It feels like everything about this mission is designed to throw a wrench in the works. All i can grow is apples, the valley floor is small and broken by rivers. No iron to mine so i have to buy it, barely any wood. There is wolves, bears and outlaws!

It seems impossible and its only the second mission.

It's tough, but doable. You don't actually need a very large population to pull it off, and smaller is probably better.

Because you cannot buy lumber, go a little bit overboard on your wood cutters at the start of the level (they're also decent at fighting off the wildlife). You probably want to build your barracks and armory immediately so you can recruit a couple archers. Remember that you can also order your lord to walk out and fight. He can take on wolves just fine, but don't try to take down a bear. Once you've got your buildings up and running, build a wall to cut off the approaches used by the bandits so they can't wreck your buildings.

The real trick is getting the gold to build your blacksmiths and fletchers and buy your iron, while still having enough time to complete the mission. Seeing as a large population for taxation purposes is just out of the question, your best course of action is probably to sell apples. Food sells for a fairly decent amount, and because your economy is so simple at this point (woodcutters and farmers!) you don't need to eat much so you can sell the rest.