Wood Matters: Issue No: 007 Date: March 2009

The Government has published its Draft Forestry Allocation Plan in respect of compensation for loss of land value from the imposition of a deforestation liability on pre-1990 forest land. This can be viewed at New Zealand Emissions Trading Scheme Draft Forestry Allocation Plan.

The date for public submissions on this Plan has been extended to 30th April. MAF officials advise that prescribed dates for applying for exemptions under the 50ha threshold (30 June 2009), and for applying for an allocation (31 July 2009) MAY also be extended but not until these and any other changes to the Climate Change Response Act have been considered by the Select Committee. The safe response to this uncertainty is to get the ground work done to make these applications by the currently prescribed dates.

PF Olsen has written to clients on our database, including a response form that will guide what specific work is required on each forest block that we manage. Please get your Response Form back soon, as there is a lot of pressure on our mapping and consulting staff to get all this work done in time.

If you have not received the letter and need some work done on your forest or forest land to check eligibility for the 50ha exemption or to maximise your NZU allocation in respect of pre-1990 forest land, I suggest you contact colin.hercus@pfolsen.com.

Korea Free Trade Agreement

During his visit to New Zealand on 3rd March, President Lee Myung-bak, President of the Republic of Korea and our Prime Minister John Key, jointly announced that negotiations would commence immediately for a Free Trade Agreement between Korea and New Zealand. Korea is our largest market for export logs, and logs are the single largest (by value) export from NZ to Korea. Logs do not attract tariffs but processed timber does. We sell very little processed timber to Korea but we welcomw an improving business case for Korean firms to set up log processing within NZ to supply into their domestic market. In particular:

A programme to aggressively remove tariffs on processed timber products also helps the business case. Suitable and reasonably-priced industrial land, along with security of electricity supply, and a streamlining of RMA and Building Consent processes will be important to attract investment from Korea in New Zealand wood processing.

New Zealand's Clean, Green Image As Strong as Ever

PF Olsen is often approached by overseas organisations seeking to purchase logs or forest products.

In fact we have found a good gauge of market strength is the frequency of new enquiries. Currently such enquiries are strong.

Rest assured, however, that the enquiries come in a range of weird and wonderful forms and are not necessarily very specific or well-researched.

"We are the major import and export company in the northwest of China .we get to know your company through the international trade committee of China. we need to import some flowers ,trees and grasses for wacthing. please inform us of the details of the required product above and its price in dollars or Euro so as to facilitate us choosing and purchasing." Trees, Grass and Flowers

Its nice to know that when someone thinks of buying flowers, trees and grasses they immediately think of New Zealand (however, I'm not too sure what "wacthing" is?). It's good to see that New Zealand's "Clean and Green" brand image is alive and well in international markets.

PS: If anyone would like to respond to this enquiry, I will gladly forward the contact details.

High Quality Forest Mapping, Now, More Important Than Ever

Technological improvements and increased availability of ortho-photography has lowered the cost of mapping forests. At the same time, the benefits from good forest mapping are increasing.

In Issue 3 of Wood Matters we highlighted the importance of good mapping for lowering the cost and improving the quality of pruning and thinning operations.

The latest new business area requiring good forest mapping is the Emissions Trading Scheme:

If you have a forest or woodlot that doesn't have good mapping, it would be well worth making the investment in getting it mapped now.

PF Olsen has invested in a GIS-mapping system that can produce high-quality topographic^[1] forest maps. A recent system innovation creates a dynamic link between stand map records (spatial records) and stand attribute records (text records). This means that the two data sets are always harmonised and cannot became out of step. Our mapping and record system can also easily be kept up to date with forest operations such as pruning, thinning, measurement and harvesting. PF Olsen clients automatically get the benefit of this state of the art mapping and forest record system, usually only available to large forest estates.

If you would like to find out how good forest mapping could improve your forest management, please contact your local PF Olsen representative, or FREEPHONE 0508 PF Olsen (0508 736 5736), or e-mail our friendly Land Information Manager, Richard Quinlan on richard.quinlan@pfolsen.com.

^[1]Topographic maps show vertical land forms (e.g. hills and gullies) in the form of contours. This is important information for planning most forestry operations.

