Flax prices are on the way down, say a buyer and a market analyst.
Keystone Grain was paying growers $16.50 per bushel for their flax two months ago.
Late last week, the price was barely touching $15 and it could be down to $13.50 by Christmas.
Prices are falling because of overproduction in the Black Sea region and slumping demand due to economic volatility in the European Union and political turmoil in the Middle East and North Africa.
Ukraine, Russia and Kazakhstan harvested 700,000 to 720,000 tonnes of flax this year, which is more than double the normal output and far above the 379,000 tonnes Canadian growers produced.
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Black Sea growers jumped on the flax bandwagon after their governments placed export duties on other oilseeds last year.
Growers and exporters saw flax had escaped the punitive duties and grew too much.
Grant Fehr, flax and special crops manager for Keystone, said North American flax that sells for $915 per tonne at the port in Mersin, Turkey, is competing with $700 per tonne flax from the Ukraine.
“We’re $200 to $220 per tonne too high,” he said.
That has halted Canadian flax exports to the EU, the Middle East and North Africa. Almost none of the 2011 crop has moved to the EU, traditionally Canada’s top flax market.
“As of right now, I would consider that market dead to the Canadian market until at least summer of next year and it could be longer,” said Fehr.
Most of what has been exported was sent to health food markets in the United States.
China, which can consume a lot of flax if the price is right, could be the big wild card.
However, the spread between flax prices and other oilseeds is too high. For instance, there is a $200 to $300 per tonne spread between flax and palm, largely because Canadian flax growers are refusing to deliver.
“Their bank accounts are full so they’re in no rush,” Fehr said. “That’s the only thing that is really holding this market up where it is right now.”
He anticipates the holdout will continue until next spring or summer.
“They’re either going to have to build bins or they’re going to have to move some product.”
He expects prices will eventually drop back to about a $2 per bu. premium over canola.
“There was some $13.50 contracting being done for new crop. That’s a darn good contract,” said Fehr.
John Duvenaud, analyst with Wild Oats Grain Market Advisory, agreed that flax prices will likely fall.
He said Canada is a high-priced island in the global flax market and there are bearish fundamentals associated with being $2 per bu. above world price levels.
“Pressure is going to be there for prices to ease off,” he said. “I would be up-to-date with my flax sales.”
