Wednesday, July 6, 2022

Velvet holds steady

Unlike lamb and venison prices, velvet prices and throughput seem to have held steady this season. That said, exporters are always pleased when the season wraps up with all grades of velvet with a home and the money banked. As the summer selling season comes to a close, the amount of velvet on hand is of interest. Colin Stevenson, CK Import Export, is a major trader in velvet. He said that as of mid-February he was fully sold-up in product, with all velvet grades sold to date. From October to mid-February he had sold around 95 tonnes of velvet with good sales right through.

Getting a handle on velvet production and tonnages sold is a typically smoke-and-mirrors affair, with commercial sensitivities limiting publication of data. Statistics New Zealand publish export statistics but there can be some lag. Up-to-date velvet sale throughput is always going to be an estimation during the season, based on individual exporter comments.

Rhys Griffiths, Deer Industry New Zealand (DINZ) Velvet Marketing Services Manager, tracks the season by keeping in regular contact with exporters as well as monitoring statistics. The season opened with promise in October even though there was reluctance by the main Chinese buyers to step in and purchase, he said.

“They decided to hold off as they viewed product as too expensive.”

The price kept holding, and exporters were able to direct product to other markets, including selling direct to Korea.

“Exporters did well to find markets and ensure early season trading occurred.”

This initial stand-off period seems to have been rectified by a stronger demand during November and December. Statistics NZ figures for the year to the end of December last year reported a 9.8% increase in velvet value on 2011 sales. Griffiths is picking the average price is up about 5% for the season.

“The relative stability of the previous three seasons is continuing.”

Tony Cochrane, PGG Wrightson National Velvet Manager, said the early season began with promise given the clearing of stock from the previous season.

“But then the currency increased and some stock sold into Korea, via China, was selling cheaply.”

He questions the traders’ margins on this. Cochrane said some of the traditional high-volume buyers did not buy NZ velvet this season because of the price increase. This created an opportunity for small niche retailers to buy direct. Around 70% of PGG Wrightson sales were to these buyers, he said.

Velvet is continuing to be removed at a higher grade (more Super A) and at higher weights a stag. Cochrane said demand for Chinese grade (C grade and lower) was typically high. A larger volume of first grade velvet meant extra work was needed to keep sale momentum and the price steady as the season progressed. He would like to see all first grade sold direct to Korea but in reality some had to go to China.

Ross Chambers, Provelco Co-operative Ltd, said that though their farmer suppliers were producing more velvet, they had homes for it.

“We had more demand than supply, especially in January February for Korean grade.”

The co-operative sells via contract and also has demand outside that. Last year was the first year that a functional foods single-year contract was offered to growers to supply A and B-grade velvet. About 20% of the co-operative’s total velvet sales went into this contract and was something that would be built on, Chambers said.

“We believe we are paying slightly ahead of market and are very competitive.”

Chambers visited Korea over the summer and found the market to be positive, although the high currency issue continues.

Total final on-farm production figures will be available once levies are collected by DINZ.

Griffiths said tonnages were expected to be up slightly, but still under the 10-year average of around 500 tonnes.

“We know that world demand for velvet is around 1400 tonnes and production from other countries is reducing, so there is some opportunity for New Zealand to grow production.”

He believes the health food sector is the place for increased tonnages. DINZ, with commercial parties, is funding research in this area. Around 125 tonnes, or 20%, of NZ velvet goes into health-food products, a big increase from the one or two tonnes five to 10 years ago.

The old sale method (pool system) was alleged to encourage buyer collaboration to drive down prices, especially in years where supply was higher than demand. It tended to act as a Dutch auction, putting downward pressure on prices, he said.

“Individual contracts are a more mature selling method.”

Tony Cochrane, PGG Wrightson National Velvet Manager, said that almost 100% of their sales were on contract, with a small number on private treaty. The velvet market was going into its fourth year of stable prices, without seeing extreme highs and lows.

“This encourages investment by farmers and buyers.”

He has noticed that farmers are less likely to jump in and out of velvet production, with specialist velvet growers on country suited to it. The remaining issue was selling into a trading environment and not direct to retail, he said.

“We are still dealing with importers.”

Greasing trade wheels

Tariffs hurt the back pocket of velvet producers and limit consumption potential.

Exports to Taiwan are saddled with a 22.5% duty tariff for fresh and dried velvet. Total volume of fresh velvet is limited to five tonnes by a quota mechanism. South Korea has a 20% import duty in place for velvet imports.

Deer Industry New Zealand (DINZ) Velvet Marketing Services Manager Rhys Griffiths is heartened by renewed progress from both governments keen to make changes around trade liberalisation.

“The Economic Co-operation Agreement between New Zealand and Taiwan has made tremendous progress and it sounds like negotiations with Korea could be back on.”

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