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Stumpage Sales Method Losing Traction

Selling woodlots via fixed price stumpage tendering has all but died in Northland over the last 6 months. So what is driving this trend? It appears that that those previously prepared to bid for stumpage are now finding it too risky due to:

  • Highly volatile foreign exchange rates.
  • Wide fluctuations in shipping costs.
  • General nervousness about the strength of domestic and export log markets .

The financial risk of bidding a single and fixed price for an uncertain mix of log grades (composite stumpage basis), with uncertain harvesting costs and market conditions should not be under-estimated. The only factor that pushes a stumpage bidder to reduce his price discount for risk is competition and the number of parties prepared to bid is reducing as well.

Lets look at two of the other factors that drive successful stumpage sales:

  1. Pool of competent and mobile harvesting contractors - good contractors are hard to come by and this situation will worsen when harvesting levels increase.
  2. Bidding from domestic log processors - since TDC was taken over by Carter Holt Harvey, there is little, if any, stumpage bidding from domestic processors.

The other important factor to consider with stumpage sales is price "lock in". Whilst you may benefit from a fixed price if the market falls, conversely you will miss out on an opportunity if the market rises. Even if the market stays constant (which is rare) you will generally do better with a graded-managed-sale as you will avoid the discount for risk inherent in the stumpage bidding process.

This is how Peter Bullen, PF Olsen's Mid-North Manager puts it: "If you want more certainty, stumpage sales may work better for you. Currently, however, if you want the best returns, getting Harvest-Ready and timing your harvesting well is a better way to go".

HarvestPro's Zane Cleaver who acts as forestry advisor to White Cliffs Forests Ltd in Northland confirms this sentiment. Zane explains that White Cliffs has been harvesting for eight years. For the first 7 years sales had been by the composite, pay-as-cut stumpage method. With the decline in the number of stumpage bidders in recent years Zane advised White Cliffs in 2009 to switch to the managed-graded-sale method. So far this change has resulted in improved returns for White Cliffs which is now supplying logs into PF Olsen's China-direct export programme.

Willie Clarke's crew with Pruned logs they have produced for export to China via Marsden Point. The pink colour is anti-sapstain treatment applied to the log ends.