot of buzz about higher housing starts for the year and a lot of dealers went and procured lumber inventory.
And then some bad weather hit and prices started to roll over. And then as prices rolled over, dealers were reluctant to buy more and that’s what drove prices down so low.
So we think the bounce up was inventories needed to be replenished to keep up with the higher levels of housing, you started to see as you got into the kind of the summer in the early fall months.
Michael Roxland
That’s really is an inventory replenishment given that inventories were driven unsustainably low previously.
Bank of America Merrill Lynch
That’s really is an inventory replenishment given that inventories were driven unsustainably low previously.
Eric Cremers
You are correct.
Michael Roxland
And how quickly do you think sawmills can respond to the pricing increase. As pricing came in, did you see any sawmills takedown time, did it go from three shifts to two shifts, and how quickly can they respond now to pricing that is on the upward trend?
Bank of America Merrill Lynch
And how quickly do you think sawmills can respond to the pricing increase. As pricing came in, did you see any sawmills takedown time, did it go from three shifts to two shifts, and how quickly can they respond now to pricing that is on the upward trend?
Eric Cremers
Well, certainly when prices ran up in the spring, the Chinese backed away from the market that left the Canadians with more volume to put into the U.S. market and that also helped push prices down.
Specifically I can’t recall of mills where any mills in our area were taking off shifts from the lower pricing that we were seeing. But I would argue that mills are running pretty hard in this environment because there is still good profitability out there.
So, I’m not sure there is lot of easy flat capacity that can come back online.
Michael Roxland
And then just a last question and I will turn it over. Southern sawlog pricing was better than we have been expecting.
Just want to get a sense of what's driving that. I mean in 3Q is that just a matter of seasonality and maybe selling more cedar or are you actually beginning to see signs of sawmills adding shifts given increased wood demand.
And I remember in the last call you guys mentioned that West Frazer was restarting their McDavid sawmill but has anything else occurred that has been notable that has contributed to price increase in Southern sawlogs?
Bank of America Merrill Lynch
And then just a last question and I will turn it over. Southern sawlog pricing was better than we have been expecting.
Just want to get a sense of what's driving that. I mean in 3Q is that just a matter of seasonality and maybe selling more cedar or are you actually beginning to see signs of sawmills adding shifts given increased wood demand.
And I remember in the last call you guys mentioned that West Frazer was restarting their McDavid sawmill but has anything else occurred that has been notable that has contributed to price increase in Southern sawlogs?
Jerry Richards
I would say the primary driver for our increased utilizations was mix in the third quarter, so we had a higher mix due to hardwood sawlogs as opposed to pine. And overall pine sawlog prices for us were relatively flat.
Operator
Your next question comes from Gail Glazerman.
Gail Glazerman
I guess just maybe just sticking on the last point. Looking out to the fourth quarter do you expect mix to remain about the same, would you expect it to normalize?
And just adding to it, was there a mix issue in the West as well -- in the North as well or was that kind of more just the way your contracts played out in terms of price performance because I would have actually expected weaker pricing in the North as well?
UBS Securities
I guess just maybe just sticking on the last point. Looking out to the fourth quarter do you expect mix to remain about the same, would you expect it to normalize?
And just adding to it, was there a mix issue in the West as well -- in the North as well or was that kind of more just the way your contracts played out in terms of price performance because I would have actually expected weaker pricing in the North as well?
Eric Cremers
Yes so Gail this is Eric, in the South it was clearly a mix issue in the third quarter and we expect prices to come back down a little bit due to mix in Q4. So we’ll see less hardwood, more Southern Yellow pine.
So, you’ll see pricing come down a little bit from where we were in Q3. So, in the North prices did fall over a little bit but it’s consistent with what we’re seeing with lumber pricing in the region.
So we were not surprised at the change. So, if you look for examples at sawlogs from Q2 to Q3 they went from 90 into the Northern region sawlogs, they went from $92 to $89 a tonne.
And just for comparison purposes and I’ll just use the lumber composite prices in Q1 to Q2 went from $412 to $379 or a drop of roughly 8%. And it’s because of the lag effect but you have to look back a quarter for lumber prices, so prices did what we thought they were going to do.