PF Olsen Increases Investment in Controlled-Pollinated Seed

Thanks to over 50 years of Radiata pine breeding in New Zealand, we can now access genetically improved treestocks that grow faster, straighter and have better wood qualities. In 1995, PF Olsen invested in a control-pollinated (CP) pine seed orchard in Blenheim so we could provide our clients with the best genetic quality seed and seedlings. This 10 ha CP seed orchard comprises Radiata pine clones that were ranked highest for genetic quality by the Radiata Pine Breeding Company (RPBC). These clones were grafted and planted as mother trees.

Six genetic qualities, or GF Plus® traits, are identified by the RPBC, namely growth, straightness, branching habit, Dothistroma resistance, wood density and spiral grain. Controlled pollination is achieved by bagging young female cones and manually applying pollen from a superior male parent. This means that the genetic quality of both parents is controlled, providing a much higher level of confidence that the sought-after qualities will be exhibited by the progeny (seeds⇒tree-stocks⇒trees⇒wood). PF Olsen is producing hundreds of kg of CP seed each year to meet market demand, but in recent years, demand has exceeded our production capacity.

Young cones are bagged at PF Olsen CP seed orchard ready for controlled pollination. Despite modern times, it's very much an "arranged marriage" for these cones!

In order to meet the demand, PF Olsen is developing a second CP seed orchard near Blenheim. This is expected to at-least double, or even triple, our CP seed production in a few years time. This investment will ensure that PF Olsen's clients will have access to affordable seedlings with superior genetic quality.

As you can see, it is quite an involved process to produce genetically superior CP seeds. After the cones are picked, they are laid out in trays in the glass house for drying.

PF Olsen's New ArborGuard® Makes Healthier Trees

Diseases such as Armillaria root rot affect the health and performance of pine plantations and cause huge annual losses in New Zealand. PF Olsen, in collaboration with Dr Robert Hill of the Lincoln University-based Bio-Protection Research Centre, has developed a bio-control system to make trees more resistant to disease attack. ArborGuard® is a proprietary formulation consisting of a range of beneficial, naturally-occurring, micro-organisms that can improve seedling growth in the nursery and protect young trees from disease attack in the field.

Nursery trials have shown that ArborGuard® not only makes seedlings grow faster and healthier but also helps to reduce the amount of fungicide used in the nursery. Large-scale field trials done by PF Olsen on sites known to have severe Armillaria demonstrated that tree mortality halved in the first year and reduced by 30% in the 2nd year compared to non-treated controls.

The most efficient way of applying ArborGuard® is by seed coating. Dr Robert Hill has developed a do-it-yourself ArborGuard® seed coating kit for tree stock nurseries.

Dr Robert Hill and Kevin Haine, PF Olsen nursery manager, are coating pine seed manually with ArborGuard.

All PF Olsen nursery treestocks are now treated with ArborGuard® using the seed coating method. This means that PF Olsen clients that use PF Olsen-grown tree-stocks automatically get the benefit of ArborGuard®.

An ArborGuard® starter kit, sufficient to coat one kilogram of pine seed, is also available. If you are interested in ArborGuard®, and/or the starter kit, please contact Dr Wei-Young Wang (on e-mail wei-young.wang@pfolsen.com) for more information.

Dr Wei-Young Wang of PF Olsen Ltd is examining the ArborGuard® coated seeds during the drying phase.

Log Market

Whilst many of New Zealand's primary producers are suffering from weak demand and poor prices, overall the NZ log market is experiencing somewhat of a counter-cyclical situation. However, this is very much a "game of two (distinctively different) halves".

"One Half" - The Domestic Log Market

Domestic market conditions remain difficult with a number of mills announcing layoffs, and some mills struggling to meet payment commitments for logs.

The lowering NZ$ provides no beneficial offset to those log processors supplying the domestic market. Those supplying Australia are enjoying only a small exchange rate improvement, but are facing a very weak Australian housing and construction market.

In areas close to ports, more attractive export log prices are soaking up volume and in most cases this is balancing the lower domestic demand. In some areas however, domestic log market shortages have developed. PF Olsen is committed to supporting domestic log buyers as they provide an important and stable log purchasing base with significantly lower volatility than the export market.

Pruned log pricing is steady around New Zealand with logs continuing to sell for $120-125/tonne (delivered to NZ mills). Those sawmills supplying the US Mouldings and Better markets have seen a continuing erosion in end-product price with the benchmark 5/4 inch flitch price moving down from US$1030 last July to US$750 (per thousand board feet) this month according to Crows market report. Supply is being diverted to the US clear board market (Selects and Commons) where 1x6 boards have maintained a price of US$2000 (per thousand board feet) from July last year to this month. Whilst this latter segment has held up better due to supplying the renovation and DIY market, it is not immune to the prolonged economic weakness in the US.

