Some slack has come back into flax markets that were as taut as a fully stretched rubber band this spring.
“The supply line has been replenished,” said Terry James, a grain merchant with Richardson.
Good yields and higher than forecast 2008 acreage helped, but it was newly discovered bushels from the 2007 crop that provided the real relief. Late-summer deliveries showed Statistics Canada and the private trade had underestimated the 2007-08 crop.
“It has gone from what could have been a very, very tight supply side number to something that has got a little bit of room in it for a carryover at the end of 2009,” said James.
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Demand has been tapering off, building more relief into the flax complex. A slumping global economy has constrained construction activity, which in turn restricted demand for flax-based products like paint and linoleum.
“Companies that buy (linseed) oil for this kind of demand are very cautious to make forward contracts,” said James.
Detlef Volz, general manager of C. Thywissen Gmbh, Europe’s largest importer of Canadian flaxseed, said reluctant selling from Canadian farmers and the global increase in commodity values pushed flax prices to $1,000 US per tonne this summer at a European port.
In relation to other oilseeds, flax crush margins were poor. That drove down demand for the product by 35 percent.
An influx of about 40,000 tonnes of Ukrainian flax into the European Union in 2008 also restricted demand for Canadian flax.
Buying behaviour has not changed despite the recent drop in prices for a number of reasons, said Volz. People don’t like purchasing in falling markets, prices are not historically low, flax hasn’t lost enough ground compared to other commodities and some users have changed their formulas to other oils and are reluctant to change back.
“We need a further price drop to re-buy volume from our customers,” said Volz in an e-mail response.
Despite a 20 percent increase in flax production in 2008-09, Agriculture Canada is forecasting a six percent decline in total supply compared to 2007-08 because of significantly lower carry-in stocks.
The agency expects carryout to fall to 150,000 tonnes from 172,000 tonnes last year.
James isn’t buying that. He believes carryout will increase because of the unanticipated injection of supply from the 2007-08 harvest, a good 2008-09 crop and slumping demand. He declined to provide his carryout number.
Two factors that will continue to play a starring role in flax markets are the Canadian dollar and ocean freight rates. When James was interviewed Oct. 29, the dollar had risen seven percent of its value in one day.
“The rising dollar in the last 24 hours has maybe knocked a buck a bushel off the value,” he said.
However, the collapse of ocean freight rates is making it cheaper to ship grain, helping offset the recent hike in the dollar.
Barry Hall, president of the Flax Council of Canada, said all the volatility in today’s markets and the dramatic tailoff in flax prices to $10 or $11 per bu. from summer highs in excess of $20 has growers a bit cautious about delivering their crop.
“It’s maybe not moving forward quite as quickly as it has in other years.”
Some of the last flax to come off the fields has been high in moisture content and will need to be monitored and dried to avoid serious downgrading. But in general, it has been a top-notch harvest.
“The quality of the crop is much improved from last year in terms of oil content and iodine values,” Hall said.
James said that will be important when it comes to finding a home for the crop in the Mediterranean and northern Europe where Canadian exporters face stiff competition from the Black Sea region.
“We need every tool that we’ve got,” he said.
