Low returns from forestry products has meant many woodlot owners have decided to hold off harvesting, however, one industry professional warns it's time to think again.
In fact, Professional Harvesting Systems CEO Greg Bell says farm foresters need to start booking harvesting teams now or miss out on significant returns just around the corner.
"The recent history is the high New Zealand dollar and increased shipping costs resulted in a very low 'at wharf gate' return, which made it difficult to return profitable log prices to forest owners," said Bell.
With reduced harvesting levels occurring many harvesting crews got out of the business or went broke so now there are fewer crews available with the experience necessary to log woodlots.
But everything is changing Bell says as Russia puts big tariffs on log exports and China's demand for logs continues to expand.
He said traditionally export log prices have been heavily driven by China and Korea. China has been increasing its wood usage by 3-4 million cubic metres each year. At the same time Russian larch supplies – a natural competitor to Radiata pine - are decreasing at similar levels.
"This combination will open up the market for New Zealand again, and I expect that to happen later this year," said Bell.
"These key Chinese and Korean log markets have depended heavily on Russian log suppliers. But at the moment Russian wood supply has been hit by serious infrastructural problems such as transport – mainly roading and rail limitations – as well as ownership issues."
Bell says Russia used to have hundreds of log sellers but now there are only a few key sellers – a contraction engineered through government intervention. This is because Russia is trying to stimulate its own domestic saw milling industry. To encourage the change, hefty log tariffs have been placed on Russian log exporters to dissuade them from exporting, and instead to process logs in their own country.
"A couple of smaller tariffs (around 15 euros per cubic metre) has already been added to Russian exporters and while Russian larch used to be typically some US$10-15 per cubic metre higher than radiate, this gap has now widened to some US$30-40m3 as Russian supply reduces and price rises. On top of that, in January 2009 the tariff is expected to climb to a minimum of 50 euros per cubic metre, which adds another 35 euros per cubic metre or US$70 per cubic metre to the price of Russian wood.
"For the New Zealand forest industry this increases our competitiveness into key markets because Russian larch will be significantly more expensive to buy now; Radiata looks like a better prospect."
"These significant changes will soon open up the New Zealand market and increase overall profitability. If people aren't prepared for the sudden demand and haven't booked their harvesting crews now, they will find significant waiting periods for crews to harvest their trees for them."
Bell said the industry should start to see a turnaround soon, perhaps as early as July or August 2008. He is expecting log prices to climb significantly through to the traditional peak time around January and February.
"There's always a seasonal climb but this time around the seasonal climb should be steeper. We should see a positive trend and then conditions should remain stable. This is what those who have decided to wait for an upturn in forestry have been waiting for."
But Bell says there is more to the picture that woodlot owners should be aware of. He says another catalyst for price increases is driven by changes in ownership of New Zealand forests. Offshore equity funds are now the significant players in NZ forest ownership.
"Whereas the big forest companies of last decade needed to harvest to generate cash to service debt, the big pension funds are not driven by the same need because they are equity funded. These days they're looking at a longer term strategy of medium returns to their shareholders. This means there is not as much wood being harvested so oversupply will not drive down prices, which is also good for woodlot owners," says Bell.