How To Make More Money From Your Forestry ... - PF Olsen Limited

NEWSLETTER No. 27 MAY 07
How the timber markets
are changing and the
effects that will have on
your return!
Domestic log markets have improved this year
for all log grades except pruned logs
Pruned log prices still remain below those achieved last year. The potentially
large increase in pruned log supply (mainly in the central north island)
overhangs the market. Until new outlets for clearwood products are obtained and pruned log
processing capacity increased, this will remain a problem. PF Olsen is currently talking with a number
of large international timber products organisations to encourage investment of such processing
capacity in New Zealand.
Dale Donald, Jim Donald, Paul van der Voort and Aaron Clark
(Managing Director of Mt Heslington Contracting Ltd.). See page 2
Export Markets
Are Another Story
The steady improvement of New Zealand wharfgate
export log prices experienced in the past
six months ended in April when prices dropped
significantly.
Structural logs can be exported and the competition has helped lift domestic log prices, along with
relatively healthy conditions in the Australasian property and construction markets. The greatest price
improvement has been for the rougher logs. The large branched industrial grade logs (equivalent to
KI grade) have been attracting prices just below those of K grade logs. Pulp log prices have also risen
on the back of good demand and export pulp log competition. The overall returns to forest owners
from harvesting of unpruned stands have lifted this year.
The Industry Is In A Contractor Crisis
Which Will Impact When You Can Harvest
Unfortunately a downturn in harvesting in 2005 meant many of the
harvesting crews couldn’t afford to stay in business. Now as we head into
higher harvesting levels the shortage is going to have a huge impact. And
it’s not only harvesting crews that the industry is short of, there is also a
serious lack of log trucks.
To set up a harvesting crew requires high capital investment, rigorous training, commitment and
energy. Unfortunately prior downturns in work forced a large number of contractors to leave the
industry and now the industry is feeling the effects. To train up a good harvesting crew that has high
productivity and quality takes time… the solution will not happen over night.
There is something that woodlot owners can do to safeguard themselves (to
know they can harvest when they want to), to help the industry recover and
cope with the demand…
Get HARVEST-READY. Only by woodlot owners committing to harvesting contracts well in advance
(at least two years before expecting to harvest) can the marketers give new crews and trucking
companies guaranteed work down the track, making it worth the risk for them to invest large amounts
of capital and infrastructure into setting up and training new crews. The skill of the contractors is
vital to getting the best return for your investment so the sooner you can engage a harvesting and
marketing manager, the safer you are. If you are Harvest-Ready you will have options and be able to
react when the market is right.
The reasons for the downward swing were as
follows:
• Increased Ocean freight costs from around
US$48/JAS to over US$53/JAS
• An increase in the value of the NZ$ from
US$0.675 in December 2006 to US$0.742 at the
end of April 2007.
• The anticipated surge of log output from Russia
in the northern spring.
(See a full report on the export market on page 3)
INSIDE:
>> FREE Seminars throughout the
country on “How to make more money
from your forestry investment”.
See the back page
>> “Harvest-Ready Success Story”
- The differences that ‘being ready’ can
make to your final return are massive.
See page 2
>> When You Engage PF Olsen to be
your Harvesting Manager you stay in
Control of When to Harvest. See page 3

HARVEST-READY SUCCESS STORY
Jim Donald, Paul van der Voort (PF Olsen) and Dale Donald at the table discussing
resource consent conditions and marketing strategies.
You only get one chance to sell your trees and
thirty years is a long time to wait. PF Olsen are PRICE
GETTERS and are constantly looking at options to
IMPROVE OVERALL FINANCIAL RETURNS
Jim Donald
Jim Donald attended a PF Olsen Harvest-Ready Seminar and by being
Harvest-Ready benefited from the recent export log price increases while
maintaining good domestic options. Due to forward planning the Donald
Don’t miss out on GETTING
THE BEST EQUIPMENT for
your harvesting job!
