Forestry prices have eased back from the record highs hit in July, but returns are picked to remain positive for the rest of the year.
However, the escalating US-China trade tensions cast a long shadow over the short term outlook.
Ports around New Zealand, including Port Otago and South Port, have booked record of near-record log exports during the past 18-months, mainly from high demand from China.
With the increasing trade and tariff wars between the US and China, however, the Chinese yuan has devalued against the US dollar, meaning its buying power has been weakened.
ASB senior rural economist Nathan Penny said while forestry prices in New Zealand dollar terms were only 2.5% below July's record, according to AgriHQ data, in US dollars prices were down 12% against the April high.
“Most of this fall can be put down to US dollar strength, while the Chinese yuan cross with the US dollar is down 9% over the same period,” he said.
While the Chinese economy was “solid” and its housing market was “firm” Penny anticipated forestry demand would remain firm for the balance of 2018.
He noted though that ratcheting up in the US-China trade tensions does pose a risk to his otherwise positive outlook, which could begin to weigh on Chinese economic growth.
“In this scenario, forestry demand will wane and prices fall,” he said.
For the week to the end of September, Penny said the ASB commodity price index fell 0.7% in US dollar terms, but because of a 1% decline in the New Zealand and US dollar cross rates, the kiwi valued index was up 0.3%.
Sheep and beef prices led the US dollar index fall, down 1.9%, wool and beef both posted more than 2% declines each and lamb prices were down 1.6%.
Dairy prices declined 0.3%, compounded further by an overall 1.9% decrease of the last Global Dairy Trade auction, Penny added.
*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.