In May Roger travelled to China with one of our log exporting companies – Summit Forestry – to gain a better understanding of how well our logs are received. Roger was standing on the port with logs harvested from our first syndicated forest 28 years ago. A significant milestone for the company.  Read his full report here, and note his comments on the Health and Safety standards…

Speech to ForestWood Conference 2016

Government’s Priorities for the New Zealand Forestry Sector [Slide 1 – title slide]

E āku rangatira, tēnā koutou katoa. Ka nui te honore ki te mihi ki a koutou.

Good morning. Thank you to (Dr) James (Buwalda) for the introduction, I am delighted to be here today.

I would also like to thank the New Zealand Forest Owners Association (FOA) for the invitation to present, as well as to the other conference organisers:

• Woodco
• Wood Processors and Manufacturers Association (WPMA)
• Forest Industry Contractors Association (FICA).

I would also like to acknowledge the international speakers:

• Russell Taylor
• Doug McKalip
• Annette Cotter
• Ben Gunneberg
• Adam Beaumont

It is wonderful to see such excellent industry-wide attendance at this conference. The ForestWood conference is an important event for the forestry and wood processing sectors. During this address I would like to briefly outline some of my priorities in my capacity as the Associate Minister for Primary Industries with responsibility for forestry, and highlight how the Government is working to accelerate growth within the forestry sector.

The Government is focused on meeting its key economic growth objectives [Slide 2]

The focus of today’s conference is how our forestry and wood processing sectors can be successful and resilient in the future. The Government values a close relationship with both sectors in order to achieve these goals.

In 2015, a refresh of the Government’s Business Growth Agenda (BGA) was launched with the Towards 2025 Report. This report outlined the future direction of the BGA. In 2015/16 our focus is on investing for growth and further building business confidence.

Although our economy slowed over the last year, it does continue to grow and primary sector exports are forecast to grow by $1.9 billion to $37.6 billion in the 2015/16 year.

Our economy is highly dependent on international trade. Free trade agreements enhance our competiveness, and the Trans-Pacific Partnership (TPP) is an excellent example of that.

The TPP will give New Zealand better access to a number of globally significant markets. This is a good news story, particularly for forestry. In 2014 New Zealand exported NZ$1.5 billion in forestry products to these markets. Under the TPP, tariffs on all forestry products will be eliminated – an estimated saving of $11 million per year.

Of course, it would be remiss of me not to mention the issues raised by industry around non-tariff barriers, in the report launched this morning. While it is an extremely complex area, and one which the Government has little direct control over, it is certainly right for you to bring your concerns to Government. Non-tariff barriers are an issue which will need to be worked on over time, through both multilateral and bilateral talks with the relevant countries. Breaking down those barriers will not happen overnight, but as a free-trading nation, we are committed to ensuring our products have access to overseas markets.

To meet the BGA’s goal of lifting the value of our exports from 30 to 40 per cent of GDP by 2025, we collectively need to do more.

The forestry industry, our third largest export earner, will need to increase both the volume and the value of exports.

As far as volume is concerned, New Zealand is well-positioned to increase returns from log exports and processed timber exports. Wood availability is increasing in most regions, with the national annual harvest of 27 million cubic metres a year. Over the next ten years this is forecast to rise to 35 million cubic metres.

There is also great potential for increasing the value of our forestry exports. A critical part of this is growing the level of processed wood products that we export overseas. Good progress has been made lately, with export volumes of timber, pulp and panels all forecast to increase over the next few years. 

We need to increase exports of higher value wood products [Slide 3]

Woodco’s vision of increasing forestry export earnings to $12 billion by 2022 is a great aspirational target. Along with Woodco’s Strategic Action Plan, this target helps direct and motivate the industry towards potential areas of growth. It is now four years since the launch of the Strategic Action Plan and a good time for industry to review where it needs to focus its attention in the future.

The Government is working with industry to ensure its programmes and policies are aligned with Woodco’s target of $12 billion by 2022.

First, we are providing the conditions needed to support and encourage higher levels of investment in more processing capability and capacity.

