Lower maximum residue limits have slowed Black Sea region exports, opening the door for Canadian grain
The tweaking of a maximum residue limit is creating an opportunity for Canadian flax in Europe.
The European Commission tightened its tolerance level for haloxyfop last summer to .01 parts per million from .1 parts per million.
Haloxyfop is a Dow grass herbicide that is used extensively on flax crops in Russia and Kazakhstan but is not registered in Canada.
“Some (Black Sea) cargoes this fall got caught under that tighter limit,” said Chuck Penner, analyst with LeftField Commodity Research.
John Duvenaud, analyst with Wild Oats Grain Market Advisory, said the tighter MRL has not completely shut down European imports from the Black Sea region, but it has certainly slowed the volume of trade.
“European importers have become super-cautious about doing further business with these suppliers,” he wrote in a recent newsletter.
Canada was the major supplier of flax to Europe until traces of Triffid, a genetically modified variety, was discovered in Canadian shipments to the European Union.
The EU drastically curtailed its imports of Canadian flax in the wake of the Triffid incident, creating a void that was filled by the Black Sea region.
Buyers in the EU who have become accustomed to sourcing flax from the Black Sea region are now looking elsewhere.
“They’re starting to poke around for Canadian flax, so that’s what caused some of the bids to jump,” said Penner.
Grower bids were up about $1 per bushel by the end of 2016 compared to where they were at harvest time.
The problem is the new source of demand materialized just before the St. Lawrence Seaway closed, which is the transportation route for most Canadian flax heading to Europe.
Some flax did move through the seaway prior to its closure. According to the Canadian Grain Commission, 31,200 tonnes of the crop was exported through Thunder Bay as of Dec. 18.
Duvenaud is advising growers to refrain from selling their flax into a tight system. He thinks there will be better opportunities ahead.
“Expect prices to percolate higher over the winter,” he wrote in the Wild Oats newsletter.
“Expect users to return to the table once the fall delivery push abates.”
Penner said the price response will depend on how much of the Black Sea crop was sprayed with haloxyfop.
“If all of it is affected, well then it’s a big problem.”
He said it will be clear that the problem is severe if prices continue to escalate. If they get high enough, Canadian exporters will find alternative transportation routes for shipping flax to Europe because ocean freight rates are cheap.
He thinks prices will stay flat for a while and begin climbing in early March in advance of the re-opening of the seaway if there is a big problem.
A seasonal bump in flax prices used to occur in March when Europe was the major buyer of the crop, and that bump could return in 2017.
However, Canadian exporters could face challenges servicing the new European demand.
Farmers harvested 577,000 tonnes of the crop in 2016, down 39 percent from the previous year. There are quality issues with some of that flax, and an estimated eight percent of the crop won’t be harvested until spring.
There are 274,000 tonnes of carryout from the 2015 crop, which will bolster supplies. However, exporters also have to service China, which is buying about 30,000 tonnes per month, Duvenaud said.
Agriculture Canada is forecasting 200,000 tonnes of flax carryout in 2016-17.
“That number will almost certainly be lower when the smoke clears,” said Duvenaud.