What lies ahead: Forestry

Dairy farming is going gang busters and forestry is not.

That was the impression gained this year as timberland was converted to dairying as never before.

But the big boys in the industry are buying at the bottom and betting on their ability to hold.

Fletcher Challenge completed the sale of all of its forests and, next year, Carter Holt Harvey will sell one-third of its estate, the country's biggest.

There are plenty of buyers, among them Havard University's endowment fund, now the second-biggest forest owner in this country, which has invested US$2 billion ($2.8 billion) globally in trees.

It employs New Zealand "lumberjacks" at its head office.

The property investors behind Auckland's Viaduct Harbour are also now big owners of forest land and not all of it is a dairy conversion play.

This industry looks quite different if it is priced in US dollars.

US dollar prices of logs in the Korean market are as good as they have ever been, according to John Palmer, the boss at log export marketing company Silva.

At the same time, returns to New Zealanders are the lowest they have ever been because of the high dollar and high freight rates.

The cost of chartering a 28,000- tonne bulk carrier has rocketed to US$24,000 a day from US$6000. It is not expected to come down until new ships are built to cope with demand for shipping in China.

Analysts expect the dollar to come back next year, but not by much. Cover from foreign currency contracts is running out for many and that is a big concern for investors.

Dairying has had bigger gains in commodity prices and Fonterra has long-term relationships with the world's biggest container ship operators. It is looking to do deals to drop ocean freight costs and has power to do so as a customer that spends hundreds of millions of dollars a year.

Forestry does not have a history of co-ordinating its marketing or its shipping charters.

Silva is an attempt to do that but industry players say it is an evolving situation. Forestry has thousands of small growers and also big players that have tended to go it alone.

Carter Holt Harvey is supporting Silva, as is Harvard, but Hancock Timber Resources, a big US fund manager that bought forests for the first time this year, is not.

As the year closed, the industry was meeting in secret to try to break down bad feeling and create a pan-industry group to tackle big issues and better interface with the Government.

No one is holding their breath. Expect ongoing transition in an industry that has potential but has continually disappointed.