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Flax stocks tighten as EU demand set to rise

Black Sea exports make inroads in Asia, which has left a void in the European Union that Canadian shippers will likely fill

Canadian flax supplies will be tight at the end of 2020-21 despite increased export competition from the Black Sea region, says an analyst.

Marlene Boersch is forecasting 77,000 tonnes of ending stocks, down slightly from last year’s 88,000 tonnes and well below Agriculture Canada’s forecast of 100,000 tonnes.

The main difference between her estimate and Agriculture Canada’s is that she thinks about half of the 88,000 tonnes of carry-in from last year went into the feed market and was unavailable for export due to the poor quality of the crop.

Farmers around the world produced 4.02 million tonnes of flax in 2020-21, a nine percent increase over the previous year, she told delegates attending the virtual annual meetings of Saskatchewan’s crop organizations.

About half of that supply was from the Black Sea region, where production was up an estimated 220,000 tonnes despite dry conditions.

Black Sea flax is increasingly making inroads in Asia. It accounted for about half of the flax that China purchased in 2019.

Russia has eclipsed Canada to become the world’s largest exporter of the oilseed and is showing no signs of slowing down.

It shipped out 350,000 tonnes of the crop between July 1 and Nov. 30, 2020, a 23 percent increase over the same period in 2019.

Boersch expects even more fierce competition from Russia and Kazakhstan into Asia in years to come due to lower production costs than Canada and improved access to markets such as China via the Silk Road.

However, the Black Sea’s increased focus on Asia has left a void in the European Union that Canada is filling.

She expects the EU to be Canada’s top customer in 2020-21, buying an estimated 165,000 tonnes of the crop, up from 75,000 tonnes last year.

China is forecast to purchase 120,000 tonnes, followed by the United States at 95,000 tonnes.

Year-to-date sales to all three of those markets are well above last year’s levels.

Boersch is forecasting a total of 420,000 tonnes of exports, which is lower than Agriculture Canada’s estimate of 500,000 tonnes.

However, her total supply estimate of 597,000 tonnes is also well below Agriculture Canada’s 652,000 tonnes due to the amount of last year’s carryout that got diverted to feed markets.

Much of the 2020 crop has already been sold because prices of $18.50 per bushel pulled the crop out of bins across Western Canada. Improved rail car availability also spurred exports.

Boersch expects continued strong demand for Canadian flax from the EU through the remainder of 2020-21 as Black Sea product flows to China.

Returns for new crop flax don’t look that attractive at today’s new crop prices of $15 to $15.50 per bushel. Flax still has a yield problem with this year’s average yield pegged at 23.5 bu. per acre.

Boersch is advising growers to wait until new crop prices reach $16.25 per bu. before locking in any production.

LeftField Commodity Research analyst Chuck Penner, when asked for his thoughts on prices, said $15 is “pretty decent.”

He wonders if growers in Russia and Kazakhstan will increase acres even more than last year at those values, which would be bearish.

However, he also said a huge area of Saskatchewan’s flax growing region has a serious soil moisture deficit, which is a bullish factor.

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