A prolonged stand-off between buyers and sellers together with new regulations in China stalled the traditional start to the velvet-selling season.
PGG Wrightson velvet manager Tony Cochrane said sales had started to move early in the New Year following a gap between buyers’ and sellers’ price expectations.
“We had no sales at all prior to Christmas and initially my instruction from farmers had been not to sell as price discussions over product being sold in the field were below expectation, being back as much as 25% on last year,” Cochrane said.
“Then the New Year started with a significant number of Korean sales.”
While prices were still back about 17%, they were up $5-$7/kg on discussions before Christmas.
“We have also managed now to get significant sales to China for the remaining balance of grades, which are also around 17% back on last year.”
There was strong demand from buyers that was expected to see the season out, Cochrane said.
The most frustrating aspect was the Korean market that took 60% of the New Zealand velvet crop.
“They are still of the belief that prices should be lower and that philosophy has been backed by some farmers and exporters in NZ who have sold at the lower levels,” Cochrane said.
With two of the main Korean buyers still in negotiations over price offers, Cochrane hoped they would see the stock levels reducing and come to the party before the season ended.
Deer Industry NZ (DINZ) chief executive Dan Coup said up to 200 tonnes of the expected 620 tonnes crop had been sold since Christmas.
Velvet was now selling with farmers receiving about $100 a kilogram.
Increasing quantities of NZ velvet were now being bought by overseas customers, with prices about $25/kg back on last year’s record returns, but at levels similar to the six-year average.
About $15 of the fall could be attributed to currency changes since last season, Coup said.
The balance also reflected market uncertainty relating to regulatory changes in China.
Coup acknowledged the season had been frustrating and disappointing for farmers.
“It has also been a tough season for velvet exporters with buyers determined to see an adjustment in pricing, complicated by a changing regulatory landscape in China.
“It’s the farmers who bear the brunt of all that,” he said.
“We understand the financial impact that lower prices and slower sales are having on farmers but we remain optimistic about the medium and long-term outlook.
“Our assessment is that underlying demand for our velvet is strong in both Korea and China,” Coup said.
Latest figures showed that total velvet imports to Korea from all countries were 596 tonnes (green equivalent) in the 12 months to November 30, up from 531 tonnes in the previous year.
The NZ velvet industry had grown from 443 tonnes worth $26 million and an average price of $58.62/kg in 2008-09 to a 603-tonne industry worth $75m in 2015-16.
The growth came from increased sales to China and the development of the healthy foods sector in Korea.
Coup said DINZ continued to work with healthy food companies in both China and Korea to further build demand.
“We’re also confident that the changes in the regulatory treatment of velvet in China, while causing some headaches this season, will actually put our product on a much stronger footing for the future.”
The recent kick-off in sales seemed to be a result of large buyers from both Korea and China coming into the market, Coup said.
There were two main end markets for NZ velvet, Korea at 60% and China, 30% but about half the velvet consumed in Korea had in recent times been processed in China.
Chinese firms processing velvet in free-trade zones for Korean customers had also been affected by the new regulatory changes.
