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Clarky's Comment - March 2011

After a couple of days visiting logging crews in the Marlborough Sounds my comment this month is around the opportunity now open to the owners of some of New Zealand's most remote and difficult harvesting forests. Most of my comments apply equally whether you have a forest in the Sounds or in any other steep remote hill country.

For the first time in the last decade log prices are supporting the high harvesting and transport costs of remote forests, meaning that owners can generate a positive (and in some cases handsome) cash return from harvesting. This opportunity has arrived in the nick of time for some Marlborough Sounds forests that are now over 30 years old and subject to windthrow. In some cases the 35-year plus trees are now getting too big for domestic mills to process through their ring debarkers.

The winners right now are those forest owners that had the foresight to get Harvest-Ready. For Sounds forests this can be a year or more process. Getting Harvest-Ready creates option value to commence harvesting, or not, in response to the current market signals. There is inventory to complete i.e.what is on the hill and how would we match that to markets by log grade? There is a logging plan to prepare, usually including construction of a log collection yard and barge landing ramp through the foreshore reserve. There are neighbours to consult, a Resource Consent to process and actual construction of the yard and loading ramp. Harvest crews are all busy and work must be scheduled in. The resource consent application in the Sounds is particularly involved and potentially costly & time consuming, with archaeological survey (& HPT authority if anything found), marine environment assessment, public notification & hearings the norm.

Barge transport of logs is cost effective mode in the Marlborough Sounds and keeps heavy trucks off the highway. This operation, managed by PF Olsen, involves barging freshly harvested logs direct to Port Marlborough (Shakespeare Bay) for export to China in log bulk carriers (ships).

 

We do not know how long the current favourable log prices will persist. What we do know is that for many of New Zealand's most remote forests, just a small drop-off in log prices will result in what is now a good positive return, switching to an uneconomic harvest proposition. To mitigate this risk PF Olsen has developed a package which locks in log price for a period and protects forest owners that are Harvest-Ready from the risk of returns falling with a softening log market. This has proven popular with forest owners in the Marlborough Sounds area.