If your block requires specialist crews or equipment, you MUST
be Harvest-Ready or the gear and crews won’t be available…
Engineering costs typically comprise around
60-80% of the total costs of harvesting
operations. In many woodlot situations
specialist logging equipment such as
“
forwarders or
Harvest-line haulers
provide very costeffective
logging
solutions. This type of
equipment, however,
is less common
than other types of
equipment. As the
shortage of logging
contractors gets more
severe, those who
will benefit from the
specialist equipment will find it increasingly
difficult to secure. “This could have significant
implications on costs and quality of the work”,
says Scott Downs, PF Olsen’s Northern South
Island Manager. “If we can identify woodlot
As the shortage of logging
contractors gets more severe,
those who will benefit from the
specialist equipment will find it
increasingly difficult to secure.
This could have significant
implications on costs and
quality of the work
owners who need specialist equipment early,
we are in a much better position to get it
scheduled for the work. This can pay big
dividends for our clients and easily result in
doubling of stumpage
returns on remote
blocks in difficult
country”.
Knowledge
of equipment
requirements in the
future also enables
PF Olsen to facilitate
contractors gearing up
with the appropriate
”
machinery to do
the best job. This is
consistent with PF Olsen’s Harvest-Ready
message and represents another opportunity
to ensure that woodlot owners get the best
possible result during the crucial harvesting
phase.
family also received a sharp logging rate.
Harvesting 37 hectares (25 000 tonnes) is not a small operation, nor is
ensuring you have the information and support to make the best decisions.
Dale Donald planted these trees 32 years ago so the returns have been
long awaited, however planning and timing have been the keys to ensuring
that the Donald Trust achieved a great return.
Jim and Dale Donald
explain that they went
through a very rigorous
selection process
involving both their
lawyer and accountant
before committing to a
service provider. “Total
package of professional
management, marketing
strategy, expected returns
and risk management”,
Jim and Dale Donald
explain that they went
through a very rigorous
selection process
involving both their
lawyer and accountant
before committing to a
service provider.
are what the Donald’s say made them choose PF Olsen. “Liability issues
were also high on our selection criteria”, they commented.
With a mix of both hauler and ground-based work the harvesting itself
required specialist planning and time to book in the right crews for the
conditions. It has paid off and as a result the Donald family reflect on their
forestry investment as a very positive one. As Jim said “You only get one
chance to sell your trees and thirty years is a long time to wait”!
Getting the right gear on site at the right
time is becoming increasingly difficult as
harvesting levels increase.
The Export Market Update and How
It Can Affect Your Return
The graphs (right) provided by Pacific Forest Products, show the
movements in US$/ JAS of Ocean freight cost to Asia and export
log prices delivered to Asia.
Russian Far East trees are harvested in winter and stockpiled. When spring arrives and the
ports thaw they are shipped out. The impact of the spring surge of Russian log supply on Asian
markets is expected to decline by June, as the inventory is shipped and the quality of remaining
stored logs falls due to fungus and insect attacks on the logs. Russia recently announced future
increases in export tariffs on logs. From a current rate of 6.5% to 80% by 2009 however, we
believe there have been recent moves to soften their stance due to pressure from countries like
Japan and Sweden.
The proposed tarrif increases could have a huge impact on log prices in the Asia region from
July this year onwards. In addition, supplies of export logs from Russia are likely to decline if
the intended consequence of increased (Russian) domestic log processing is achieved. The
big importers in the Asia region are China ( 30 million m 3 annually) and Japan (5 million m 3
annually). Predictably these two counties are applying as much pressure as possible on
Russia to re-evaluate its proposed tariff schedule. Ocean freight rates continue to climb due to
continued high demand for ships from China and other rapidly expanding economies in Asia.
Some of the shipping shortages are due to the inability of Australian mineral exporting ports to
turn around the waiting ships quickly enough. In a recent air flight up the Queensland coast
we saw large numbers of ships anchored off Glandstone awaiting a berth. The Australian
newspaper in February reported that it took 21 days to gain a berth at the Newcastle coal
terminal. While many of these ships are larger than those used in the logging trade the impact
flows on. Apparently the shippers would rather put up with these long delays than crossing
the Tasman to pick up New Zealand logs.Any reduction of these rates will depend on either a
reduction in exports or the building of new tonnage. Ship builders are reported to have full order
books and older ships are being refitted and kept in service past their usual lifespan of around
25 years.
The New Zealand dollar has continued to appreciate rather than fall as was predicted. The most
recent rises in April are expected to pull the returns to New Zealand forest owners down over the
next few months.
