Agriculture Canada projects flat flax prices for the coming crop year, but other analysts think they could rise. Either way, linseed oil users will look for alternative ingredients, says a leading European flax buyer.
In its April 25 grain and oilseed outlook, Agriculture Canada’s market analysis division forecast an average price of $560 to $600 per tonne, identical to the 2007-08 crop year.
Barry Hall, president of the Flax Council of Canada, has difficulty reconciling that prediction with slumping global and domestic supplies.
“I would be surprised if there wasn’t some upward pressure on (prices),” he said.
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Oilseed analyst Oil World says there is a high risk that world flax production will be below average for the second consecutive year. It projects a further decline in world supplies of more than 350,000 tonnes.
Agriculture Canada forecasts 705,000 tonnes of Canadian production, up 11 percent from last year because of a 13 percent increase in acreage. However, carryout stocks are forecast to fall to 85,000 tonnes, down from the expected 135,000 tonnes in 2007-08 and 373,000 tonnes in 2006-07.
“Most of the trade seems to be saying it isn’t a question of low carryover, there won’t be any carryover,” Hall said.
“That won’t actually happen of course because price at some point will ration it.”
His feelings are echoed by analysts at Wild Oats Grain Market Advisory, who say the prospect of smaller supplies next winter bodes well for new and old crop prices.
The United States, which is the other big flax exporter, won’t help ease the supply crunch. American farmers intend to plant 360,000 acres of the oilseed, according to government estimates. That is up two percent from 2007 but less than half of the 2006 crop.
Buyers say the linseed oil product market is in trouble because prices are too high for the paint, linoleum and food industries. Competitive oils offer better value.
Eckhard Oehl, a flax trader with C. Thywissen GmbH, Europe’s largest importer of Canadian flaxseed, said oil users have their supplies covered until October so there will be little old crop business.
“For the new crop, the situation is very difficult,” he said in an e-mail interview.
Flax crushers operate on the margin between flax seed prices and what they can get for the oil and meal. There is a limit to what the feed industry will pay for linseed cake so crushers must rely more on profits from the oil side.
Crushers believe flax oil prices must rise 20 percent to compensate for the high seed costs, but Oehl said that will drive oil users toward alternative ingredients.
“We see the flax demand for the new crop reducing 25 percent and European crushers are looking for alternative import possibilities.”
The margin for flax seed crush is bad, he said, and crushers will switch to other ingredients such as canola if they are capable of doing so.
Hall hopes prices don’t rise too high because the long-term pain will outweigh the short-term gain.
“Extreme prices will do a lot of damage from a user standpoint,” he said.
It is difficult for linoleum manufacturers to switch out of linseed oil, but it can be done in paint and coatings.
“At some point they can throw enough money at soybean oil or some other forms of oil to modify them sufficiently that they’ll work,” Hall said.
In his experience, it takes a long time to woo back customers once they switch to another crop.
Hall said flax traders he talks to think the Canadian crop may be 55,000 to 120,000 tonnes more than the Agriculture Canada forecast, but even at that level stocks are going to be tight, and early season growing conditions haven’t been promising.
“It’s bloody cold out there and the month is slipping along. It’s a little too early to start killing the crop yet, but it’s not off to a great start.”
