Maintaining the Fiber Flow

Producers outline their philosophies and strategies for feedstock procurement, illustrating the critical importance of developing strong and long-lasting relationships.
By Tim Portz | May 31, 2017

For the past 13 years, Dave Fetzer procured wood for Energex America’s Mifflintown, Pennsylvania, pellet facility, where the material arrived in 20-ton truck loads. At full song, the plant consumes more than 4,000 tons of sawdust, chips or shavings per week, and it was Fetzer’s job to make sure each of 200-plus truckloads of material that arrived at the plant met its tight quality specifications. “We test each load for ash content and moisture content,” Fetzer says. “Our purchase order asks for about 35 percent for green material, and about 7 percent for the dry, and both need to be less than 1 percent ash content.”

Ensuring that one or two suppliers’ loads met these parameters would be one thing, but Fetzer, like many of his fiber procurement colleagues across the industry, oversees material deliveries from a long roster of suppliers. In Fetzer’s case, while 80 percent of his annual volume comes from his top 20 suppliers, over 80 different suppliers will make a delivery to the Energex plant in the course of the year. Adding to the complexity, Fetzer must manage the variety of suppliers. “We have a lot of Amish mills in our area, and we also have some very high-producing mills,” he says. “I’ve got a mill in this area that produces a million feet of lumber a week.”

Managing all of this, and ensuring the plant gets the quality material it needs, all boils down to relationships. Fetzer makes a point of visiting his top suppliers on a quarterly basis, and in some instances, he visits suppliers more frequently. The simple math shows that Fetzer spends as much time in the field with his suppliers as he does at his own plant. “It is the only way to fully understand what is happening with your suppliers,” he says. “You never know what might change at their plants.”
After a decade in the business, Fetzer’s eyes are constantly scanning his suppliers operations.

Experience has taught him that something as minor as a new operator on a debarker machine, or a new front end loader operator, can have a profound impact on the quality of the supplied material. “I showed up at a potential supplier one time and most of the logs that came out of the debarker looked like barber poles,” Fetzer says. Fetzer knew that the bark that remained on the logs would ultimately end up the chips, raising the ash content of the material to an unacceptable level. “I explained to my contact at the plant that, unless the debarking process got better, it was unlikely that his material would satisfy our quality requirements. He then explained to me that the guy running the debarker was his father-in-law, and that correcting him might be more difficult than correcting someone else,” says Fetzer.

Fetzer also spends a great deal of time watching how his suppliers move material through their operation, and keeps a sharp eye out for any instances where material is simply placed on the ground. Overall plant cleanliness typically translates into clean material, Fetzer offers. “One half bucket full of mulch that gets mixed in with the material we want can throw a whole load out of our ash content tolerance,” he says. “It is important that our suppliers know that.”

A Family Affair
Mark Faehner, vice president at American Wood Fibers, is celebrating his 30th year in the wood fiber business, and his family’s connection to the industry reaches back nearly a century. While Faehner’s roster of wood fiber suppliers at AWF isn’t as expansive as the Energex’s, he, too, points to the value of building long-term, lasting relationships. “Changes are not made quickly in the byproduct market,” he says. “It is not uncommon to have relationships with people for 15 years or more. The long term service implications are very important to both parties.”

Faehner explains that for primary and secondary wood product manufacturers, a reliable offtake partner for their residuals and byproducts can mean the difference between operating and not. “Some of our suppliers might have between 50 and 100 people working in a woodshop or sawmill,” he says. “All of the machines are connected to a central sawdust collection system and ultimately feed into a silo. If the silo fills up and there is no on there to take that material away, the shop has to shut down. For that reason, there is a high premium placed on trust and a proven track record with offtake partners. Your truck has to show up, again and again as your supplier expects it should.”

Faehner has watched other offtake parties enter a new market and offer higher, sometimes significantly higher, prices for sawmill residuals. Ultimately, he notes, these new players don’t last, and sawmills have learned to be wary of these new parties. “Most companies don’t want to deal with them, even if their price is better, because there is just too much risk involved,” he says.

This year, both Faehner and Fetzer found themselves managing market conditions that curtailed their expected demand. The challenge for wood pellet producers and the primary and secondary suppliers who rely on them to take their residuals is that supply and demand in the wood products and pellet industries do not correlate. Managing this tension ultimately falls to people like Fetzer and Faehner.

Fetzer points to the advice he gives to all of his suppliers when he first engages with them and brings them aboard. “I urge people not to put all of their eggs in one basket,” he says. As tempting as it might be for Fetzer to take all of the material one supplier can offer—particularly if it is of high quality or a species or type that Fetzer covets—ultimately, it puts too much pressure on him and the Energex facility. In the Energex market area, winter ended early this year, and pellet sales fell off dramatically. Producers throughout the Northeast felt the same lull, and all of them went to work taking what they could from suppliers, but deflecting material and ratcheting down inbound volumes to the best of their ability. “We had to put suppliers on a quota system,” says Fetzer. He and the Energex team worked hard to take volumes from everyone on their supplier roster.