The statistics from the forest growers levy on harvested wood show that there is an increasing proportion of harvest going into domestic processing. In 2014 the share of total harvest going into domestic processing was 49 percent. In 2015 the share rose to 51.2 percent.

There has been significant onshore investment, which indicates strong business confidence in New Zealand processors – some really good examples are $60 million into Red Stag in Rotorua, the sale of the Kinleith pulp and paper mill, the Tasman pulp mill, and the Penrose paper mill to Oji Fibre Solutions, PanPac’s $23 million investment to upgrade its sawmilling and drying facilities in Otago, and Lumbercube, the Pedersen Group’s new mill in Rotorua.

The Government is supporting industry investments by reducing potential regulatory barriers and improving efficiencies across the value chain. A great recent example is the Lumbercube mill that processes logs into squares prior to export.

The Ministry for Primary Industries has approved Lumbercube to undertake phytosanitary inspections of their own products. This means Lumbercube can export to China without fumigation, reducing costs and speeding up the export process. This has flow on effects down the value chain. Once Lumbercube is fully operational, it will be one of the largest domestic suppliers of wood pulp and residues – addressing a previously unfulfilled demand. 

Second, Government and industry need to work together to focus on specific opportunities for market development, including further developing export markets for engineered timber products. This will allow us to realise more value from our logs.

On this point I would like to make some comments in response to recent calls for direct Government intervention in the export of unprocessed logs.

We want to ensure that domestic wood processors can also secure ongoing supply of logs. They should be able to access logs on similar terms to offshore buyers. But this must not happen at the expense of others in the sector who have invested with the expectation of being able to get the best return for their efforts. 

Like all business owners, the owners of New Zealand forests, which includes foreign, corporate and private companies, iwi, farmers, and Kiwi mums and dads, look for the best prices for their logs. All of these forest owners have an interest in getting the most value out of their logs and have a commitment to New Zealand’s economy. Any restrictions on the ability of forest owners to get the best return on investment risks eroding confidence of investors looking at future investment.

Many large forest owners in New Zealand deliberately ensure that there is a supply of wood for local processors and make long term commitments to ensure their supply. Hancock Forest Management is one such company, where around 70 percent of their volume is sold domestically.

However, this can’t be the case for all logs. Many modern mills have tight specifications for log supply. Logs that do not meet those specifications are usually exported, ensuring there is a market for the lower grade logs.

What is important is making sure that the sector is well-positioned and enabled to get the greatest value from its products because this benefits all New Zealanders.

Which brings me back to what’s happening with engineered timber and how developments in this area are helping address some of the major economic growth challenges in other areas of our economy – like affordable housing.

New timber technologies, systems and products offer opportunities for reducing construction costs and timeframes and contributing to the Government’s goals for housing affordability [Slide 4]

New technologies will provide new opportunities for the forestry industry to diversify and become more sustainable, in both senses of the word. Recently I visited Concision Engineering in Christchurch, a company using offsite panel manufacturing technology, I saw firsthand the precision and efficiency of prefabrication.

My intention is to work with my colleagues the Ministers of Housing and Economic Development, to improve housing production capability in New Zealand. These approaches include highlighting the opportunities to use more prefabricated timber building systems in New Zealand.

I will also continue work on normalising the use of engineered timber in residential and commercial construction and ensuring timber standards, such as 3603 and 3602, are not a barrier to the uptake to engineered wood products.

Last year I worked with some very motivated stakeholders to understand better about the use of engineered timber. This included engaging with engineers, architects and end‑users to identify their design and project needs. In 2016 I will continue this work through conferences, such as Grow Rotorua’s engineered timber conference in May, and by encouraging collaboration within the sector.

We are further improving the operating environment for the sector [Slide 5]

The Government is focused on supporting the forestry sector through forestry projects that encourage the planting of trees, improve land production and reduce erosion.

Last year I relaunched the Afforestation Grant Scheme to plant an additional 15,000 hectares of new forest at a cost of $22.5 million. Afforestation contributes to erosion control, water quality, carbon sequestration and marginal land utilisation.

This year:

• I will coordinate with the Minister for the Environment to complete the National Environmental Standard for Plantation Forestry. This will streamline processes and increase efficiencies by providing forest growers with the same set of planning rules throughout the country; and
• I will continue to work alongside the Minister for Climate Change Issues and other Cabinet colleagues in the Review of the Emissions Trading Scheme. I will work to make sure that opportunities for forestry are realised.

