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Published January 13, 2014, 10:11 AM

Flax takes a tumble

Fundamentals on flax aren’t bad. Production in 2013 was up sharply on higher plantings and fabulous yields — from less than 500,000 metric tons to more than 700,000, but total supplies only increased from 640,000 to 788,000 metric tons on a small carry-in.

By: John Duvenaud,

WINNIPEG, Manitoba — Fundamentals on flax aren’t bad. Production in 2013 was up sharply on higher plantings and fabulous yields — from less than 500,000 metric tons to more than 700,000, but total supplies only increased from 640,000 to 788,000 metric tons on a small carry-in.

Flax prices maintained strength throughout fall while other crops were floundering.

www.prairiecropcharts.com shows the long-term average value of flax to be 111 percent of canola. Canola prices started slumping at harvest, but flax was flat and, by mid-November, flax was trading at 153 percent of the value of canola.

The fundamentals hadn’t changed but the trade couldn’t move what they already owned and realized prices had gotten out of line.

You can still get $12 per bushel freight on board from Allan Johnston Grain Marketing in Welwyn, Saskatchewan.

Processors are around $11.50 per bushel with possible February-March delivery but more likely March-April-May. Some buyers are no bid.

New crop is worse. You may be able to find $9.50 at a processor, but some are no bid. Elevators will be around $9.15. These are “don’t bother me” bids.

But flax prices seasonally rally during the first five weeks of the new year. North Dakota elevators are still $12.90 to $14.50 per bushel. ADM at Red Wing, Minn., has a new crop bid equal to $12.85 (Canadian) per bushel freight on board.

Lentils

Lentils have good fundamentals. Western Canadian production was up 22 percent, but the supply is down, mainly because of old crop feed lentils getting used up.

The 2013 green crop was smaller than last year — less than 700,000 metric tons, down from 800,000. Red production was up sharply to more than 1 million metric tons.

Red markets are global, and Canadian product is becoming a major influence.

This market should stay steady. Export capacity is a constraint.

Green lentils are a Saskatchewan crop and far from being oversupplied. It that should see good strength through the winter.

Prices will most likely move higher.

Canola

Canola prices continue to trend lower, and we don’t see this changing in the next few months. Export terminals are running at full capacity and are booked up until July. Therefore, companies cannot make additional export sales for nearby positions, which has capped offshore movement. Domestic crush margins have declined because of softer meal and canola oil prices. Talk in the industry suggests that most companies have their 60-day requirements covered. Basis levels are expected to deteriorate as farmer selling continues at an aggressive pace for deferred delivery positions. Keep in mind producer-selling tends to surge before seeding, but this year, the available homes will be limited, given the congestion in the commercial system.

Early soybean harvest reports from Mato Grosso, Brazil, are better than expected. Favorable weather is in the forecast for developing soybeans in South America in the next 15 days. Traders feel more comfortable with projections for record soybean production. The soybean market is telling producers to sell now, instead of storing into the spring period.

Lower prices are expected in the oilseed complex when the Brazil harvest comes off in full swing in March. Soybeans have been tempering the downward slide in canola prices. But longer term, this supportive structure could evaporate, and canola could move into a free fall. Keep in mind we are anticipating a year-over-year increase in U.S. soybean acres and Canadian canola acres. November soybean futures are trading at a $1.30 per bushel discount to the nearby March contract. This is a strong signal not to hold soybeans or canola into the new crop year.

Feed barley

Cattle on feed numbers are at a seasonal high, and colder temperatures have supported the market structure. While most major operations have their 30-day requirements covered, producers may extract a small carrying charge by selling into the deferred positions. In late January, temperatures in Western Canada are expected to move to normal or above normal.

This will cause many producers who have barley stored on the ground or in temporary storage to aggressively sell. We want to beat this herd mentality. Also, there is a fair amount of wheat moving into feed channels, which will continue for the remainder of the crop year.

The elevator system is plugged and farmers that need to sell lower-quality milling wheat stored on the ground have no choice but to move it into feed channels. Once the spring thaw starts, this wheat on the ground will have little if any value.

Fobbing capacity is booked up on the West Coast until July, which will halt fresh export sales of feed barley. While Canadian prices are in line with the world market, aggressive selling from Australia and Argentina has capped any strength in world values.

Editor's note: Duvenaud is the publisher of the Wild Oats Grain Market Advisory. For a sample issue, either call 1-800-567-5671, e-mail admin@canadagrain.com or visit canadagrain.com.

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