PGG Wrightson velvet manager Tony Cochrane is predicting the pull-back even though no contracts have been signed yet.
“That price, from what we’ve talked about with farmers and buyers, would be ideal for a start,” Cochrane said.
Currency, increased velvet volume and an almost halving in price for jelly-tip, the high-value, soft and active growth point of the velvet stick, were all putting pressure on the market.
The start of the velvet season was always a tense time as exporters negotiated contracts with Chinese and Korean buyers.
There was always a stand-off period from buyers until they committed and this year it was taking longer than usual to finalise contracts.
“At the moment there is no pressure for farmers to sell so we’re holding a firm line … we want to make a start but we want to make it realistic.”
Provelco, the velvet farmer-owned co-operative, was sending a similar message to its suppliers.
General manager Ross Chambers said patience would be needed to achieve reasonable values this season.
“No business has been done yet. It will take longer for the crop to be sold this year.”
The factors contributing to the slow deal-making were complex and reflected the challenge of doing business in China.
“It’s a difficult market to read and they are at this stage a little less enthusiastic.”
A 15% devaluation in the $NZ/$US exchange rate over last season contributed to a $125/kg weighted average price but that looked to be an unrealistic target this season given exporter sentiment and the almost 10% appreciation in the exchange rate over the last year.
But Deer Industry New Zealand (DINZ) was still reasonably positive about price prospects this year and beyond.
Velvet services manager Rhys Griffiths expected some softening in price, especially for non-traditional and over-grown lines.
The reduction in demand for jelly-tip, which was traditionally packaged and presented as business gifts, reflected recent measures introduced by the Chinese government aimed at discouraging excessive gift-giving.
“It’s possibly halved in price but it accounts for only about 2% of velvet, the main part of velvet consumption has continued to grow.”
The industry was always mindful of risk factors, such as oversupply, that could destabilise the market.
Velvet tonnage has increased as farmers continued to build the size of their velvet herds and was reflected in this year’s 620-tonne production estimate, 45 tonnes up on two years ago.
Griffiths was reasonably comfortable with the increased supply, especially when put in the context of global supply which was stable at about 1425 tonnes.
But it was difficult to anticipate by how much other countries would increase production which was why DINZ was focused on growing consumption.
“We need to concentrate on consumption and it’s fair to say our slice of the market should increase due to the healthy food market.”
Opportunistic traders in China were another threat. They bought NZ product, held on to it then on-sold at higher prices, creating a volatile market.
However, reliance on that selling channel was reducing as more direct supply relationships were established with Chinese and Korean buyers using NZ velvet in healthy food products.
“Ten years ago most of our velvet was sold to traders. That market still accounts for about 50% but we’re going to keep the hammer down selling more into value-added end products.”
Changing regulatory requirements were always on the horizon and over the next fortnight a visiting Chinese delegation would be doing a NZ velvet industry audit.
“It’s not unexpected as many other sectors are going through it. Because we’re the largest exporter of velvet we’re hoping our regulatory compliance procedures will put us in a good position,” Griffiths said.
