Flax traders watch China for price rally

Rising soy prices make flax attractive | Canada unlikely to face any strong competition for crop

Flax traders paid little attention to the production estimate issued by Statistics Canada last week.

“It’s all going to depend on demand,” said Grant Fehr, flax and special crops manager for Keystone Grain Ltd.

Statistics Canada is forecasting 547,000 tonnes of production based on 995,000 harvested acres.

That would be a 48 percent increase over last year’s production, but still well below what used to be harvested in the pre-Triffid era.

Fehr believes there will be ample demand for this year’s flax crop if farmers are willing sellers.

“I’m still very optimistic that we’re going to see fairly decent prices going on forward,” he said.

The key will be Chinese demand. China accounted for 49 percent of Canada’s 2011-12 flax exports through the first 11 months of that marketing campaign.

“I was there in April and I don’t see (demand) backing off anytime soon,” said Fehr.

Dale Heide, general manager of Delmar Commodities, also expects continued strong demand from Canada’s most important customer.

Chinese demand tends to flag when flax prices are high, but with short oilseed crops in North and South America driving up soybean prices to record levels, flax looks like a relative bargain.

“If you know you’re paying $20 in China for soybeans, flax doesn’t seem so bad at $18 to $19,” said Heide.

“I think their tolerance is higher this year.”

Flax usually sells for a $2 per bushel premium over canola. But at today’s values of $13.50 per bu. for September to December delivery in Saskatchewan, the spread is negligible.

Delmar also sells a lot of flax to the pet food industry in the United States. Heide said flax is still an attractive ingredient at today’s values of about $13.50.

“Given the price of many other ingredients, flax still continues to work in very nicely into the pet food industry,” he said.

Fehr said Canada is unlikely to face stiff competition from Kazakhstan and Ukraine, two other major exporters of the oilseed.

“It looks like their acreage is down, but more importantly, the yields are going to be down because of dry conditions,” he said.

Heide said there is little old crop flax in the system, so traders are eagerly awaiting new crop, which should be coming off the combines in the next couple of weeks in Manitoba.

Fehr said the initial yields in Manitoba are below average due to a hotter than usual summer. Saskatchewan Agriculture’s early yield estimates range from 21 to 24 bu. per acre.

Growers and buyers want to get a better handle on yields before committing to buy or sell because they want to see whether prices will go up or down.

“Most of the large companies that we work with, they’re looking at buying only three months at a time instead of six to 12 months,” said Fehr.

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