Gail Glazerman
And can you give us any sort of guidance then, given the lag effect, how that would play out in the fourth quarter. Can you be a little bit more specific, or not really?
UBS Securities
And can you give us any sort of guidance then, given the lag effect, how that would play out in the fourth quarter. Can you be a little bit more specific, or not really?
Eric Cremers
Well, I can tell you that from Q2 to Q3 the lumber composite has gone from $379 to $354 so that’s a $25 drop of roughly 7%. So, you could expect a decline roughly that ballpark.
Gail Glazerman
And can you elaborate a little bit more, I guess, on the weather impact that you referred to in the South? And I guess more so what you're seeing in terms of the fourth quarter is that starting to normalize or is pressure building relative to what you saw in the prior quarter?
UBS Securities
And can you elaborate a little bit more, I guess, on the weather impact that you referred to in the South? And I guess more so what you're seeing in terms of the fourth quarter is that starting to normalize or is pressure building relative to what you saw in the prior quarter?
Eric Cremers
Well, we didn’t really have a lot of weather impacts per se in our operating, there were some parts of the South that did get hit with inclement weather particularly on the east side of the South Eastern U.S., but we didn’t have in particular overwhelmingly bad weather in the quarter.
Gail Glazerman
And just a couple of last questions, I guess you mentioned the view that the customers were going to -- particularly wood products customers were going to enter 2014 with lower inventories. Do you think that's a reflection of their view in terms of demand or do you think it's just over-compensating for their positioning coming into 2013?
UBS Securities
And just a couple of last questions, I guess you mentioned the view that the customers were going to -- particularly wood products customers were going to enter 2014 with lower inventories. Do you think that's a reflection of their view in terms of demand or do you think it's just over-compensating for their positioning coming into 2013?
Michael Covey
I think Gail, it’s Mike, I think it’s uncertainty, I don’t know what’s going to happen, jobs reports, government shutdowns all those things make them extraordinarily cautious. They got a big price run up last year that’s probably spooked them a little bit.
So I think they’re buying just kind of just in time inventories and not taking any positions and we don’t expect that to change.
Gail Glazerman
And just in terms of the dividend, I guess you somewhat hinted that that sort of came up in prior conversations. And in the past you've been pretty clear saying you needed a line of sight towards your harvest returning more towards a 4.3 million tonne level, but it feels like perhaps that's changed.
And if you can just maybe elaborate in terms of what your current thinking is, in terms of supporting a higher dividend potentially?
UBS Securities
And just in terms of the dividend, I guess you somewhat hinted that that sort of came up in prior conversations. And in the past you've been pretty clear saying you needed a line of sight towards your harvest returning more towards a 4.3 million tonne level, but it feels like perhaps that's changed.
And if you can just maybe elaborate in terms of what your current thinking is, in terms of supporting a higher dividend potentially?
Michael Covey
Well, if you think about the major drivers of our financial results our real-estate business, it’s getting stronger evidenced by the number of transactions we’re seeing some movement in price. So, we feel very good about that, our Northern sawlog business has improved dramatically over the last 18 months, much stronger pricing and strong returns and we don’t think that’s going to change, especially with their optimism around lumber pricing which drives our wood products business and our wood products business over the last 18 to 24 months has improved dramatically.
And we think it’s going to continue to be a really good business. So I think what has changed is we have a stronger conviction about Northern resource, we have a stronger conviction about wood products and our real-estate business we feel is very solid.
The weakness in all that is Southern pine sawlog pricing which in our operating area we have still not seen it turn. And we would certainly like to see that happen going forward and are hopeful that it will.
But I think given the cash build in our balance sheet we have paid down $37 million in debt already this year. We continue to build cash.
I think the Board looks to the dividend is still another meaningful way to return capital to shareholders and as I said we will review that this next month.
Gail Glazerman
And just one last question, on the Southern pine and sawlog pricing, are you willing to hazard guess on when at this point you think you might start to see it firm up or what conditions are need to be in place for that?
