Many producers and sellers of agricultural commodities have felt somewhat insulated from the economic recession.
While people can decide not to buy a car, they cannot make do without food.
Some flax is grown for food, but most is used for industrial products such as paint, linoleum, fibre and preservatives for wood and concrete.
As a result, flax has taken a greater hit than other more food-oriented crops, says market analyst Glenn Lennox of Agriculture Canada.
“Linseed oil is mainly an industrial oil, so as industrial activity slows down, its usage slows down,” he said.
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That shows up in the department’s export projections, which are expected to total 640,000 tonnes in the year ending year July 31, down about six percent from the previous year.
Looking ahead to 2009-10, Lennox expects exports will rebound to around 675,000 tonnes, assuming the global financial situation improves. About 80 percent of Canada’s flax exports go to western Europe for industrial processing.
“At some point, we all believe the economy will recover, so why not in 2009-10,” he said.
Market analyst Larry Weber of Weber Commodities in Saskatoon thinks the market is underestimating the threat to this year’s flax crop, in terms of the lateness of the crop and the risk of frost.
“I think we’re underpriced by a dollar a bushel with where we are today,” he said, citing elevator and specialty buyer prices of $11.50 to $12.50 a bu. ($470 a tonne).
“We are finally starting to see some upward movement in flaxseed in Rotterdam, but that hasn’t been reflected in elevator bids. In fact they’ve gone backwards after a brief spike.”
Rotterdam prices peaked in February, before falling back over the past three months.
While the market is resisting a price rise, he added, the reality of the potentially tight supply-demand situation will eventually prevail and put upward pressure on prices.
Lennox said farmers increased flax acreage this year by about 10 percent to 1.72 million acres.
However, 2009-10 production is expected to decline by about six percent to 810,000 tonnes, as yields are projected to be down by 10 percent from last year’s near record levels.
At the same time, higher carry-in stocks will result in total supply remaining about the same.
Ag Canada forecasts a 2009-10 price of $500 a tonne ($12.70 per bu.) basis in-store Thunder Bay, down from $510 this year.
The U.S. Department of Agriculture is more pessimistic, forecasting flaxseed prices to decline to between $8.25 and $10.25 US in 2009-10 from an average of $13 a bushel this year.
The authoritative oilseed industry journal, Oil World, has warned of large price volatility in the flax market over the next two to three months.
