Lately, flax has been walking a tightrope of supply and demand. Prices have been steady relative to those of other crops.
But traders and analysts say farmers should be watching the forces that could shake its balance.
Lower production is one reason farmers have been getting prices of about $8.50 per bushel. Agriculture Canada estimates have shown total supply this year to be just over one million tonnes.
But the president of the Flax Council of Canada said Statistics Canada’s next survey, due Dec. 4, might change those assumptions.
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“Our feeling is (one million tonnes) may be on the low side because all the reports we’re getting are that yields are exceptionally good,” said Donald Frith.
Holding on to supply
Not only did farmers grow fewer acres of flax, but now they’re holding on to it.
“Right now, the farmers haven’t been marketing a lot of flax,” said Lawrence Yak-ielashek, export marketing manager for A.C. Toepfer (Canada) Ltd. “If they had been, I think that prices would be much lower than where they currently are today.”
But demand, particularly that of European crushers who are the major buyers of Canadian flax, will be key to flax prices this year.
“Europe can take as little as 300,000 (tonnes) and they can take 550,000 (tonnes), and that’s the thing right now,” said Yakielashek, who pegs European demand at 375,000 tonnes and total exports at 640,000 tonnes.
He explained linseed oil crush margins are around $20 (U.S.) right now, about $6 under break-even levels.
“They’re crushing sunflowers because sunoil is so cheap, and there’s good demand in Europe for sunoil,” said Yakielashek.
Ian Luff, a flax trader for United Grain Growers, said European demand won’t vanish just because of poor margins.
“They’ll probably just buy hand to mouth, month by month,” Luff said.
Chinese demand, while uncommon for flaxseed, could swing prices upward, Yakielashek noted. “I wouldn’t be surprised if the January flax futures dip to $345 or $350 from where they are right now at $360. But long term, if we can get some export oil demand, we should work ourselves back into the $385 per tonne range,” he said, adding that would be 75 cents per bushel over current cash prices for flax.
Greg Kostal, analyst for Continental Grain, believes farmers weary of poor prices for other crops will plant flax en masse next year.
He expects farmgate prices to drop to around $6 per bushel within one year.
“Guys who have been growing this stuff for 10 years know how flax can go from not enough to too much in a year,” he said. Farmers should move crop now and early in the new year to take advantage of good prices.
“You’ve got to ask yourself, from a business perspective, how many times can you sell flaxseed off the combine at $8.50 to $9 per bushel? Probably one out of 10 years, and this is it.”
