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Flax prices strong

WINNIPEG, Manitoba -- Flax was the only prairie crop to be larger this year than in 2013, yet prices remain stubbornly strong. You can probably find $12.50 to $13 per bushel. That's below the five-year average price, but above the nine-year average.

WINNIPEG, Manitoba -- Flax was the only prairie crop to be larger this year than in 2013, yet prices remain stubbornly strong. You can probably find $12.50 to $13 per bushel. That's below the five-year average price, but above the nine-year average.

Flax markets started strong right out of the gate at harvest. There was lots of export flax business written last spring when flax was $14 to $15 per bushel that ran into logistics issues when it came to delivery to an export position.

There was never a critical shortage of flax in western Canada. The carryover in July was 100,000 metric tons, but much of that was tucked away in farm storage and not available, even at pretty good prices. The unfilled contracts needed filling as soon as possible. Exporters were hungry and grabbed at the new crop. Those export obligations have been largely filled by now, but demand remains strong.

Europe has re-emerged as a significant flax importer from Canada.

Russia and Kazakhstan moved quickly to replace Canadian flax, and they have taken the biggest part of this market. But Kazakhstan has 70 percent of its crop covered with snow.

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Food flax processors report quality is an issue this year. The rain at harvest was detrimental, and there was a touch of frost. Most affected flax is still No. 2 Canadian Western and fine for commercial use, but the food market is looking for better quality. Because so much of the 2014 crop had at least a bit of damage, food flax processors are easing off on their quality standards. Flax that didn't have a hope of entering the food market a year ago is being accepted this year. Really low-quality flax is moving into birdfood markets. Yellow flax demand, if anything, is easing off.

The flax market is still strong but could ease off. Product to be shipped through Thunder Bay, Ontario, has to be on the road now. Flax, of course, can be railed to Montreal, but that's a more expensive option not generally used. Commercials buying flax now are either shipping to the U.S. or China or accumulating product for next spring.

Canola

January canola futures continue to trade in a range of $420 to $440.

We see farmer selling surge when the market nears the upper end of this range, while demand steps forward on any type of pull back. Commercial ownership has surged in the past couple weeks, and we now find domestic crushers and exporters have sufficient coverage until January.

Notice the January-March futures spread has moved from a $4 inverse to a $2.50 carry, which confirms that commercials are well covered for their short-term requirements.

The soybean complex appears to be relatively stable, and we don't expect this market to fall apart. U.S. farmers have sold approximately 60 percent of the 2014 crop, so the bulk of supplies is factored into the market.

U.S. Department of Agriculture is currently forecasting the 2014 to '15 soybean carryout to finish near 450 million bushels, but we feel this number will be taken down on subsequent reports. While many analysts are quite bearish on the beans, we have a neutral to slightly positive outlook for the soybean market. U.S. rail rates are collapsing and barge rates have also come off the highs, which is very supportive for soybeans. South America has received timely rains and the forecast looks favorable for the major soybean regions. The main point is we expect soybean prices to be supportive for canola through the winter period.

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The canola market needs to encourage acreage next spring through higher prices. We expect the canola market to incorporate a risk premium next spring because of the uncertainty in new crop production.

Feed barley

We recommend farmers sell 20 percent of the 2014 feed barley and feed wheat production, bringing total sales to 40 percent. Feed barley is currently trading at $195 per metric ton delivered Lethbride, Alberta, which is up $30 per metric ton from the harvest lows. Feed wheat is currently trading at $203 per metric ton delivered Southern Alberta feedmill or feedlot, up nearly $40 per metric ton from September.

Feedlot inventories in Alberta and Saskatchewan have increased by 30 percent since September, resulting in seasonal strong demand. Many feedlots are caught short and are paying higher values to secure their December requirements. Feedlot margins are quite favorable, so they appear to be more aggressive with their feed grain purchases.

Adverse winter conditions have slowed farmer selling.

Also, the collapse in U.S. rail rates could cause larger imports of U.S. corn into Southern Alberta later in winter.

Canadian feed wheat exports have increased in the past month, draining the surplus supplies in feeding regions of Western Canada.

After the harvest panic selling, we find there is a fair amount of commercial export and domestic demand stepping forward at the current levels. If U.S. corn exports increase into Southeast Asia in the next couple months, export demand for Canadian feed wheat will start to deteriorate.

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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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