Farm Forestry New Zealand

When to harvest: The challenge of decision making

Allan Laurie, New Zealand Tree Grower August 2017.

This scenario and range of questions are similar to ones I now field almost every week. I can state from the outset I am almost appalled that some seemingly reputable New Zealand based companies are pressurising owners to harvest early, with a range of inaccurate information presented to justify the argument. In my view this pressure is entirely due to companies aiming for volume and client growth along with a procurement strategy, rather than doing what is right for the forest owner.

In this first article of my time on the soap box, I will endeavour to respond to the misleading facts being fed to some forest owners. In a future edition of Tree Grower, I will respond to any critics and I will also give some information on financial and crop growth analysis.

I acknowledge there will be exceptions to a harvest early rule. We all face a life of uncertainty, sometimes with personal circumstance that dictates the need to realise an asset earlier than maturity and sometimes those decisions have to ignore what is best for the forestry crop. However, I would also say that over 90 per cent of the people who approach me with the questions about harvesting early never include a need to harvest as part of their thinking. Some even say ‘I don’t actually need the money right now but…’

What then is an ideal harvest age?

I will cover this in more detail in a subsequent article but in summary, the ideal harvest age for radiata pine in New Zealand is 27 to 30 years. As always, there may be exceptions to the rule with tree ages a bit younger and older applying in some circumstances.

The key here is that information is everything and it can only be gained from a good analysis of your trees. Once the current status is known in terms of stocking, likely log grade mix, volume per hectare and expected productivity, then an informed decision can be made.

Some of the pressures which are applied

Let us look at some examples of the sort of pressure I get to hear about.

We have a logging crew in your area

The only way to make an informed decision about harvest timing is to have undertaken a detailed assessment. If the logging crew is just around the corner you will not have time to investigate the status of your crop and whether in fact it is a good time to harvest.

Suggesting there will be cost savings because the crew are right there is only correct at the small scale. Equipment position costs at a tonne rate are insignificant compared to the downside of harvesting early.

There is a wall of wood looming

You may be told that you will struggle to sell your block with the looming wall of wood. I have seen no concrete evidence of a wall of wood coming, going or otherwise. To add to this, I have seen graphs presented to owners which clearly show an increase in harvest volumes in the region. The big lie here is the graphs reflect private harvest volumes only, rather the combined corporate harvest volumes in the same region which will probably show a decline.

I can accept there will be some regions where volumes are destined to increase in the next few years. However, at a national level, the total supply graph shows little growth. David Evison from the School of Forestry recently gave a paper on harvest projections and I am grateful to him for allowing me to use this in a presentation I made in China last year.

The light blue line in this graph at the top of the next page, is the forecast cut until 2030. It is called the non-declining yield prediction because it assumes rational behaviour in terms of cut strategy. It also reflects how the market has behaved up until now.

This tells us the expected New Zealand annual cut will hover around 30 million cubic metres a year for the next 20 to 30 years.

The dark blue line reflects irrational behaviour. This assumes the tree crop being harvested at the same rate it was planted which most commentators suggest reflects irrational behaviour. If it did happen it would be followed by a massive decline in annual harvest, which would not benefit anyone.

The only irrational behaviour which intercedes with this graph is the rate at which forest owners are currently harvesting early. It is therefore likely that the non-declining yield projection is already affected by this. Taking this into account, together with large volumes lost from wind and fire damage along with the clearance of mid rotation stands for dairying, the harvest of 30 million cubic metres annually and sustainably is already under threat.

In 10 years prices will fall

The full statement often made is that there will be a wall of wood in 10 years time and log prices will probably fall. The wall of wood lie is already refuted. The ability to sell volume and achieve price is only affected by potential markets and wood availability internationally.

Here is a quick look at some reasons why wood fibre values are unlikely to fall in the foreseeable future.

• China has recently halted all domestic harvest removing over 15 million cubic metres annually
• Indian consumption of softwood fibre is expected to more than double to three million cubic metres by 2020
• Indian GDP growth and population numbers match China with massive economic reforms in place and as the need and demand for housing increases, softwood consumption must increase to similar levels currently in China
• The planet is still losing over a million hectares annually to deforestation and with the emphasis now on climate change, with Trump the exception, most world leaders are refocussing priorities and deforestation is in the spotlight
• There are vast tracks of arboreal forests is Russia that could be harvested but Mr Putin is unlikely to flood the markets and drive his own price down
• Russia has massive infrastructure and accessibility problems which will continue to ensure New Zealand can be very competitive even at the current excellent price levels
• The effect of a cessation in bark beetle harvest in Canada is signifcant and annual harvest is declining. I have seen a big mix of reports which provide conflicting data. Those forecasts have included an annual decline of five million to 20 million cubic metres from now. Either way those volumes have been competitors for New Zealand radiata pine at some level internationally and are therefore signifcant in the future supply context. The fact that several large sawmills in Canada have closed recently or about too close confirms volume shrinkage.

You will struggle to get a logger

This time the comment often made is that the demand for logging crews will increase to the extent that you will struggle to get a logger to cut your trees in the future. There is no foundation to this argument. Yes, we are struggling to get enough people on the ground at present, but so are most New Zealand industries, and we are still cutting 30 million cubic metres annually.

Mechanisation is playing a major role in harvest. We now have fewer people producing a lot more. Logging crews of five or six people can now harvest 400 to 600 tonnes a day, figures which 10 years ago were rare or unheard of.

We would also expect to see mechanisation keep a lid on costs. Improved productivity as a result of improved harvest systems and technology suggest competition in scale will increase. I can see no justification for an argument which suggests harvest costs will increase significantly outside normal inflationary factors.

Next time in Tree Grower

I have suggested there is no justification for harvesting early based on the range of misleading information which some forest owners are being exposed to. In the next article we will look at forest productivity and value, some of the main reasons which will affect the decision to harvest. Whatever you do, please do not forget it has never been more important to get out there and plant more trees.

Allan Laurie is the managing director of Laurie Forestry Ltd.