Roger Dickie

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• Chinas Black Monday is New Zealand's Green Tuesday

  August 2015 Update
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  ** Chinas Black Monday is New Zealand's Green Tuesday
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  ** Why is Agriculture becoming so popular with investors
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  Hello!
  
  The news of Chinas Black Monday might have been more abrupt than most commentators had predicted - however it certainly wasn't something they didn't see coming. As the Chinese Stock exchange dropped 9% it sent reverberations around the world - nearly all markets were effected. Its seems in the most part that the markets recovered as the day went on, but it reiterated why Agricultural based investments are becoming so popular.
  
  In the current investing climate, defined largely by economic uncertainty, low interest rates and volatile equity markets; investors are seeking out assets and sectors that display certain characteristics.
  
  Of particular interest are assets supported by solid, long-term fundamentals. Assets that offer preservation of capital, low volatility and an opportunity to generate income, mark the highest. Throw in an investment performance that is not correlated to the performance of traditional financial markets and most boxes are easily ticked. From investing in shares to investing in farmland, agriculture investments tick many boxes for today’s investors looking to the future, and remain high on the agenda of both institutions and private individuals alike.
  
  
  ** Rising Demand and Diminishing Supply - the Basis for Agriculture Investments
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  If the goal is to acquire assets that are non-correlated and inflation-linked, and which retain value throughout all economic cycles, then the best bet is of course well-managed,productive agricultural land.
  For many investors, the ‘Real Asset’ approach is preferred as it means the investment is secured by land ownership giving not only capital appreciation, but also capital preservation and income in perpetuity for generations to come. And by investing in productive farming in another country / economy e.g. New Zealand it gives further diversification to the portfolio.
  
  Prospective forest farmland investors should understand however, that specific expertise is required during the acquisition and due diligence process in order to identify and manage suitable assets.
  
  
  ** New Zealand's Green Tuesday?
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  To find out how we can help you take advantage of our favourable exchange rate with land ownership in New Zealand please get in touch.

  Agricultural assets have outperformed the vast majority of traditional asset classes over most timelines, delivering highly favourable risk-adjusted returns for those with well managed exposure to the asset class. Well managed agricultural land is an asset which remains productive in perpetuity.
  
  Regards,
  
  Will Dickie

• China interest in NZ forest and timber processing investment

  September 2018

  The largest ever New Zealand forest industry delegation to China's showcase Global Wood Trade Conference has made the case for more investment in New Zealand forestry and timber processing. 

   

  Click on the link below to read the report from Friday Off Cuts

  China interest in NZ forest and timber processing investment

   

• Summit Forest Export Report - January

  To read the Summit Forests Export Report for Jan 2016 click here

• Good rises in log prices expected in the first quarter of 2016

  Be careful what you wish for.
  
  I have heard this sage advice on several occasions throughout my career, and each time, on reflection, it takes on more richness and meaning.
  
  It comes to mind when observing the rapid export log price rises in the past three months. While on face-value a boon to forest owners [the “wish”], the down-side is the increased volatility it portends and the damage it causes many participants in the sector – especially those that gear up for a market upturn [the “be careful”].
  
  While price movements in the past have been more commonly “up the stairs and down the elevator”, it now looks more like elevator all the way.
  
  December saw export log prices rise $8-$15 from November (November prices were up by about the same amount on October prices). Domestic prices were also pulled up but by a smaller amount. However, there are expectations of much larger rises in the first quarter of 2016 (most domestic log prices are negotiated quarterly) – see Market Round-up below.
  
  Export Log Market
  
  Log inventory levels are static to down in all markets and log demand is steady. Log supply is increasing now but on an international scale is still well balanced with demand.
  
  China log inventory is steady at 2.69 mill m3 and has been around this level for the last couple of months. Daily offtake over the past month has been around 45,000 m3/day – which is less than the year-to-date average of 51,000 m3/day but there has been some extreme winter weather in the north with 50-year record snow falls causing lower offtake.
  
  Having said that, price resistance is being faced by NZ log exporters. Customers are wary about the recent price increase and with winter hitting hard in the northern regions positive sentiment is a little difficult to find. Credit has been tightened for some customers and there has been confirmation of some exporters fixing lower prices in December.
  
  Exporters are biasing customers with their own processing capacity as their demand tends to be more reliable and they generally have good access to trade credit.
  
  The Indian market is showing solid demand with favourable prices even after the ramp up in prices in China. This market should provide some relief to lower Chinese demand which inevitably shows up around Lunar New Year (early February next year).
  
  With A-grade priced at around US$120/JAS m3 in China there is some incentive for other supply regions such as the Pacific North West to increase log export volumes. They usually receive a US$10-15/m3 price premium over Radiata pine due to the inherent higher log qualities of Douglas fir and Hemlock. However, the northern winter will limit any increase in supply and we do not expect to see any significant increase in supply from either Russia or the Pacific North West until March/April of next year.
  