However, the strong Asian demand for logs means customers are paying similar US$ prices for
logs at destination ports as those that occurred in the 1993 log price spike. With supply being
boosted by Russia for the next 2 to 3 months it is unlikely that customers will pay more for their
logs. Any wharf-gate price improvement in the short-term will be dependent on favourable
movements in the exchange rate and shipping costs. In the latter half of the year the impact of
the Russian tariff increases may result in improved New Zealand grower returns.
PF Olsen Ltd’s CEO Peter Clark has just returned from a trip to SE Asia including Malaysia, Laos
and Vietnam. His comments are that there is still a great deal of timber used in all the countries
visited as they rapidly expand their infrastructure and manufacturing sectors. The indigenous
forests of SE Asia have been heavily depleted, but remain the primary source of the industrial
plywood and structural solid timber for which there is no obvious alternative except at high cost
(either in $ terms or environmentally). The current level of indigenous forest cut in Indonesia,
Malaysia and Indochina remains well above the sustainable level. Within the next 10 years we
can expect to see a significant reduction in the output from the residual natural forests. Logged
over forest is more likely to be converted to alternative uses such as oil palm plantation and
the chances for really large forest plantation development programmes to replenish the lost
hardwood forest volume appear to be low in SE Asia.
Clark’s opinion is that New Zealand plantation resource will be seen as
a good alternative once the increasing demand meets up with the
diminishing supply of tropical logs.
Harvest costs and Infrastructure Constraints
Harvest and delivery costs have increased sharply driven by capacity
shortages (plant/equipment and labour) and fuel costs. As harvesting
levels lift, shortages of logging contractors and logging trucks for log
transport are biting hard. One log transport operator reported that there
are 22% less log trucks operating in the southern north island currently
compared to 2002. The other infrastructure limitation that has occurred
this year relates to port operations. All the major log export ports
have suffered congestion at some time this year and had to suspend
deliveries. This can have significant adverse flow on effects for woodlot
operations.
What can Forest Owners do to Maximise returns
in a volatile market?
Whilst we would love to be able to accurately forecast timber, freight
and foreign exchange markets, the reality is that we can’t. The best
investment for a forest owner with timber near maturity is to get
HARVEST-READY. The best way to minimise potential disruptions from
the increasing contractor shortage is to get HARVEST-READY. Please
call your local PF Olsen representative directly or contact us on 0508
PFOLSEN (0508 736 5736) to find out how we can help you get ready
for harvesting.
$60. 00
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250
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0
D ec-
90
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91
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S hipping R at es 1:1 US D per Ja s
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Dec-
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D ate
Source: MAF (Prices are adjusted for inflation.)
D ec-
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Dec-
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Dec-
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Dec-
00
Dec-
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Average USD CFR Price by Grade 1996 to 2007
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
D ec-
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Dec-
03
L O NG T E RM PRICE M OVE ME NT S F OR S E L E CT E D L O G G RA DE S
Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07
Year
A Grade K Grade KI Grade Pulp
The graph below shows the wharf-gate/mill door log prices over the
past 10 years.
D ec-
04
E xport K P 1 S 2 Domestic P ulp
When You Engage PF Olsen to be
your Harvesting Manager you stay in
Control of when to Harvest.
Rest assured that if you select PF Olsen as your service provider it does not mean you lose
control of when to harvest your woodlot. “The decision of when to harvest your woodlot
is multifaceted”, says Peter Weblin, PF Olsen’s Marketing Manager. “We find that woodlot
owners that are most comfortable with their decision to harvest their woodlot (both prior to
and after the harvesting) are those that look at the whole picture. This includes considering
the performance of the woodlot, performance of the market and personal and on-farm
considerations. Woodlot owners who over-emphasise one component in their decisionmaking
(and its often the market) are usually the ones who regret their decision in hindsight.
PF Olsen’s role in deciding the best time to harvest is to provide factual information to its
client’s and act as professional sounding board. “Excavators, bulldozers, skidders and/or
cable haulers will not suddenly come rumbling onto your property once you engage
PF Olsen”, says Weblin. “Well not unless that is what the client wants (and appropriate
contractors are available)”. And even if harvesting has commenced and our client wants it
stopped for some reason, that is fine. That’s a client’s right. “There may be costs associated
with this decision”, cautions Weblin, “such as losing market access or costs of having to
bring a contractor back to the site. These will be explained to the woodlot owner so they can
make an informed decision”.
