[Federal Register Volume 61, Number 64 (Tuesday, April 2, 1996)]
[Notices]
[Pages 14551-14552]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8089]



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DEPARTMENT OF AGRICULTURE

Extension of Certain Timber Sale Contracts and Deferral of 
Periodic Payments

AGENCY: Forest Service, USDA.

ACTION: Notice.

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SUMMARY: Periodically, lumber markets experience significant decreases 
in price. Purchasers of National Forest System timber are sometimes 
unable to harvest timber sales with high stumpage prices without 
incurring losses that threaten bankruptcy, mill closures, or severe 
economic losses. Government indices indicate a major downturn in the 
lumber market has occurred from fourth quarter of 1993 to the present. 
While many Forest Service timber sale contracts contain provisions to 
extent termination dates during severely declining markets, the 
mechanisms used in some areas of the country to measure severely 
declining markets do not appear to be performing as intended. 
Accordingly, the Under Secretary of Agriculture for Natural Resources 
and the Environment has determined that it is in the substantial 
overriding public interest to extend for 120 days certain National 
Forest System timber sale contracts which terminate prior to August 1, 
1995, while the Department considers alternatives to current procedures 
for contract term additions. In addition to extending contracts 
pursuant to the Under Secretary's finding, the Forest Service also will 
defer, for 120 days, periodic payments due on certain contracts prior 
to August 1, 1996, when such referral is requested by the timber sale 
purchaser. The intended effect is to minimize contract defaults, mill 
closures, and company bankruptcies.

DATE: The Under Secretary's determination was made on March 28, 1996.

FOR FURTHER INFORMATION CONTACT: Rex Baumback, Timber Management Staff, 
Forest Service, USDA, (202) 205-0855.

SUPPLEMENTARY INFORMATION: The Forest Service sells timber from 
National Forest System lands to individuals or companies. Each sale is 
formalized by execution of a contract between the purchaser and the 
Forest Service. The contract sets forth the explicit terms and 
provisions of the sale, including such matters as the estimated volume 
of timber to be removed, period for removal, price to be paid to the 
Government, road construction and logging requirements, and 
environmental protection measures to be taken. The average contract 
period is approximately 3 years. Many sales, however, have contract 
terms of 1 or 2 years, while a few contracts have terms of 7 or 8 
years.
    The National Forest Management Act of 1976 (16 U.S.C. 472a(c)) 
provides that the Secretary of Agriculture shall not extent any timber 
sale contract period with an original term of 2 years or more, unless 
he finds that the purchaser has diligently performed in accordance with 
an approved plan of operations or that the ``substantial overriding 
public interest'' justifies the extension. On December 7, 1990, the 
Department adopted a final rule at 36 CFR 223.52 permitting, upon 
written request by purchasers, extension of those contracts requiring 
periodic payments when the agency determines that adverse wood product 
market conditions have resulted in a drastic reduction in wood product 
prices. Purchasers must request such extensions in writing for all 
subsequent consecutive quarters in which market price indices are 
depressed. That rule

[[Page 14552]]
permits extensions of no more than twice the original contract length 
or 3 years.
    Periodically, lumber markets may experience severe declines in 
prices. Based on Bureau of Labor Statistics producer price indices, the 
lumber market peaked in the fourth quarter of 1993. Since then, price 
indices have declined approximately 25 percent. The Douglas fir dressed 
lumber price index (commodity code 0801101) used to measure severe 
market declines in western Oregon and Washington has reflected the 
market decrease. Timber sale purchasers in this area have received 1 
year of additional contract time, if requested. However, the other 
species dressed lumber price index (commodity code 081103) used to 
measure severe market declines in other parts of the West and the 
Northeast does not appear to be as predictable an indicator of market 
declines as the index used in the Pacific Northwest. As a result, 
timber sale purchasers in these areas have not received any additional 
time to complete their contracts. Some of these timber sale purchasers 
are facing contract default, mill closure, and bankruptcy. Additional 
contract time would assist these purchasers by giving time in which the 
market may improve or in which they could mix their high-priced sales 
with lower-priced sales.
    The Government benefits if defaulted timber sale contracts, mill 
closures, and bankruptcies can be avoided by granting contract 
extensions, because having numerous, economically viable timber sale 
purchasers both maintains market opportunities and increases 
competition for National Forest System timber sales. These factors 
result in higher prices paid for such timber. In addition, the 
Government would avoid the difficult and expensive process of 
collective contract default damages.
    The Department is in the process of evaluating alternatives to the 
existing market-related contract term addition rule. While these 
alternatives are being evaluated, it is desirable to prevent contract 
defaults by allowing additional contract time on certain contracts that 
will terminate before the policy review is complete.
    Accordingly, the Under Secretary of Agriculture for Natural 
Resources and the Environment has made a finding that there is a 
substantial overriding public interest in extending sales for 120 days 
while the Department considers options for addressing declining market 
prices on timber under contract. The text of the finding, as signed by 
the Under Secretary, is set out at the end of this notice.
    In addition, all contracts that use the Bureau of Labor Statistics 
``other species dressed'' producer price index (commodity code 081103) 
to measure market declines may, if requested by the timber sale 
purchaser, obtain deferral for 120 days of periodic payments that are 
due prior to August 1, 1996.

    Dated: March 28, 1996.
David G. Unger,
Associate Chief.

Determination of Substantial Overriding Public Interest for Extending 
Certain Timber Sale Contracts

    Government indices indicate a major downturn in the lumber market 
has occurred from fourth quarter of 1993 to the present. While many 
Forest Service timber sale contracts contain provisions to extend 
termination dates during severely declining markets, the mechanisms 
used in some areas of the country to measure severely declining markets 
do not appear to be performing as intended.
    The Douglas fir dressed lumber price index (commodity code 0801101) 
used to measure severe market declines in western Oregon and Washington 
has reflected the market decrease. Timber sale purchasers in this area 
have received 1 year of additional contract time, if requested. 
However, the other species dressed lumber price index (commodity code 
081103) used to measure severe market declines in other parts of the 
West and the Northeast does not appear to be as predictable an 
indicator of market declines as the index used in the Pacific 
Northwest. As a result, timber sale purchasers in these areas have not 
received any additional time to complete their contracts. Some of these 
timber sale purchasers are facing contract default, mill closure, and 
bankruptcy. Additional contract time would assist these purchasers by 
giving time in which the market may improve or in which they could mix 
their high-priced sales with lower-priced sales.
    The Government benefits if defaulted timber sale contracts, mill 
closures, and bankruptcies can be avoided by granting contract 
extensions, because having numerous, economically viable timber sale 
purchasers both maintains market opportunities and increases 
competition for National Forest System timber sales. These factors 
result in higher prices paid for such timber. In addition, the 
Government would avoid the difficult and expensive process of 
collecting contract default damages.
    Therefore, pursuant to 16 U.S.C. 472a and to the authority 
delegated to me at 7 CFR 2.19, I have determined that it is in the 
substantial overriding public interest to extend certain National 
Forest System timber sale contracts that use the Bureau of Labor 
Statistics ``other species dressed'' producer price index (commodity 
code 081103) to measure market changes while the Department evaluates 
alternatives for changing the current market-related contract term 
addition rule. Such an extension may be granted, upon a timber sale 
purchaser's written request, only for 120 days and only on contracts 
that would otherwise terminate prior to August 1, 1996.

    Dated: March 28, 1996.
J.R. Lyons,
Deputy Under Secretary for Agriculture.
[FR Doc. 96-8089 Filed 3-29-96; 10:35 am]
BILLING CODE 3410-11-M