Fetzer explains that the volumes he took from suppliers was determined by a number of factors, including annual volumes, quality history and the length of the relationship between the facilities. “We worked really hard to take care of our biggest suppliers, and those with whom we had the longest relationship,” he says.

Faehner and AWF have a couple different options available to keep suppliers happy. He points to AWF’s diverse product line as an operational pressure valve when pellet sales are soft.  “We do a lot of animal bedding, wood flour and even some bundled firewood,” he says. “We do a good pellet business and market conditions like the past two years really hurt, but pellets aren’t the only thing we do. We’ve got some other things that are doing better. Part of our operational strategy is to equip our plants to produce a variety of products.”

Taking in material and storing it is also an option, Faehner notes. “If you deal in green material, you can just pile that material up in your wood yard,” he says. Faehner says that AWF is fortunate to have nearly 1,000 tons of indoor storage capacity. Here, he says, he can store raw material or finished product. The kiln-dried material that AWF procures cannot be stored outside, so indoor storage real estate is a convenient buffer that introduces some slack into AWF’s procurement and production relationship. For producers who aren’t fortunate enough to have that kind of indoor storage, producing pellets and storing them in bags outside becomes the only option available to them. For Faehner, this just isn’t a tenable situation. “That’s tough,” he says. The sun and weather are hard on pellets. The moment you store a pallet of product outside, it begins to lose quality.”

For both Faehner and Fetzer, returning as quickly as possible to the offtake rates their suppliers have come to expect is a matter of very high importance. After managing the January downturn, Fetzer was able to lift the quotas he had placed on his suppliers, and Energex is once again able to take the volume of material its suppliers need them to. American Wood Fibers is also building inventory for the 2017-‘18 heating season, and Faehner points to the late summer ordering season just a handful of months away.

Do It Yourself Demand
In at least one instance in the industry, producers of residual wood fiber material take it upon themselves to establish a pellet production facility as a means of filling in holes in their fiber demand. In 1976, Patrick Curran began a family logging business with little more than a couple of chainsaws and a logging truck. Since then, the business has grown into a major player in New York state, serving paper and board plants there and nearby Canada. Curran, troubled by what he saw happening in the paper market, recognized that he needed to find a new demand center for some of the materials he was handling, and founded Curran Renewable Energy in 2009.

When running at maximum production, Curran reports that the pellet plant can consume 200,000 tons of the 500,000 tons of wood fiber that its sister company, Seaway Timber Harvesting, generates each year. “There really is no market here today for softwood chips, and 30 percent of what we harvest each year is softwood,” Curran says. “It just made for a really nice fit, and we’re mixing hardwoods and softwoods together in our blended pellets.

Curran never wonders where his next load of material might come from. “We’re vertically integrated,” he says. “I can take my wood yard down to one day’s worth of material and I still know where my next material will come from.”

In some instances, Curran says, if a paper client calls and needs the material, he will reduce his material inventory to levels other producers wouldn’t be comfortable with. “I’ve never backed away from a request from our paper customers,” he says. “They’ve been good to us over the years, and being a partner to them is of the highest priority.”

Additionally, Curran says that quality is really nothing he or his pellet team ever have to concern themselves with, as they handle 100 percent of the material that eventually finds its way into the pellet operation. “If you’ve got 100 feedstock suppliers, you don’t have to have too many of them give you poor material before you’ve got a problem,” he says. “If your feedstock isn’t quality, the pellets you make will not be quality, either. There is very little room to have dirty feedstock in this space—very, very little.”

Vertical integration does not insulate Curran from a downturned market, however, and depressed demand from his own pellet facility generates the same challenge for Curran and his logging operation that confronts the suppliers who Faehner and Fetzer work with. While Curran Renewables has the ability to produce more than its current high-water mark of 107,000 tons of pellets in one production year, the past two winters have given Curran pause. “Like a lot of logging operations, we’ve got a lot of iron in the field, and the number of markets to sell into is getting smaller,” he says.

Demand Drives Prices
During the course of 13 years, Fetzer has seen residuals priced as low as $10 per ton for green material, and as high as $30 to $35 per ton in the middle of a particularly cold winter. Fetzer signs purchase orders with a life-span of eight weeks, and if his suppliers want to introduce changes in price or volumes, they are asked to do that at the conclusion of the existing eight-week purchase order. “Lately, the pricing hasn’t fluctuated all that much—it has really been holding pretty steady for about 18 months,” he says.

Fetzer is newly retired, having just recently received the last few fiber loads of his career. Like both Faehner and Curran, he points to the importance of strong relationships when managing feedstock procurement. Before his career drew to a close, Fetzer says that he had arrived at first-name basis kind of relationship with all of his suppliers. “If I told someone I was going to do something for them, I did it,” he says. “Also, I think it important to tell people about things that involve them, whether it is good news or bad news.”

Finally, Fetzer points to a dramatic change in the way his suppliers regard the byproduct streams they produce. “What used to be considered a waste product is now a valuable byproduct,” he says. “It’s not even considered waste anymore. In the late 1990s or early 2000s, sawmills recognized they had a valuable commodity on their hands, and it started paying some of their people’s wages instead of just going into the kitty.”

Author: Tim Portz
Executive Editor, Pellet Mill Magazine
[email protected]