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Published July 21, 2014, 10:25 AM

Flax market hot

WINNIPEG, Manitoba — Now is the time to have a few bins of flax. You can probably sell them to Legumex Walker at $15 per bushel freight on board farm most places in western Canada.

By: John Duvenaud, Agweek

WINNIPEG, Manitoba — Now is the time to have a few bins of flax. You can probably sell them to Legumex Walker at $15 per bushel freight on board farm most places in western Canada.

Other buyers aren’t as generous. Elevator spot bids are down around $10.40, but there isn’t a lot of business being done. Farmers with flax to sell probably also have flooded fields and are more inclined to hold on to the crop that is in bins.

The $15 price is unlikely to be around for long. It’s presumably business that was written during the winter when that was the going rate. Logistical issues might have delayed execution.

It’s unlikely this flurry lasts much longer than it takes to clean up unexecuted old business. You can be pretty sure no new contracts are being written anywhere near these levels.

The spread between flax and canola has hit $5 per bushel. Chinese buyers, with the exception of highly specific applications, will not pay that kind of premium. Neither will most others.

New-crop prices are not yet firm. Nor are they likely to be while the new-crop situation is up in the air. Plantings were certainly higher — 1.57 million acres, compared with around a million last year, but the biggest crop damage from flooding is in prime flax country.

New-crop prices are out there, but there hasn’t been much uptake. Elevators have nominal new-crop bids at $12.20 and that might look like a pretty good return come fall.

Lentil

The last of the old-crop reds are methodically being cleaned up. International demand remains strong. Processors are paying 27.5 cents per pound freight on board farm.

New-crop bids at 21 to 22 cents have farmers cleaning their bins.

The new crop should be huge. Plantings are up 35 percent and these will mostly be reds.

The crop in the field has certainly been set back by the excess rain, much by two weeks. Like peas, lentils don’t like wet feet. Many fields have been wet enough to stop the growth process. This current heat and sun is doing wonders. Fields are greening up again.

If the crop out there avoids frost, there will be lots of reds for sale this fall. Prices could drop to 18 to 20 cents at harvest, but should recover during the winter to 22 to 24 cents.

Green plantings were probably down about 10 percent. The carryover of 125,000 metric tons will mostly be greens, so supplies appear to be adequate. Old-crop No. 2 Lairds trade around 20 cents per pound freight on board with new-crop No. 1 Lairds at 22 cents; 2’s are 19 cents. No. 1 Estons are 18 cents. New crop is 20 cents.

Greens have the potential to move sharply higher should a frost hit the Canadian crop.

Canola

It appears the larger U.S. soybean crop will result in burdensome supplies for the 2014 to ’15 crop year, which will keep canola under pressure moving into the harvest season. Recently, we advised farmers to increase their canola sales level to 40 percent of anticipated production and the recent U.S. Department of Agriculture report confirms this decision. You are now in good shape moving forward, as additional sales will be dependent on how the South American crop develops later in the winter period.

The canola market is functioning to encourage demand. We are anticipating a strong export program during the first half of the crop year, but this demand has likely been factored into the market. Fobbing capacity on the West Coast is booked up until February 2015 and companies have the bulk of their sales commitments covered. Therefore, basis levels will remain relatively wide.

Outside influences have also weighed on the canola market. Energy values have been grinding lower and speculative fund selling will continue to step forward on further weakness. While adverse rains have plagued Southeast Saskatchewan, the abundant carryover from 2013 to ’14 has eliminated supply concerns. Favorable conditions in the remaining parts of the prairies have traders factoring in trend-type yields, which will keep a bearish overtone on the market during the fall.

We feel there is additional downside risk from current levels.

Feed barley

Lethbridge area feedlots were buying barley in the range of $193 per metric ton to $195 per metric ton recently for immediate delivery. Adverse rains have caused some logistical issues from Saskatchewan resulting in the firm tone. For new crop, Lethbridge feedlots are showing the bids from $182 to $184 per metric ton delivered. Cattle-on-feed numbers generally dip to seasonal lows during August and September; therefore, this is the lowest demand period of the year.

We are anticipating offshore movement during September and October, but this will not be able to sustain the current price structure during the harvest period.

Barley from Ukraine, Romania and Bulgaria continues to saturate demand from North Africa and the Middle East. World values have been grinding lower as the harvest progresses in Eastern Europe. This will temper export sales of Canadian feed barley during the first half of the 2014 to ’15 crop year.

The USDA report was considered bearish for the feed grains complex.

USDA is showing a marginal year-over-year decline in production, but many traders are factoring in above-trend yields. Therefore, production might come in higher than the current USDA estimate on subsequent reports.

In any case, the function of the corn market is to encourage demand.

Lower prices are expected moving into the harvest season.

Editor's note: Duvenaud is the publisher of the Wild Oats Grain Market Advisory. For a sample issue, call 1-800-567-5671 in Western Canada and North Dakota, 204-942-1459 for all others, or e-mail admin@canadagrain.com or visit canadagrain.com.

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