  Ocean freight continues to track historically very low rates, based on over-supply in the Handy-size vessel sector and very low bunker (ship fuel oil) prices. Neither of these are expected to increase significantly within the next year.
  
  In terms of outlook, other than some weak NZ exporters taking unnecessary price reductions, the export log market looks reasonably sound. There is a risk that January prices fall, based on a CFR price drop. The rest will depend mainly on movement in the NZ$:US$ cross rate. If we get some welcome price stability, it will help the market consolidate and hopefully start operating on a less speculative basis.
  
   
  
  Chart courtesy Pacific Forest Products
  
  For the medium term, China will continue to strongly influence the New Zealand log market. This year, China imported more than 10% of the world’s wood products (logs, lumber, pulp etc). The new Five Year Plan commences next year and has an objective of doubling 2010 GDP by 2020 (implying an annual growth rate of 6.5%). And this growth requires a massive shift from economic activity dominated by capital investment to activity dominated by services and the consumption. As we see the Plan unfold, we will be watching closely for indicators of how it might impact on our log market in the near and medium term.
  
  Domestic Log Market
  
  The theme of relative buoyancy in key wood products markets continued – domestic, Australia, USA, Asian and Europe. Although off its year low of 0.63 (NZ$:US$), the kiwi at around 0.67 is still well off this year’s starting position of 0.78 and is favourable for wood products exporters. Most commentators are calling for further kiwi downside which will further support wood products exporters. This may well be needed as 2016 is shaping up for a scramble for log supply as domestic purchasers face strong competition from export markets for some key grades.
  
  The latest BNZ confidence survey produced strong positive sentiment in construction, property development and the housing market (particularly provincial markets). Staff shortages and cost escalation is also being reported in these sectors. This is supportive of demand for wood products. Interestingly, the Auckland housing market is flattening off with speculation that this could be due to the recent new government restrictions on foreign purchasers.
  
  The USA is finally posting consistently favourable economic data, especially better employment figures and has now signalled the end of quantitative easing and the start of interest rate hikes. So long as this doesn’t overly suppress economic growth, this should augur well for NZ exporters of wood products to this market.
  
  Although the Australian housing market is starting to falter, demand for NZ wood products is expected to remain steady. A cooling in the hot Melbourne and Sydney housing markets is beneficial to avoid a potentially much larger fall should the market be pushed to greater heights. 
  
  Market Round-up: 
  
  Here are some comments gleaned from market participants this month –
  
  “Significant upwards pressure on domestic structural and domestic pruned to compete with recent export pricing. Just commencing Q1 2016 pricing negotiations with some mills stating if we have to pay export equivalent to get marginal supply we will to keep the mills running."
  
  “Up $10-$13 for S grade logs for Q1 2016 (although no signatures on contracts yet – some smaller mills asking for 2 lots of $5 increases). One big buyer is very hungry for S20 / M20 type logs. LVL still strong demand."
  
  “Pruned market is dead for some domestic purchasers – some started to take P30s as P40’s getting too expensive 2-3 months ago. Due to price the P30 may be out of reach as well.”
  
  “Pruned demand is running hot around Gisborne and Hawkes Bay."
  
  “Large domestic purchaser is paying the same price as export. They will buy some after Christmas. Another large purchaser wants as much as possible but is paying November prices as they can’t match export parity for December."
  
  “Out of district pruned log purchaser is wanting to source pruned early in the New Year from Gisborne side. They will have to pay about $255/tonne to make it worth the extra trucking cost."
  
  “On the unpruned side of things – local purchaser wants S30 logs. Will pay about 127/tonne delivered. Close to export prices.”
  
  “Timber Industry very buoyant at present, with run up to Christmas very busy. 2016 looking very promising too.”
  
  “Sawmilling steady. An oversupply due to manufacturing capacity increase is coming.”
  
  PF Olsen Log Price Index to December 2015
  
  The PF Olsen log price index rose eight points from $111 last month to $119 this month. It is now $34 higher than its cyclical low of $85 in November 2011 and $16 above the two-year average and $17 above the five-year average.
  
  
  
  Basis of Index: This Index is based on prices in the table below weighted in proportions that represent a broad average of log grades produced from a typical pruned forest with an approximate mix of 40% domestic and 60% export supply.
  
  

  For the full article see PF Olsen's Wood Matters.

• NZ export log prices jump to 7-month high

  NZ export log prices jump to 7-month high on pick up in Chinese demand- New Zealand export log prices jumped to a seven-month high in November as demand picked up in China, the country's largest market.
  
