Growers might want to be patient when marketing the 2017 flax crop, says an analyst.
Small crops in Canada and the United States will create a tight supply and demand situation in North America, said Chuck Penner, analyst with LeftField Commodity Research.
He forecasts 550,000 tonnes of Canadian production, well below Agriculture Canada’s estimate of 680,000 tonnes.
A lot of Canada’s flax is grown in the drought-stricken regions of the Prairies.
Penner estimates there will be about 200,000 tonnes of carryout from the 2016-17 crop to help bolster supplies, but much of that will be of poor quality.
Derek Squair, director of merchandising with Providence Grain, also expects a short Canadian flax crop.
“A lot of it is grown in the areas that are going to get hit pretty hard, so (it is) concerning,” he said.
“I would think we’re going to have some pretty low (yield) numbers.”
Almost one-third of Saskatchewan’s flax was in poor or very poor condition as of July 24, according to Saskatchewan Agriculture.
The U.S. crop is in even worse shape. It is primarily grown in northwestern North Dakota and northeastern Montana, which is the epicentre of the drought.
According to the U.S. Department of Agriculture, 57 percent of North Dakota’s flax crop and 77 percent of Montana’s was in poor or very poor condition as of July 30.
Poor yields combined with 24 percent fewer seeded acres will result in a much reduced U.S. crop. Penner expects 115,000 tonnes, down 48 percent from last year.
Squair said demand has been slow, so prices haven’t risen but they will likely climb later.
“We may get into a tightness some time after Christmas or into the new year,” he said.
Penner agreed that the looming short crop has yet to be factored into prices, mainly because of lackluster purchasing from China, which sits on a sizeable inventory of flax.
“It may not start to show up actually until after harvest,” he said.
Bids for food quality flax ranged from $12.50 to $13 per bushel as of July 31, while bids for flax destined for export markets were about $10.50 to $11.50.
Penner believes there much room for prices to rise once China returns to the market after harvest.
“We’ve got some pretty solid upside,” he said.
One factor that will keep a lid on prices is slumping demand. Bulk exports for 2016-17 are down 23 percent from the previous crop year.
Exporters had shipped 253,000 tonnes of the crop with one week remaining in the crop year, compared to 365,000 tonnes for the same period in 2015-16, according to the Canadian Grain Commission.
Penner expects even smaller exports in 2017-18, mainly because of poor European demand as Black Sea producers regain market share.
He forecasts exports to China will be similar to 2016-17.
“But the U.S. demand will pick up because their crop is in even worse shape than ours,” said Penner.
“The crop ratings that they have are just abysmal.”
The big Black Sea crop will likely limit the rally. Initially Penner believed it would be impossible to match last year’s amazing yields in Russia and Kazakhstan, but based on the first yield reports with other crops, it looks like production could be similar.
Some Black Sea flax was restricted from entering the EU last year because the EU tightened maximum residue limit for haloxyfop, a common pesticide used by Russian flax growers.
Penner believes farmers avoided using that chemical in 2017 so that they can recover market share lost to Canada and other exporters.