Fields of blue are a common sight in summer around Sedley, Sask.
But this year, some farmers plan to increase their flax acres by as much as 25 percent.
“We’re definitely going to see an increase in flax,” said Charles Hume, a broker with Keystone Marketing Services in Sedley.
The grain trade expects Statistics Canada to confirm this pattern on April 27 when it releases its first survey of farmers’ planting intentions.
Some think prairie farmers will plant as many as 2.7 million acres of flax this year, up 35 percent from last spring.
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But while the flax market burned up price charts last winter, the anticipated larger supply this year is already throwing water on new-crop prices.
Last spring, flax growers were able to book in net returns around $8.20 per bushel, said Hume.
This spring, farmers looking to forward-price some crop have found a dollar knocked off that price.
“But that’s still a profitable level for most growers,” said Hume.
However, they haven’t been locking in those prices.
“We have very, very little flax on the books right now,” he said, blaming hesitation on $11 per bushel prices over the winter.
“They’re disappointed and they’re not pricing and still probably expecting a rally to do some pricing.”
Hume said farmers are being cautious because of what dry conditions can do to production and markets.
“You can’t blame them. If they start booking sales into the cash market and they can’t come up with the production, and we did see a rally through the summer, they could find themselves behind the eight-ball.”
But given the sheer size of the flax crop, and the possibility of normal growing conditions, Hume said farmers should start looking for opportunities to forward price up to 30 percent of their expected production.
Some of the best pricing opportunities for new-crop flax may have already come and gone with the mid-winter rally, said Errol Anderson, analyst with Pro Market Wire in Calgary.
November flax futures are moving under a ceiling around $310 per tonne, said Anderson.
“With a huge crop of flax coming, I’m not very positive at the moment. If weather’s normal, we’re going to move lower.”
Anderson said he would sell up to 30 percent of expected production on rallies using deferred delivery contracts.
Within the next month, he thinks nearby soy oil and canola futures may rally sharply, which could draw flax higher too.
He suggests farmers consider buying July soy oil or canola put options as a cross-hedge for their flax.
A put option creates a price floor in markets where prices are expected to fall. It’s less risky than selling futures.
“It’s an opportunity, but the window won’t stay open forever,” said Anderson, who advised growers using this strategy to be prepared with targets.
