China buys a lot of Canadian flax, and an analyst says farmers can’t afford to lose market share to political issues
Canada’s concerns about sales to China go beyond canola, says market analyst Marlene Boersch.
More than half of Canadian flax exports so far this year have gone to China, and Boersch said farmers can’t afford to lose market share to political issues. China can source most crops, including flax, from other suppliers.
“It is possible for China to replace us,” she told a SaskFlax meeting in Regina. “That’s just the reality of it.”
Boersch’s company, Mercantile Consulting Ventures, is forecasting a six-percent increase in Canadian acres over the 980,000 acres planted last year, and total supply of about 700,000 tonnes.
Production was about 573,000 tonnes, plus ending stocks.
Exports are expected to be just less than 500,000 tonnes. Extrapolated Statistics Canada data to the end of December shows exports are about 450,000 tonnes.
“We cannot afford China to slow down, or we won’t achieve our 500,000 tonnes export target,” she said.
An acreage increase this year would mean production of about 620,000 tonnes and total supply wouldn’t be much different because ending stocks aren’t large.
Boersch said exports next year should again be about 500,000 tonnes.
Agriculture Canada is forecasting demand of 600,000 tonnes. Boersch said she can’t reconcile that when she looks at destinations.
“I don’t know who would be buying a lot more,” she said.
Canada is the world’s top exporter of flaxseed at 32 percent, followed by Russia at 26 percent, the European Union at 17 percent and Kazakhstan at 12 percent.
The EU is the top importer, buying 52 percent of the flaxseed. China comes in second at 19 percent, then Turkey at seven percent and the United States at six percent.
China, the U.S. and the EU, in that order, are Canada’s biggest buyers, Boersch said.
She said the EU had small production increases last year. In the U.S., where flax remains a small crop at around 200,000 acres, she forecasts a 10-percent increase.
That will depend on soybean acreage. Some predict those acres could drop by as much as five million this year but Boersch said the number will be more like two million.
She said Canada can’t afford political issues to mess up the flax market.
China has made huge investments in Kazakhstan as part of its Silk Road transportation system.
“Kazakhstan is perfectly connected into the EU market, into the Chinese market and also into Turkey,” she said. “They have gained much better transportation connectivity into the major markets.”
A comparison of flax exports from Canada and Kazakhstan show a decline and an increase, respectively.
As Kazakhstan works on quality and grading issues for flax and other crops, it will become a threat. Production and transportation costs there are already much lower than Canada’s.
Boersch said Canada will never have the same share of the EU market that it had before the futures market was eliminated. Buyers were upset that there was no independent pricing mechanism, she said, even though it wasn’t much used, and started looking elsewhere.
She said there is overall weakness in the oilseed sector and advised growers not to carry any stocks into next year.
“There’s really no benefit to it because all the commodity prices are a little bit weaker and flax doesn’t live in isolation,” she said. “Even on new crop, I would say because of the risk in China, at $12.50 I would actually forward sell some of the new crop flax.”
Growers at the meeting also heard that selling into feed markets could offer some potential diversity.
Janna Moats from O & T Farms told the meeting that linseed, as flax is known in the feed market, offers nutritional benefits to the compound feed sector.
Over the past five years, there has been more research into using flax for livestock and pet food.
Moats said people are already willing to pay premiums for omega 3 from flax in their foods and would do the same for their pets.
As well, the move to curb antimicrobial use in livestock provides an opportunity for flax and its anti-inflammatory properties. Moats said American studies have shown decreased mastitis and lameness in a 5,000-cow dairy by using linseed-based feed.