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

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.
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S hipping R at es 1:1 US D per Ja s
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D ate
Source: MAF (Prices are adjusted for inflation.)
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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
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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.
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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
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