All of these matters will be discussed in more detail in the presentation by MPI Deputy Director-General, Scott Gallacher, shortly.

We need to ensure that small and medium forest owners are well-positioned for the future [Slide 6]

Over the coming decade up to 30 percent of wood available for harvest is expected to come from forest owners who have forests that are less than 1,000 hectares in size.

In order to deliver the best environmental and economic benefits from this resource, these forest owners need to be well-positioned to manage the additional challenges and costs associated with their lack of scale.

Developing skills and capability is key to sector growth [Slide 7]

To support growth in the regions the forestry sector needs a more highly skilled and educated workforce.

With the Minister for Primary Industries I will support initiatives to develop the skill base and encourage higher education in the regions. These include piloting and developing programmes to increase productivity and create employment opportunities for sustainable rural communities.

The forestry sector plays a crucial role in the growth of the New Zealand Economy[Slide 8]

The strategic priorities I have outlined this morning will contribute to our national economic goals as well as Woodco’s Strategic Action Plan.

We aim for, what must be seen as joint goals, it will be important for the Government to work closely with industry, but also important for the industry to create connections throughout the value chain.

Thank you very much for your time.

Nō reira, tēnā koutou, tēnā koutou, tēnā koutou katoa.

Moody’s Investors Service is comfortable with its Aaa credit rating on New Zealand with a stable outlook, as it anticipates the impact from lower commodity prices will be offset by strength in areas of the economy such as tourism and education services.
“Despite the problems we see in the rest of the global economy, particularly problems for commodity exporters, New Zealand is doing quite well, the economy is very resilient to the global environment right now and we see there is a lot of activity in the service sector that is offsetting whatever negatives there are in the dairy industry at the present time.
Overall the economy is doing very well and financial markets are viewing New Zealand very favourably,” Steven Hess, Moody’s senior vice president, sovereign risk group, told a media briefing in Wellington.
“It (low dairy prices) is a negative for the economy, definitely, no doubt about it, it’s a price adjustment but it’s not so large though that we think it’s going to cause some sort of crisis,” he said, adding that dairy debt made up only a small part of bank assets.
“New Zealand has strengths that I think make it resilient to the global economy at the present time,” Hess said, citing falling government debt that is below other similarly rated countries, improving prospects for service exports such as tourism and education, and booming immigration.
“These are all these positive aspects that are offsetting any negatives that are coming from the farm sector,” he said.
Should the economy weaken, government finances are strong and it could use its balance sheet to offset any potential shocks, while the Reserve Bank also had the ability to lower interest rates if needed, he said.
“We are not seeing big risks,” Hess said.
A correction in the housing market, particularly in Auckland, remained a risk although Moody’s didn’t rate that risk very high, given prices were underpinned by demand from strong immigration, he said.

Source: Herald Business Desk

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. 

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.

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 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  

“The discussion document is refreshing in its candour. It clearly states that New Zealand needs to reduce its carbon emissions and for this to happen, policy settings need to change,” says Forest Owners Association chief executive David Rhodes.

“It acknowledges that carbon prices need to be higher so that businesses have the incentive to invest in reducing their emissions in New Zealand. Most importantly for forestry, it emphasises that there needs to be much more long-term policy certainty than we have seen since the ETS was launched in 2008.”

He says carbon stored in forests planted after 1989 enabled New Zealand to meet its obligations under the Kyoto Protocol, despite a surge in emissions elsewhere in the economy.

“These forests were already in the ground when the ETS was launched. Since then, the favourable treatment under the ETS of other sectors, relative to forestry, and extreme carbon price volatility have contributed to a net reduction in the planted forest area,” Rhodes says.

“If things don’t change, emissions will gather pace in the 2020s as the spike of forests planted the 1990s are harvested. Fortunately the government recognises this and wants to identify changes to the NZETS that could help increase the rate of forest planting.”


The discussion document poses a number of questions for public consultation, but rules out including agriculture in the ETS, even though this is the source of 50% of the nation’s emissions.