A much more favourable NZ$/US$ exchange rate is providing some relief from this woeful market.

"The Other Half" - The Export Log Market

The export log market has firmed considerably since the beginning of the year. Prices in March rose $5-$10/JAS m³ from February. The characteristic of this market is the dominance of China which is experiencing three strong market drivers:

China softwood log supply is dominated by domestic (within China) log supply of around 100 million m³ per year. Imports of softwood logs comprise some 40 million m³ per year. The domestic logs are relatively low quality but with the much lower price of NZ Radiata pine in China there is substitution away from domestic logs to Radiata pine. This substitution is occurring in addition to that of the Russian softwood logs as mentioned above.

In summary, our favourable exchange rate, and low ocean freight costs are making Radiata pine very competitive in China and supporting strong demand. This is a great situation to be in, although quite vulnerable, as it is based on only one albeit very large economy/market.

In keeping with world commodity markets, demand is mostly weak in other Asian log markets. Korea (which annually purchases some 3.4 million m³ of New Zealand logs; 55% of our total log export supply), is very weak, and despite low C&F prices, sales are also low.

The Japan economy (the world's second largest economy) contracted 3.4% in the fourth quarter of 2008. Demand for logs is low with one exporter predicting that sales of New Zealand logs to Japan this year could be half the volume of last year. India has relatively strong demand but this is a chaotic market with very limited infrastructure to receive, unload and transport logs internally.

Ocean freight has moved up slightly but fixtures are still being made that result in freight rates in the early US$20s/JAS m³. Unless world commodity trade volumes pick up dramatically in the next year or two, the number of new-built break-bulk vessels will keep freight rates low for some time.

In summary, we are experiencing historically good overall harvesting returns. The overall Agrifax Log Index stands at $76/t, $4 above the 10-year average. The concern is that the market strength is all concentrated on China. On one hand this means returns are vulnerable to weakness in China. On the other hand, diminishing supply of Russian logs to China leaves a big supply gap; one New Zealand couldn't get near to filling even with all our export log supply!

People with near-to-harvest woodlots and forests should watch the markets closely. Getting harvest-ready is, as always, critically important to make sure you can respond to market conditions quickly. With returns from harvesting historically high at present, consideration should be given to commencing harvesting mature blocks, or at least getting an up-to-date stumpage estimate. In some areas we have been able to negotiate above-market prices for secured supply and guaranteed payment terms.

If you wish to discuss possible harvesting options, please call you local PF Olsen representative, or FREEPHONE 0800 PF Olsen (0508 736 5736) or e-mail Peter Weblin on peter.weblin@pfolsen.com.

New Appointments at PF Olsen

PF Olsen is pleased to welcome Phil Lacy and Mark Wybourne to the PF Olsen team.

Phil (see photo right) is an experienced forester based on the NSW north coast where he has worked with Forests NSW in operational silviculture, systems development, research and fire management roles for ten years prior to joining PF Olsen Australia.

In 2003, Phil represented the Australian Forest Industry for 12 months at the World Forest Institute in Portland, Oregon (USA). During this time, he researched how investment in forestlands was changing the way these forests were being managed. This study culminated in the report 'The Changing World of Forest Management'. A paper from this report was published in the journal Australian Forestry in 2005.

Phil submitted his PhD thesis last year which focused on fuel accumulation, fire behaviour, and the effect of fire on young eucalypt plantations. The study was sponsored by the Bushfire CRC and Forests NSW through the University of NSW. The publication of a 'Prescribed Burning Guide for Young Eucalypts' written by Phil (in consultation with a working group consisting of fire experts from many state agencies) is due for release in April.

Phil will be based at Coffs Harbour and joins Pat Groenhout who heads up PF Olsen Australia.

Mark is a qualified forestry professional with over 25 years of extensive industry experience, ranging through practical forestry work, academic study, corporate forest management and farmer/investor forest management and consultancy.

Previous employment has been with Timberlands Ltd, Greenwave Forestry Ltd, Fletcher Challenge Forests, Forestry Corporation of NZ Ltd and CHH Forests Ltd.

Mark recently took up the position of Marlborough Branch Manager based in Blenheim. Welcome aboard Mark!

In This Issue

Clarky's Comment

ETS Matters - Pre-1990 Forest Land Units