Flax price rebound coming: analyst

St. Lawrence Seaway closed | Prices are expected to climb o.nce exports to the EU resume

The recent nosedive in flax prices will be short-lived, says a grain analyst.

Bids have fallen to as low as $10 per bushel at some elevators from highs of $13 to $14 in December.

“I think we’ll see a recovery,” Chuck Penner, an analyst with LeftField Commodity Research Inc., told growers attending his CropSphere 2014 presentation.

“We may not be able to get back all the way to $13.50 or beyond, but I think $13 is going to become more widely available again.”

The softening in flax prices is a temporary response to a lull in exports.

“When grain elevators don’t want grain in the elevator, they’re going to tell you loud and clear, and this year they have to tell you even louder and clearer,” said Penner.

Another factor is the return to a seasonal price tendency now that the European Union is re-emerging as a major buyer of Canadian flax.

Flax can’t be shipped to the EU in winter when the St. Lawrence seaway is closed, which has a price-damping effect.

Penner anticipates strong demand from the EU when the seaway re-opens because Saskatchewan flax prices are well below European prices.

“That would suggest that we’re going to see those prices rebound in anticipation of this probably in the middle of March,” he said.

High European flax prices are a response to a disappointing Black Sea harvest. Analysts once expected 800,000 tonnes of production from Russia, Kazakhstan and Ukraine, but that has been scaled back to 650,000 tonnes and could be even lower.

Penner said 20 to 40 percent of Kazakhstan’s crop wasn’t harvested before the snow fell.

He believes flax will be one of the top revenue generating crops in 2014-15 for Canadian producers. Penner is forecasting prices in the $11 to $13 per bu. range throughout the coming crop year.

“There is more optimism around flax than there has been for years,” he said.

His optimism is based on solid export demand. He was nervous about Chinese demand that started off strong and then tailed off to nothing, but the Chinese have re-emerged as a major buyer the last three weeks.

“China has not gone away as a customer, and that’s really reassuring because there have been years where China has essentially saved our bacon in the flax market,” said Penner.

China is expected to account for 30 percent of Canada’s 515,000 tonnes of estimated exports.

The United States will be Canada’s top flax customer this year because of a terrible harvest of less than 100,000 tonnes. Penner expects the U.S. to take 41 percent of Canada’s exports.

Shipping to the U.S. is attractive because it can be done by truck, avoiding rail congestion.

“It looks like (that) is happening in a fairly big way,” said Penner.

The EU is returning as a major customer after nearly disappearing following the Triffid incident, when an unauthorized genetically modified flax variety was found in Canadian shipments to Europe. The region is expected to buy 23 percent of Canada’s exports.

Penner is forecasting 150,000 tonnes of carry-out, up from 71,000 tonnes in 2012-13.

“This isn’t a burdensome picture by any means, even though it’s a big rebound from last year,” he said.

The one possible bearish factor for the flax market is that meal has been a major contributor to crush margins this year, which could be in jeopardy.

Flax meal has been supported by sky-high soy meal prices, which could be on the way down if South America produces the record crop that analysts are expecting.

Penner had penciled in a 25 percent increase in flax acres before attending the Crop Production Show, but consulting with growers and processors has convinced him it could be closer to 50 percent.

A 50 percent increase in acres would result in a crop of a little more than 800,000 tonnes, if yields are average.

“Historically (that is) not a massive crop and certainly manageable,” he said.

Penner think global flax production will be down because growers in the Black Sea region will switch to corn and soybeans after their recent harvest frustrations with flax.

“What that suggests is that prices where we’re at now are probably fairly sustainable,” he said.

“Steady as she goes” is a lot better outlook than what exists for most competing crops, he added.

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