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Significant jump not expected as flax prices remain stable

Chuck Penner has had a soft spot for the much-maligned flax crop ever since he was a child growing up on the family farm in Manitoba’s Red River Valley.

“It was the most fun crop to grow,” he told delegates attending CropSphere 2019.

“Farmers curse the straw, but as a kid, as a pyromaniac kid, when you push those piles together, boy I’m surprised nobody died.”

While flax straw is highly combustible, flax markets are not.

“If you want a stable market, flax is your market,” said the analyst with LeftField Commodity Research.

Prices have been flat for years. It used to be a volatile crop when Canada was essentially the only player around, but the volatility has been muted ever since the Triffid GM contamination incident in 2009.

That is because Kazakhstan and Russia have become major producers and exporters of the crop. So forget about the $16 per bushel highs but also the $5 lows.

This looked like a year when flax would bust out of its narrow trading range. Total Canadian supply is 635,000 tonnes, down from 803,000 tonnes the previous year.

Ending stocks are forecast at a paltry 69,000 tonnes, resulting in a friendly 12 percent stocks-to-use ratio.

“On paper it looks like we have tighter and tighter and tighter flax supplies and yet prices aren’t reacting as if we have 70,000 tonnes of carryout,” said Penner.

That leads him to believe farmers under-reported their flax supply to Statistics Canada.

He is forecasting 425,000 tonnes of exports, down from 485,000 tonnes last year and the lowest level since 2011-12. It is not due to a lack of demand but instead the small supply of the crop.

Penner said the export pace has been good so far this year, and he doesn’t foresee any problem reaching that target.

China has been the big buyer, but Canada isn’t its only supplier. Russia exported more flax to China than Canada in November.

“I’m hoping that’s not the start of something more ominous,” he said.

He pegged domestic consumption at 125,000 tonnes, but some in the trade feel that number is far too low.

Penner reminded growers that flax prices tend to peak in March because of the extra business to the European Union through Thunder Bay.

He was originally hoping for prices to top $14 but he no longer believes that will happen. However, getting over $13 is doable. The first new crop bids are around $11. He thought they would be $12.25.

Looking forward, Penner is forecasting a five percent increase in seeded acres. Total supply in 2019-20 will shrink to 600,000 tonnes because of the low carry-in.

He is forecasting ending stocks of 48,000 tonnes and a bullish nine percent stocks-to-use ratio. Prices should be steady to slightly higher.

He hopes that 2019-20 is the year when Black Sea production levels off. Farmers in Kazakhstan harvested 780,000 tonnes of flax in 2018, which is nearly 300,000 tonnes more than what was produced in Canada.

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