P rices us ed
D ec-
05
Dec-
06

“How To Make More
Money From Your Forestry
Investment” FREE
Seminars All Over NZ
Like most export industries, the
forestry industry can be a complex
and labour intensive affair. In order
to get the greatest return from your
forestry investment, you need to be
armed with knowledge to make the
right decisions.
PF Olsen has been in the business for over
35 years and is New Zealand’s largest
independent forest services company.
We specialise in helping people buy and
manage their forestry investment, working
towards the best return. Hundreds of forest
owners from all over the country have
attended the seminars where topics such
as “market myths and what to do about
them”, “which woodlot sales type is right
for you” and “how to get one step ahead by
being Harvest-Ready” are covered. You’ll
learn more about how to make the most
from your forestry investment and also
get the opportunity to meet other forest
owners, to share your experiences and gain
new ideas.
The Cost Of Getting It Right can be
VERY scary when you break it down.
PF Olsen can show you how to get the
best return from every angle and how
big a difference it will make to your
bottom line - also how simply you can
cut yourself short!
Understanding how your investment
grows each year will help you decide
WHEN to harvest. PF Olsen will show
you simple ways to calculate how
YOUR Woodlot Is Performing.
To book your free tickets for the
“How To Make More Money From
Your Forestry Investment” seminar
and for any other information call us
on 0508 PF OLSEN
(0508 736 5736)
WHERE WE ARE
ROTORUA – Head Office
PO Box 1127, 430 Ngongotaha Road, Rotorua
Ph 07 921 1010 Fax 07 921 1020
Peter Keach - Operations Manager
Email: peter.keach@pfolsen.com
Ross Larcombe - Forest Management
Email: ross.larcombe@pfolsen.com
Peter Weblin - Harvesting
Email: peter.weblin@pfolsen.com
FAR NORTH
P O Box 633, Kaitaia, 6 Puckey Ave
Ph (09) 408 0480 Fax (09) 408 2974
Bob Shirley – Branch Manager
Email: bob.shirley@pfolsen.com
JOB
MANAGEMENT
WAIUKU
PO Box 275, Waiuku, 422 Glenbrook Beach Rd
Ph (09) 235 3877 Fax (09) 235 3893
Kevin Haine – Branch Manager
Email: kevin.haine@pfolsen.com
GISBORNE
P O Box 516, Gisborne, 396 Childers Road
Ph (06) 868 5426 Fax (06) 868 4147
Nick Bunting – Branch Manager
Email: nick.bunting@pfolsen.com
WAIRARAPA
P O Box 788, Masterton, 10 First Street
Ph (06) 377 3531 Fax (06) 377 2913
Hamish McGregor – Branch Manager
Email: hamish.mcgregor@pfolsen.com
FEILDING
Private Bag 10002, Feilding,18 Manchester Street
Ph (06) 323 8971 Fax (06) 323 8526
Doug Davidson – Regional Manager
Email: doug.davidson@pfolsen.com
MARLBOROUGH
P O Box 282, Blenheim, Grovetown Park, SH1
Ph (03) 577 6675 Fax (03) 577 6674
Rob Lawrence – Branch Manager
Email: rob.lawrence@pfolsen.com
NELSON
P O Box 3353, Richmond, Nelson
195A Queen Street, Richmond
Ph (03) 544 0066 Fax (03) 544 0067
Peter Wilks – Branch Manager
Email: peter.wilks@pfolsen.com
CHRISTCHURCH
PO Box 20337, 333 Harewood Road, Bishopdale
Christchurch 8543
Ph (03) 961 6560 Fax (03) 961 6561
Scott Downs – Regional Manager, Harvesting &
Marketing, Northern South Island
Email: scott.downs@pfolsen.com
SOUTHLAND/OTAGO
P O Box 975, Dunedin, 335 Kaikorai Valley Road
Ph (03) 455 8995 Fax (03) 455 0107
David Thode – Regional Manager
Email: david.thode@pfolsen.com
GORE
PO Box 69, 10 Mersey Street, Gore 9740
Ph (03) 208 0796 Fax (03) 208 0795
Grant Rowe – Harvesting Operations Manager
Email: grant.rowe@pfolsen.com