There is good reason to believe in better flax prices this autumn, but
some market watchers believe farmers will sell straight off the combine
if they can get $9 per bushel.
“Nine dollars will surpass most people’s expectations and targets, so I
think a lot will move,” said Chris Hale, chair of the Saskatchewan Flax
Development Commission.
Most producers were hoping for $8 a bu., Hale said, so selling for $9
locks in a profit.
Lawrence Yakielashek of exporter Toepfer Canada thinks many producers
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will sell quickly.
“The question is, what will farmers do when the market is paying over
$9 per bu.,” said Yakielashek.
“A lot of farmers will sell right off the combine.”
Flax prices have been increasing, dragged up by the rising oilseed
complex. But canola has led flax, its prices propelled by market fears
about the steadily diminishing prairie crop.
Recently there has been a more than $30 per tonne spread between the
two for November futures.
But Yakielashek said he sees “enormous upside potential” for flax, not
just because the oilseed complex is likely to rise, but also because
the flax-canola spread is too wide.
Flax crops have not been ravaged by drought as badly as canola, but
they have suffered. In April, the trade consensus was that Canada would
produce an 800,000 tonne crop. Now expectations have fallen to
640,000-660,000 tonnes.
Because of heavy American subsidies, production in the United States
has substantially increased this year, Yakielashek said. That will fill
in for some of the lost Canadian production, but there isn’t going to
be a lot of flax in the marketplace for the next year.
The $30 discount of flax to canola probably won’t last.
“That’s about as far as the trade will allow that to go,” said
Yakielashek.
The flax market is slow right now. Don Kerr of James Richardson
International describes it as “kind of dull at the moment. Nothing’s
happening.”
When the euro rose compared to the U.S. dollar, some sales of Canadian
flax to Europe were made, but when the U.S. dollar recovered, that
interest waned.
Yakielashek said this is usually the weakest time of the year for the
flax market because there is virtually no demand for flax meal for
feeding European livestock.
Most linseed oil is used for making linoleum, but a significant part of
flax value comes from flaxseed meal. When flax meal’s demand drops, so
do prices and that makes it unappealing to crush flax and other
livestock feed meal.
July rapeseed meal futures have been trading for 103 euros per tonne
while November futures were trading at 122 euros per tonne. The same
phenomenon is seen for expeller cakes, which are made from flax meal.
November futures are $30 (US) over July.
If linseed oil prices remain flat, there’s a strong disincentive for
crushers to use flax in the summer.
Hale expects to see flax prices float in the $8.50-$9.50 per bu. range
in the fall, but there is a chance it will hit $10.
That would be good for growers, but he wouldn’t want to see it spike
much higher. If the price reached $12 or $13 a bu., farmers would make
a lot of money one year, but then probably see the market crash for a
few years as flax users switched to less expensive oilseeds.