UBS Securities
And just one last question, on the Southern pine and sawlog pricing, are you willing to hazard guess on when at this point you think you might start to see it firm up or what conditions are need to be in place for that?
Michael Covey
We like the government we keep checking the can down the road. Two years ago we thought it would be better this year.
Last year we thought it would be better next year. And as you know in our area some of that depends on what Georgia Pacific eventually does; the facility that has been mothballed as well as what other operators do in the area.
But I think with the forward trajectory of housing starts that we think are positive and an improvement in 2014 and 2015, I think we are closer to the time when the market begins to turn.
Operator
Your next question comes from Chip Dillon.
Chip Dillon
First question is if you could and you might have mentioned this but I know the corporate expense has kind of been a balance between almost 8 million and 11 million. Where do you think it comes in, in the fourth quarter, at least directionally?
Vertical Research
First question is if you could and you might have mentioned this but I know the corporate expense has kind of been a balance between almost 8 million and 11 million. Where do you think it comes in, in the fourth quarter, at least directionally?
Jerry Richards
Yes Chip, this is Jerry Richards. I would say you are correct there are some ways that annoys typically is two things; one our mark-to-market related changes in our stock price on deferred comp; and then number two, we had a charge obviously related to our environmental remediation.
In terms of kind of the ongoing running rate it’s about a little over 9 million per quarter and that’s absent those adjustments that I am referring to. And then like I said once we get into ’14, we will re-measure pension and some other things so we will defer any comments on ’14 until our fourth quarter call.
Chip Dillon
And then as you look at I know you mentioned your harvest plan is 3.7 million tonnes and I think that might be, is that the same as it has been all year or did that come down a little bit? And then if you could just I guess Mike remind just sort of what the long-term well when you get to that sort of elevated state that could last for 10 years, what is that still looking like I think it’s mid 4s but if you could just clarify that for us as well.
And maybe what next year might look like?
Vertical Research
And then as you look at I know you mentioned your harvest plan is 3.7 million tonnes and I think that might be, is that the same as it has been all year or did that come down a little bit? And then if you could just I guess Mike remind just sort of what the long-term well when you get to that sort of elevated state that could last for 10 years, what is that still looking like I think it’s mid 4s but if you could just clarify that for us as well.
And maybe what next year might look like?
Eric Cremers
Yes Chip, this is Eric good morning. So yes I think at the start of the year we were guiding people to a 3.8 million tonne harvest level, that was actually a round up from a 3.75 was our internal plan.
We have seen relatively as we have talked about, we have seen relatively weak pulpwood prices in the Northern region to the point where it’s uneconomical for us to log and halt pulpwood. So we have basically brought that harvest volume down roughly 100,000 tonnes, so if you look at our plan for the year and really for the fourth quarter it’s to come in at roughly 3.65 million tonnes is what we anticipate at this point.
So we are down about 100,000 tonnes from the start of the year and it’s really driven by lower non-margin pulpwood in the North.
Michael Covey
So with regard to your question on the longer-term harvest level, we certainly have the capability to flex to a number that is up in 43, 44, 45 million tonnes per year. As we have said all along, we don’t want to increase our harvest volumes until we see better pricing.
And as we have indicated we are not getting any indication of that higher pricing in the South. We are preserving that asset value for our shareholders and we are not under financial pressure today to increase the harvest volume.
So that’s too early to talk about 2014, we will address that as we release our fourth quarter earnings.
Operator
Your next question comes from Mark Weintraub.
Mark Weintraub
Two follow-up questions first are you having any ongoing conversations regarding potential wood product facility restarts in Arkansas where presumably you might be a wood supplier? And then second, it sounded like on the one hand you thought that there has been some inventory rebuilding that has helped lumber pricing, yet on the other hand it seemed that you are suggesting that you think inventory levels are still quite low.
Maybe if you could just kind of clarify where your thoughts are?
