Forest 360: Log markets never fail to repeat history

Wednesday 25 Aug 2021

(OPINION, Dan Gaddum, Forest 360) It is interesting that despite the headline of the article, some pundits started talking about such wishful thought patterns with comments on the recent bull run of log prices such as “It’s a paradigm shift in export log demand and price” and “The macro fundamentals of the market have changed for the better”. Sure enough, finding the people happy to admit they said such optimistic things is a bit like trying to find people to admit they voted for Labour.

Since September of 2020 forest owners who have managed to harvest their trees have unquestionably experienced the dairy equivalent of the land of milk and honey. Log prices have traded at record highs and some returns to stump have been off the charts. It used to be that a pruned stand close to the Port of Tauranga and a pruned log sawmill was the poster child of forestry returns. Up until July this year forests all over the country have been literal golden geese with returns consistently sitting between $40K - $60K per ha dependant on several different factors. These returns really shine a spotlight on the opportunity with marginal land in New Zealand … and I haven’t even mentioned carbon yet.

Since July record prices and the fortunes that go with it have reversed as they inevitably do (refer Figure 1).

However, there is still a lot to be positive about – notwithstanding New Zealand’s return to level 4 lockdown which will invariably change things again and probably not for the better in the short term. Although if the last lockdown is any judge of the future, the medium term is likely to surprise to the upside.

Record softwood log prices were primarily supported by sky-high US lumber prices, but this market has seen a 70% price reduction from peaks of $1700/mbf in May, but at close to $500/mbf remain above the long run average. At this level lumber supply will gradually return to China markets and start to fill the void that had driven log demand to record price levels.

So, what are we positive about?

See Figure 1 below - TGA At Wharf Gate Price History


Source Forest 360

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