  The average wharf gate price for New Zealand A-grade logs rose to $92 a tonne from $83 a tonne in October, marking the highest level since April, according to AgriHQ's monthly survey of exporters, forest owners and sawmillers. The AgriHQ Log Price Indicator, which measures log prices weighted by grade, increased to 92.51 from 88.41 last month.
  
  Log prices increased sharply this month as Chinese demand picked up to 70,000 cubic metres a day towards the end of October, and about 50,000-60,000 cubic metres a day in November. The pickup in demand comes after log exporters reduced shipments to China following weak market conditions, and has caused inventory levels on Chinese ports to fall to between 2.3-to- 2.6 million cubic metres from about 3 million cubic metres last month and 4.7 million cubic metres in August, AgriHQ said. Some now expected inventories to drop below 2 million cubic metres, AgriHQ said.
  
  "The main cause of this sharp increase has been a reduction in supply and high off-take from Chinese ports. Due to the poor market conditions some exporters delayed harvesting over winter while others diverted supplies to other markets," said AgriHQ analyst Emma Dent. "The current lack of supply has resulted in a knee-jerk reaction from Chinese traders who are now seeking to source product to fill contracts."
  
  Prices are expected to firm through December, although the market remains volatile, Dent said. 
  
  "The market has the potential to overshoot in its price recovery, in which case prices will need to drop for the market to find the right balance," she said. "Improved market conditions mean supply to China is likely to increase which would place downward pressure on prices."
  
  Lower shipping rates and a favourable New Zealand exchange rate were helping underpin the local export market, she said.
  
  Meanwhile, prices for New Zealand domestic logs were steady with pruned logs at $167 a tonne from $164 a tonne last month, and structural logs at $103 a tonne from $105 a tonne.
  
  Domestic log processors are struggling to source supply in some regions due to competition from the export market, Dent said.
  
  Logs, wood, and wood articles are New Zealand's third-largest commodity export behind dairy products and meat.
  
  Source: Scoop via BusinessDesk 

• Log export prices rise again

  
  Export log prices jump higher on low shipping rates and currency decline - New Zealand export log prices jumped higher this month, as falling oil prices pushed down shipping rates while a decline in the kiwi dollar made the country's goods more attractive to overseas buyers. The average wharf-gate price for New Zealand A-grade logs rose to $115 a tonne in January, from $104 a tonne in December, according to AgriHQ's monthly survey of exporters, forest owners and sawmillers. 
  
  The in-market price of A-grade logs in China, New Zealand's largest market, remained stable at US$117/JAS - a benchmark measure - amid steady inventory levels at Chinese ports. However, prices for the logs in New Zealand were bolstered by shipping rates to China that were 7 percent lower than last month and 26 percent lower than a year ago. Some exporters reported the lowest shipping rates in over 20 years while AgriHQ is recording the second-lowest shipping rate to China since 2003. A decline in the kiwi dollar, which has slid more than 5 percent against the greenback so far this year, also helped underpin local returns. 
  
  "The lower New Zealand dollar combined with close to record-low shipping rates is helping maintain wharfgate pricing, despite the uncertainty in the export market, "AgriHQ analyst Emma Dent said in her report. "Wharfgate log prices are expected to remain relatively flat through February before easing through March." Demand is expected to slow in China over the next month due to Chinese New Year, before picking up again, she said. 
  
  "Following Chinese New Year, off-take from ports is expected to increase as China heads into the spring months," Dent said. "The warmer months will see higher construction levels and thus higher consumption of wood products. 
  
  "Overall, 2016 is expected to show some improvement over 2015, particularly in the second half of the year," she said. 
  
  Meanwhile, in the New Zealand domestic market, the average pruned log price edged up to $168 a tonne from $167 a tonne last month, marking the highest level since 2002, AgriHQ said. In the Central North Island, where demand is outweighing supply, the price hit $173 a tonne. 
  
  "With further increases expected throughout the year, it is likely we will get close to, if not surpass, record highs," Dent said. "The unprecedented demand for pruned logs has seen the market become more diverse, with some mills now taking log lengths they weren't previously. This is allowing forest owners to get the maximum yield out of pruned stands." 
  
  Structural log prices held steady at $103 a tonne, although prices are seen increasing towards the end of January and into February amid strong demand from Christchurch and Auckland, she said. 
  
  Roundwood log prices, which have been hit by the weak dairy sector, are expected to increase this year on strong demand from horticulture and viticulture, she said. Roundwood prices are currently at $81 a tonne, having fallen from a high of $86 a tonne to a low of $77 a tonne last year. 
  
  Pulp log prices remained steady at $51 a tonne and the market is expected to be "challenging" in the first quarter of this year as global prices decline on large volumes of lower priced product from Scandinavia and Russia being exported to Asia.