In the first week of August, Ochoco Lumber turned a new direction within the wood products industry, hoping to cash in on the wholesale trade market by matching Oregon buyers of lumber with international sellers.

Ochoco Lumber, based in Prineville, began a partnership with a four-man crew to convert their relationships in the industry into sales of lumber for wood remanufacturers. Bruce Daucsavage, president of Ochoco Lumber, hopes that the new wholesale market trading operation, Ochoco International Trading Co., will account for 25 percent of Ochoco’s annual revenues.

The traders, Terry Simpson, Matt Dierdorff and Dan McGraw and Craig Cookingingham, will specialize in moving pine from Canada, Chile, New Zealand into cut-stock shops that make doors, window sashes and moldings in Central Oregon, California and Idaho. The wholesale traders are a splinter group from Louisiana Pacific, with an average of 15 years in the business, said Daucsavage.

This will expand the base of our company,” said Daucsavage. ”It also gives us the opportunity for diversification.” Daucsavage estimates that the wholesale operation will bring in about $20 million in gross revenue after moving 40 million board/feet. ”If you net about half of that, you probably have a viable business,” he said.

Until recent times, Ochoco had been exclusively in the business of milling timber cut in the Northwest. After a confluence of labor, environmental and political issues, Ochoco, like others in the industry, is bringing in lumber from Eastern Europe, South America and Canada. This geographical spread has created problems for Ochoco, but also opportunity to be the middle man.

Ochoco committed ”a few million dollars” to the venture and is the majority partner, according to Daucsavage.

If Ochoco is successful in the new venture, it could increase Ochoco’s presence in Central Oregon and, possibly, contribute to reopening its shuttered Prineville mill. Ochoco is simultaneously working on a project that imports pine from New Zealand to be milled in its Oregon operations.

Daucsavage said this could also bring jobs back to the Prineville mill.

”We want to do business in Central Oregon,” Daucsavage said. ”We may not produce the wood, but we want to see the wood come in to Central Oregon.

The downside of the new wholesale trading venture is size and risk.

Ochoco wades into a new market dominated by industry titans like Georgia Pacific, International Paper and Portland-based lumber traders Forest City. It is a business of thin margins, where volume and relationships are the key to success.

”Gross margin is about 3 percent,” said Scott Hill, a trader for Forest City’s Bend subsidiary, Platueau Forest Products. ”Net margin is less than half a percent. It’s very much a volume game and you try turn your money often.”

Forest City should provide plenty of local competition with companies like American Pine Products and Bright Wood Corp. as customers. Last year, Forest City acted as broker for almost 16 percent of the total U.S. wholesale lumber market, according to Hill. With nearly $3 billion in sales behind Forest City, Ochoco will be a small fish in the pond.

”Volume is important,” said Daucsavage. ”But relationships are very important. Our group brings with them relationships with cut-mills.”

A further pitfall for any trading organization is the risk of speculation. Staid energy companies left behind in the Internet boom, tried their hands at wholesale trading. The ill-fated results are still being counted in subpoenas and indictments.

”You’re selling to customers who take delivery of it tomorrow,” said Paul Ehinger, a wood-products analyst based in Eugene. ”How’s it different than energy trading? The wholesaler is buying and moving the product fairly quickly. Like any business, you try to speculate too much you’re going to get burned.”

Most trades in wholesale lumber are done ”back-to-back,” where traders find a seller only after a buyer notifies them, Ehinger said.

Speculation, however, is still an option, according to Hill. ”If you see something cheap on the market, you pick it up and hope you can get rid of it,” he said. ”In a bull market you can make a whole lot of money. In a bear market you give it back.”

Daucsavage said that his wholesale traders operate independently, but there are limits for risk. ”I would hope and anticipate that a vast majority would be back-to-back and there are guidelines in place.”

Kevin Max can be reached at kmax@bendbulletin.com