Buckingham Research
Two follow-up questions first are you having any ongoing conversations regarding potential wood product facility restarts in Arkansas where presumably you might be a wood supplier? And then second, it sounded like on the one hand you thought that there has been some inventory rebuilding that has helped lumber pricing, yet on the other hand it seemed that you are suggesting that you think inventory levels are still quite low.
Maybe if you could just kind of clarify where your thoughts are?
Michael Covey
Yes so, on the second question we are not talking about big swings in inventory here Mark. It’s very modest.
I think inventories were driven really low with the price decline that we saw in the second quarter. And now they have come up a little bit.
It’s just typical for dealers to end the year with relatively lean inventories, a lot of them have to pay taxes on their assets they have at the end of the year. And so they like to run with low inventories.
There has also been a fair bit of uncertainty with the debt ceiling debate and tax policy and entitlement reform and all that. So we think there is just a general fair bit of concern out there.
So in that kind of an environment, dealers are going to tend to run relatively low. So that’s that part of the question, I am sorry what was the first question?
Jerry Richards
I’ll answer that Mark regarding our Arkansas we have a, as you know from the South Central Arkansas, we have an operating circle of 100 miles or 150 miles which where we can economically sell logs. And we’re in touch with every customer throughout that basin both mills that are operating those that are idle and those that are in have thoughts of increasing production.
And as you probably also know, even though our sawlog business is very weak in the south and log prices remain low, the wood products manufacturing business in central Arkansas where we have a large facility is fantastic. And certainly I think most operators are enjoying really outsized margins in the business today due to low log prices primarily and fairly strong lumber pricing.
So there are a number of mills that we’re in contact with all the time. None of them have the single magnitude that the Crossett facility that's idle does.
So they are chipping away at the edges if you will.
Mark Weintraub
And if I could just follow-up, so you point out that the sawmills are very profitable given where lumber prices are and where sawlog prices are. Would you expect that plywood facilities at this juncture would also be quite profitable or less so?
Buckingham Research
And if I could just follow-up, so you point out that the sawmills are very profitable given where lumber prices are and where sawlog prices are. Would you expect that plywood facilities at this juncture would also be quite profitable or less so?
Jerry Richards
No, I think they’re both doing very well.
Mark Weintraub
And any follow-up thoughts as to why we wouldn’t be potentially getting some action on potential restarts on the plywood side?
Buckingham Research
And any follow-up thoughts as to why we wouldn’t be potentially getting some action on potential restarts on the plywood side?
Jerry Richards
I can’t speak to what Georgia Pacific’s plans might be or other plywood operators. Many of those companies also run very large OSB operations.
The products are fairly directly substitutable in terms of making Southern Yellow pine sheathing or OSB, so I think those companies have to make decisions kind of which where they’re going to put their eggs in which basket. And hopefully Georgia Pacific does both.
Mark Weintraub
Thank you.
Buckingham Research
Thank you.
Operator
Your next question comes from Paul Quinn.
Paul Quinn
Just a question on timberland sales activity, specifically have you seen anything in Idaho and Arkansas. And then if you could have some general comments on the North American market?
RBC Dominion Securities Inc.
Just a question on timberland sales activity, specifically have you seen anything in Idaho and Arkansas. And then if you could have some general comments on the North American market?
Michael Covey
Well, it’s been, Paul its Mike. It’s been around 750,000 acres sell this year, the bulk of those were in the Longview-Weyerhaeuser transaction.
And aside from now when most of them have been fairly small 50,000 and 70,000 acres here and there most of that’s been in Alabama, Tennessee, Mississippi. There has been very little lumber market in Arkansas.
There are some tracks for sale on the West Coast, and small tracks and of course the big uncertainty around what MeadWestvaco is going to do. But the market has been unusually quiet this year and I think the general tone of it has also been extraordinarily competitive, transactions that have closed we think are continuing to trade a discount rates that are 5% to 6% with fairly aggressive pricing assumption.
So it remains an extraordinarily competitive business with lots of capital chasing few assets for sale.
Paul Quinn
You guys have been active in the market just unsuccessful today?
RBC Dominion Securities Inc.
You guys have been active in the market just unsuccessful today?
Michael Covey
Correct.
