Higher flax prices baffle market analysts

Some analysts think speculative buying from overseas brokers who are convinced the market is rising are driving up prices

Chuck Penner is confused about what is keeping flax prices elevated.

“We’re actually close to 10-year highs right now in prices, which is hard to compute based on the size of the Canadian and the Black Sea crops together,” said the analyst with LeftField Commodity Research.

Buyers were paying $16.50 per bushel for brown flax last week, which is approaching the 10-year high of $17.50.

Earlier this year, there were reports that the Black Sea crop was in trouble due to drought but Penner has spoken to a few contacts in that region who say that is not the case.

The Statistics Committee at the Ministry of National Economy of the Republic of Kazakhstan is reporting that Kazakhstan had 635,800 tonnes of stocks as of Oct. 1.

Penner said that is 20 percent higher than the same time last year. There are no similar published estimates on the size of Russia’s crop.

Brian Johnson, general manager of commodities with Johnson Seeds, a flax and special crops processor in Arborg, Man., noted that there was still a lot of flax in the fields in Kazakhstan last Oct. 1, so that comparison could be misleading.

He said it is more than a little confusing to figure out what is going on in the Black Sea region this year.

“The one thing that we know is the acreage was up a lot there,” said Johnson.

Farmers planted 500,000 acres more flax than they did in 2019. He thinks yields were down quite a bit but it is impossible to know because statistics out of that region are sparse and unreliable.

Usually he can rely on intel supplied by European contacts but they aren’t allowed to travel to Russia and Kazakhstan due to COVID-19.

Johnson thinks prices are being driven up by speculative buying from overseas brokers who seem to think the market is going up. But eventually they need to find a home for that product.

“We’ve seen that happen before and then the markets come down again. Is that going to happen again? I don’t know,” he said.

“I’m always so cautious because I’ve seen this movie play before.”

The Black Sea region exports flax to the European Union and China, which are two of Canada’s top markets.

It is a fairly new competitor in China. In some months Russia and Kazakhstan have bounced Canada to third spot in that market.

But when Black Sea flax is flowing to China it opens the door for Canadian exports to the EU, said Penner.

Statistics Canada estimates Canadian farmers harvested 553,000 tonnes of flax this year and there is another 70,000 tonnes of carryout, which is about an average amount of supply of late.

Penner has faith in those numbers. He is reassured that the yield estimates from Statistics Canada are similar to those from Saskatchewan Agriculture.

So why are prices so high if global supplies are abundant?

Penner said China typically grows half of what it needs, so maybe the flooding in that country damaged this year’s crop.

“It’s possible that their own crop was smaller, so they’re booking a whole lot of flax imports. That may be what’s driving the market higher,” he said.

But most of the exports lately have been through Thunder Bay, which indicates it is heading to the EU.

Farmers delivered 95,500 tonnes of flax through Week 11, up from 24,600 tonnes the same time a year ago. They appear to be happy with today’s prices.

Grain companies have exported 57,300 tonnes of the crop, which is not a lot. Penner thinks it is only a matter of time before the crop starts moving out in higher volumes.

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