Rhodes says it is difficult to fathom how agriculture could be ruled ‘out of scope’. It is also contrary to the recommendations of the government’s own 2011 independent review of the NZETS, which envisaged agriculture being slowly phased into the scheme.

“All investors in land in New Zealand need to be given the same market signals about their role in reducing emissions. This includes those aspects of the ETS that encourage carbon forestry. It is important that land owners – who can be farmers – factor in carbon as an income stream additional to that from the eventual log harvest,” he says.

Forest owners would also like to see the phase out of subsidies to emitters, particularly given that record low carbon price levels have made this assistance unnecessary over the past few years.

Carbon price stability is particularly important to forest owners because of the long-term nature of their crop.

“If the ceiling price for carbon is to continue, logic suggests there should also be guidance on what the minimum price will be. All investors will want to know the points at which the government will or will not intervene in the market.”

Source Rural News New Zealand

International dairy prices are at a “particularly bad” part of the cycle, but are expected to improve substantially in the first half of next year, rural lending specialist Rabobank says.

New York-based Tim Hunt, who leads Rabobank’s global dairy research team, said the market remained “fundamentally bearish”.

Last week, prices fell by 7.9 per cent, at the latest GlobalDairyTrade auction – the third decline in row. Whole milk powder prices, the key product for determining Fonterra’s farmgate milk price, fell by 11 per cent to US$2148 a tonne. Fonterra’s farmgate milk sits at $4.60 a kg of milksolids – well short of the $5.30 kg required to break even. The forecast will be reviewed early next month.

Rabobank expects wholemilk power prices to recover to US$2500 a tonne by the first quarter of next year and to US$3000 by the middle of the year.

Hunt and other analysts have pointed the finger at the European Union, which has continued to raise production despite low prices, for the ongoing supply/demand imbalance that has depressed prices.

“Demand remains weakish,” he said. “We are struggling to turn off the supply growth around the world and we have a significant inventory to deal with.

“The fundamental message here is that the market is still too weak to sustain ongoing recovery in prices this calendar year.”

Hunt said the global supply/demand imbalance remained at the core of the problem.

“This is one of the problems and one of the particular characteristics of this downward cycle.

We believe we have seen a particularly bad cycle that is going to take at least another six months to come out of, but we don’t believe we have seen a structural change in the medium term market place.
Rabobank rural specialist Tim Hunt.

“New Zealand is the only region where milk prices have fallen to extremely low levels, triggering those reductions in supply that we are looking for to rebalance this market. In Europe, the weak euro, the co-operative propping up of milk prices, and the quota systems removal, has meant that supply growth has been stronger there than it ordinarily would be.”

In the US, production is still growing but only just. The milking herd declined slightly for the second straight month while prices begin to further decline. In the key state of California, production was off by 5.5 per cent compared with October last year.

Russia’s ban on dairy imports from the rest of Europe had meant a lot of product was finding its way on the secondary markets of Southeast Asia, the Middle East and Africa. This, in turn, meant those regions were sitting on sizeable inventories and were less inclined to step back into the market.

But Hunt said the market’s problems were cyclical and did not signify structural change.

“We believe we have seen a particularly bad cycle that is going to take at least another six months to come out of, but we don’t believe we have seen a structural change in the medium term market place.”

He said that as low prices found their way to the global farm gate the supply growth would be shut off. However, low prices would encourage demand and that in turn would lead to prices moving substantially up.

We still expect New Zealand to benefit from rising global trade. New Zealand may be entering a period of slower growth but the growth story is not over. This is still plenty of opportunity over the next five to 10 years.
Tim Hunt

“In the medium term, we still believe that economic growth in emerging markets will drive increased demand for dairy and will sustain a much higher trading range than we have seen.”

In the US, larger scale farming has resulted in lower costs and lower feed costs have driven production higher over the past five years. He said the substantially stronger US dollar is expected to curtail US dairy exports. Dairying in New Zealand still faced a positive outlook.

“We still expect New Zealand to benefit from rising global trade. New Zealand may be entering a period of slower growth but the growth story is not over. This is still plenty of opportunity over the next five to 10 years.”

source: NZ Herald

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