Flax growers should refrain from getting too bullish about harvesting the smallest crop since the Triffid era, say analysts.
Statistics Canada estimates growers will produce 575,800 tonnes of the oilseed, which is 39 percent smaller than last year’s crop.
It is only slightly larger than the crops were in the three years after Canada lost the European market in 2009 because of the discovery of trace amounts of a genetically modified flax variety in overseas shipments.
Flax production started to recover in 2013 and climbed to 942,300 tonnes in 2015 before plummeting this year.
Farmers in the Regina Plains area cut back on flax acres this spring in favour of high-priced peas and lentils.
Chuck Penner, analyst with LeftField Commodity Research, has no problem with Statistics Canada’s production number.
“That’s actually exactly what I had estimated, so more luck than brains, but I’ll take it,” he said.
Penner believes some farmers are going to be fooled into thinking prices are going to be on the rise because of the 39 percent year-on-year decline in production.
“They’re more bullish than what the market warrants,” he said.
“Supplies haven’t dropped as sharply as the production would lead you to believe.”
That’s because growers are still hording a sizeable amount of last year’s production. Penner estimates there were 300,000 tonnes of carryout as of July 31, although some of it is of poor quality.
He believes supplies will be adequate to cover the anticipated 2016-17 demand.
“For the next year we should have enough, but we’re also looking at probably a record crop from the Black Sea, too,” said Penner.
He anticipates about 1.15 million tonnes of production out of Russia, Ukraine and Kazakhstan, which would be double the size of Canada’s crop.
“It’s no longer just Canada that drives the flax market, so that’s an important consideration,” said Penner.
Neil Townsend, senior market analyst with FarmLink Marketing Solutions, agreed with Penner that total supply is going to be down but not nearly as much as production is falling.
Buyers will chew their way through ample nearby supplies before things get tight with flax supplies.
“Our strategy on the flax market is very second half weighted,” said Townsend.
“We’re saying market 70 percent of the crop after February.”
It would take a strong European export program for flax to go on a bull run, but that is unlikely given the size of the big Black Sea crop.
“That doesn’t seem to be in the cards because of competition,” said Townsend.
As a result, there will be plenty of global supply to meet what is expected to be ho-hum demand.
Penner anticipated 300,000 to 350,000 tonnes of demand from China, which bought 334,470 tonnes of Canadian flax through the first 11 months of last crop year.
Sales to the United States have slumped because of last year’s big crop. The U.S. bought 87,144 tonnes through the first 11 months of 2015-16, which is well down from the same period last year and the year before that.
U.S. flax plantings dropped this spring to 333,000 acres, down from 456,000 acres, but there is sizeable carryout from last year.
“I think we’ll see a recovery in U.S. demand but not back to the days when they were buying 200,000 tonnes,” said Penner.
Flax bids are in the $11 to $11.50 per bushel range. Penner expects prices to dip following harvest and then recover and stay relatively flat for the remainder of the year.