Wood and carbon values boost forest interest

Wood and carbon values boost forest interest

Significant rises in New Zealand carbon prices and positive prospects for exported timber may signal a renaissance for forest plantings, with new opportunities for landowners and investors alike in coming years.

Since April the value of carbon prices in New Zealand have almost doubled to $18/tonne after languishing as low as $2.50 a tonne only two years ago.

Meantime log prices have remained relatively firm, sitting $15 a tonne above their five year average with some strong price signals over the past year coming from traditional markets including China and increasing market share to India and South Korea. As of May export values were up 6% in value on a year to year basis.

Bayleys Waikato agent and forest specialist Mark Dawe advised they have had enquiry from a wide range of potential buyers in recent months.

He says interest has been strong and spread across a spectrum of parties, from farmers seeking sheep and beef units with pine plantings, to corporate investors wanting substantial blocks of well-maintained mature plantations.

“We have seen forestry blocks sit at the lower end of the market for price, and in some cases eclipsed by blocks support plantings of Manuka for honey production that command a premium. However once that demand is satisfied, we anticipate we will see that disparity disappear,” he says.

Typically bare land blocks suitable for forestry are valued about $2000-$2500 a hectare.

“For a mature block you would take the bare land value and then have the forest assessed for crop value and that will depend greatly on what silviculture practices have been conducted to maintain its quality.”

Tree crop value can vary significantly depending on how it grades, with quality pruned timber blocks worth over twice those only suitable for low value pulp production.

Mark Dawe says the demand is largely being driven by the value of the forest timber on a block, rather than potential carbon value under the Emissions Trading Scheme (ETS).

A report from the Global Agricultural Information Network highlights the rapid lift in carbon prices in New Zealand. It has also anticipated the previous downward trend in forest plantings may be poised for a turnaround as the carbon prices approach $20 a tonne.

With NZ carbon prices now at $18.50 a tonne and a review of the ETS underway by government, the industry is pinning its hopes on finally seeing a realistic, sustainable and supported carbon market.

After 2010 the government allowed the use of international carbon credits priced
significantly cheaper than domestic ones, but having no real carbon reducing substance behind them.

By 2012 these units formed 95% of all carbon credits, and had the effect of dragging the NZ units down to only $2.50 a tonne, much to the dismay of NZ’s forestry sector.

But the Paris climate change accord has driven more optimism into the carbon markets, with prices closer to $20 a tonne, the point where foresters believe interest will lift in forest plantings.

NZ Forest Owners Association president and PF Olsen chief executive Peter Clark welcomed the opportunities and greater certainty the Paris Accord has bought the forest sector. He said it provided greater certainty for the sector than previously.

“An important part of that is encouraging the planting and replanting of plantation forests, because of their ability to absorb and store carbon from the atmosphere,” he says.

Mark Dawe says there was more enquiry from buyers with a specific view on carbon and where it may be priced in the future.

“But the primary driver at this stage is the value of the forests for their wood crop.”

James Macpherson of Bayleys in Gisborne agrees, and said any potential carbon value was an “added bonus” to the strong forest value.

He said interest around the East Coast is starting to kick in again, after some larger overseas companies slowed plantings in part due to issues over getting Overseas Investment Office approval.

“The average land holding here is about 1300ha, so you do need some funds to get a forest block purchased, established and maintained. The lift in carbon values will certainly help with that.”

He says depending upon roading and track access, wood lots on sheep and beef farms in the region are also now becoming a value added feature of farms. They offer another commodity source of income to help balance the cycles experienced in meat and fibre income.

Bayleys national country manager Simon Anderson said the potential for plantation forests to play a role in a strengthening carbon market, or as a valuable wood supply, opened up some exciting opportunities across the entire primary sector.

ENDS

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