Strong flax markets over the past few years have made the crop one of the most profitable for prairie farmers.
However a major North American flax buyer is bearish on the crop because of this year’s large global crop and possible slower demand from China.
John O’Donnell of Archer Daniels Midland Co. told the Agritrend Farm Forum event in Saskatoon last week that China has accumulated large stocks that will reduce its needs for imports.
“They had 100,000 tonnes of stocks imported at the start of the year, so they are carrying over just like they were in 2009, 2010,” O’Donnell said.
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He said he expected Chinese demand of 300,000 tonnes this year, which is 100,000 less than other industry predictions.
“There are some out there calling 400,000 tonnes just because of the growth trend that’s been there, and they are looking for that to continue, but if you look at the exports year to date to China, it just hasn’t been there the same way it was last year,” O’Donnell said.
Reduced Chinese demand could cause global flax carryover of 284,000 tonnes, which O’Donnell said is burdensome.
“If you go back before the (Triffid) GMO event, that would not be a burdensome level, but in today’s world where there is a large Eastern European supply, that’s probably about 100,000 tonnes more than you would want, which is a bearish tone for flax, at least in this crop year,” he said.
O’Donnell said U.S. flax production is rising, which will reduce the country’s need to import Canadian flax.
“We are actually having a very good year in the U.S. with 400,000 acres, which is going to put us over 200,000 tonnes, which is a very high level of flax. You don’t typically see that in the U.S.,” O’Donnell said.
“We’re not going to be as reliant on imports.”
He pegged U.S. imports from Canada at 140,000 to 150,000 tonnes.
It is difficult to predict eastern European production because few analysts accumulate data for Russia, Kazakhstan and Ukraine.
As a result, ADM looks at exports from the regions, cross references data with credible publications and commissions independent surveys to examine flax growing regions.
The company is projecting 810,000 tonnes of eastern European production this year.
The crop in that region is sometimes susceptible to an early snowfall, which can cause supply disruption into Europe.
“We had a situation last year where 60 percent of the Kazakhstan crop was covered in snow and wasn’t accessible to the European market until spring,” he said.
“It did have some quality issues and they did take more Canadian crop as a result of that.”
Flax buyers in Europe don’t want to let go of their Canadian supply because of uncertainty in contracting with eastern European flax suppliers.
“There is a lot of uncertainty. Guys will walk away from the contracts, and it’s not a very stable market to work with,” O’Donnell said.
Canadian flax is also preferred because of high oil yields and its iodine level.
He said he sees new crop flax producer contracts at around $11 a bushel, which would put the crop around fourth to sixth in profitability in Canada.
“This will probably get you two million acres,” he said.
“I think that if you’re going to be carrying over 200,000 to 250,000 tonnes of flax, you’re not going to do two million acres next year. I think that number between 1.6 and 1.8 million acres of flax today is a good number for the Canadian market so that you don’t over-supply yourself and see a rapid reduction of overall value.”
