Harvesting and Marketing

Valuing a trees will depend on a number of variables, No forest is generally the same. Since the inception of the ETS tree crops now effectively have two main value derivatives log Value and carbon prices.

Factors to be considered are:

• Type of tree species
• Silvicultural regime – pruned, unpruned, thinned, unthinned?
• Global market prices at time of Realizing your Investment 
• Road Haulage costs  to domestic markets or ports
• Terrain and logging harvest associated costs  and roading costs 

The ETS has created a lot of confusion in its implementation but the basics are pretty simple for forest owners. We must make a key distinction; deforestation = permanent removal of trees and harvesting (with subsequent replanting) does not mean deforestation under the ETS.

Forests  are divided into 2 particular groups  – pre 1990 and post 1989.

Pre 1990 forest owners
Assuming you have done nothing under the ETS in terms of obtaining an exemption (<50Ha Blocks) if you are going to replant, your liability is nil. If you are considering a use change and therefore permanent deforestation, you may have a ETs liability to consider. 

Post 1989 forest owners
If you chose not to participate in the ETS you will have no liability on deforestation. If you have chosen to participate and you have sold New Zealand Units (NZU’s) from your forest you will be required to file an Emissions Return on harvest and buy back’ NZU’s required to keep your account in balance. 

The value of your forest is dependent on forest volume and log grades within the stand. Depending on the type of  sales method chosen, it is often not worth the cost of paying for a full stand inventory. A visual stand assessment by NZ Forest Products Group Limited will provide an idea of log grades and values. If owners are seeking to sell a forest via an average stumpage price or lump sum payment, we recommend that a full MARVL assessment is done prior to harvest.

There are two factors to consider:

1. Commercial factors – market and cost conditions or alternative land use issue for best asset return
2. Biological factors – Tree condition & growth, log characteristics for particular market segments. Dynamics play a significantly on determinant on forest value than a theoretical rotation age. We suggest forest owners be flexible on harvest age. Depending on site characteristics generally the optimum harvest age for a well grown and well-tended radiata pine forest is between 26 -30 years of age as a general rule of thumb.

The optimum time to realize your forestry asset is when:

• market conditions are favorable
• the stand has generated maximum growth verses the cost of capital invested
• when trees have maximized their pruned Clearwood growth and structural saw logs have optimized the high density desired.

First rule = engage a professional with a good track record and good references in the industry.
In terms of sales process, typically there are two main types of log sales

1. Managed sale
This is where the owner appoints a professional harvesting/marketing company to oversee all aspects of the project on behalf of the vendor. The project is very transparent for the owner, with the owner receiving a detailed report of revenues received and costs incurred from the logging harvesting transport costs and marketing. In an open book project, the owner takes the responsibility for market risk or market shift and will make more money should the market rise during the operation but conversely may lose revenue should the market fall during the asset realization.

2. Stumpage sale
The advantage of the stumpage sale for the forest owner is that they have know the exact dollar per tonne figure they are going to receive from their forest. However stumpage buyers will discount their buy price to offset grade, volume and market and US Dollar fluctuations.

There are three subcategories to a stumpage sale:

1. Graded (pay as cut) sale: This is where the stumpage buyer pays a different price for each grade cut.
2. Composite (pay as cut): This is where the stumpage buyer pays a composite price for all logs removed. This produces an incentive to optimize grade outturn, it is likely to result in a price discount to mitigate the buyer’s risk that the grade mix is inferior to that assessed before harvesting.
3. Lump sum sale: This is where a stumpage buyer pays a lump sum for all logs before the harvest. The buyer takes all the risk of grade mix and total recoverable volume, as well as market risk.
4. NZ Forest Products Group Limited  can arrange stumpage sales for forest owners if required and/or purchase forests on a lump sum basis.

Some things to consider in the sales process
Your trees have been growing for a minimum of 25 years

You need to consider:

• Revenue – Is the current log market relatively good for your stand of trees and will it generate revenue for your logs?
• Harvesting capacity availability – Harvesting crews are no longer readily available. Once you decide to harvest it could be months before you can secure a harvesting crew. You need to plan well in advance to ensure you can actually harvest your trees when desired
• Seasonal issues – Does it fit in with other farm operations? Do you need to consider winter vs summer harvesting due to soil type?
• Costs – You need to consider harvesting and trucking costs, along with roading costs and the costs of transporting in a harvesting crew.
• Log value recovery – Does the harvesting crew you are using have the necessary skills to optimise each tree stem 
• Return on investment 
• Land use – Is your current tree crop the best use of your land going forward?
• What are you going to do with the land post harvest? Replant or clear? Have you considered ETS liabilities and subsequent reestablishment costs?