Paul Quinn
And just a follow-up question on pulpwood in the North, just trying to understand this change in pricing, have you seen facilities in the North close. I mean we're seeing pulp prices them self sort of strengthen in the back half of the year, so it's not an end product thing.
It's probably a facility or a demand side?
RBC Dominion Securities Inc.
And just a follow-up question on pulpwood in the North, just trying to understand this change in pricing, have you seen facilities in the North close. I mean we're seeing pulp prices them self sort of strengthen in the back half of the year, so it's not an end product thing.
It's probably a facility or a demand side?
Eric Cremers
Yes, it’s really a combination of both Paul, this is Eric. So it’s two things one is sawmills in the region are running relatively hard, so there is a lot of residual supply coming on to the market.
And then the second factor is that if you look at over the last, I don’t know five or six years you’ve seen probably five pulp mills in the Pacific Northwest go down and they’ve not come back online. And as a result demand is relatively weak, so that puts pressure on pulpwood prices.
Paul Quinn
So given your robust forecast on lumber prices going forward and I guess the expectation that these facilities that are closed are not going to come back, you don't see any change in that forecast going forward, weak pulpwood demand going forward, right?
RBC Dominion Securities Inc.
So given your robust forecast on lumber prices going forward and I guess the expectation that these facilities that are closed are not going to come back, you don't see any change in that forecast going forward, weak pulpwood demand going forward, right?
Eric Cremers
Yes, that’s correct. We don’t envision the supply demand dynamics changing, so yes.
Now the one thing to remind you of is pulpwood is not a huge business for us in Idaho, it’s kind of an ancillary product, it’s roughly 10% of our harvest for the year, that’s what the potential is unlike south where pulpwood is a very profitable business for most people.
Operator
(Operator Instructions) Your next question comes from Steve Chercover.
Steve Chercover
I hope I am not beating those to death. But the pulpwood that you sell is that primarily in Minnesota or in Idaho, I would have thought it was Minnesota?
D. A. Davidson
I hope I am not beating those to death. But the pulpwood that you sell is that primarily in Minnesota or in Idaho, I would have thought it was Minnesota?
Michael Covey
It’s some of both, but it’s principally in Idaho.
Steve Chercover
And two other quickies, so with your liquidity, are you actively looking through planned holdings to increase your holdings in any geographies that you’d be particularly interested in or want to avoid?
D. A. Davidson
And two other quickies, so with your liquidity, are you actively looking through planned holdings to increase your holdings in any geographies that you’d be particularly interested in or want to avoid?
Michael Covey
Steve it’s Mike, we continue to look at most of the transactions that we think come on the market or at least that are in the size that we can manage. We have looked at a number of transactions in the $50 million to $200 million range and have not been successful this year.
And our area of focus, we have been pretty consistent that we're looking for bolt-on kind of acquisitions in the Central U.S., Mississippi, Louisiana, Arkansas, that part of the world as well as even Northwest. Those have been our two key areas of focus.
Steve Chercover
And Mike you mentioned the government shutdown earlier, has that had any impact on your own log supplies for your manufacturing operations and alternatively have you been beneficiary from third-parties who are looking for alternate supply?
D. A. Davidson
And Mike you mentioned the government shutdown earlier, has that had any impact on your own log supplies for your manufacturing operations and alternatively have you been beneficiary from third-parties who are looking for alternate supply?
Michael Covey
No Steve, though the amount of timber we purchase from the National Forest System or or Bureau of Land Management lands is fairly insignificant with the exception of couple of our Lake State mills. As a matter of fact in Idaho or in the South at all for us and the shutdown was so short-lived that it really had no discernable impact on the market.
Had it been longer lasting perhaps it would have but it was a really a non-event from a timber supplier of pricing standpoint.
Operator
There are no additional questions at this time. I would now like to turn it back over to management for closing remarks.
Jerry Richards
I would like to thank, this is Jerry, I would like to thank everybody for your interest and participation on the call. And we look very much forward to talking to you in the fourth quarter.
Operator
Thank you. This does conclude today's call.
You may now disconnect.