Flax prices down

WINNIPEG, Manitoba -- Flax prices, like those for every other prairie crop, have already come down hard. Prices had been about $15 per bushel a year ago. Supplies were tight and demand was firm. The carryout as of July 2013 was only 71,000 metric...

WINNIPEG, Manitoba -- Flax prices, like those for every other prairie crop, have already come down hard. Prices had been about $15 per bushel a year ago. Supplies were tight and demand was firm. The carryout as of July 2013 was only 71,000 metric tons, which is pretty tight for the world's largest flax producer.

This time a year ago, health food demand was steady, and Chinese buying was strong. Prices starting moving higher and peaked in May at more than $17 per bushel. Since then, prices have been sliding. Today prices are at about $12.50 at processors and $12.15 at elevators. The elevator bid is theoretical because most elevators are full and not taking flax.

Movement should open up in April once the Seaway is working and trains are hauling to Thunder Bay. Demand for flax is solid. The biggest buyer is the health food industry and that's a steady market.

The next biggest buyer is China, which is a bit problematic at the moment. The Chinese were aggressive buyers last summer when prices were peaking.

Shipping was slow and those big purchases are currently arriving in China and piling up at dockside warehouses. That, of course, is a temporary situation but is mildly bearish at the moment.


Europe will be a buyer once the Seaway opens. Most of the European industrial market was lost to Canadian imports and replaced by eastern European production; however that crop, which was supposed to be 900,000 metric tons in 2013 didn't turn out nearly that good. Canadian flax exports to Europe are gradually becoming important again, and this is positive for prices this spring. Southern Manitoba elevator bids jump to $13.30 per bushel for April delivery.

The outlook for new crop is for higher flax acres. Plantings were already higher in 2013 and current price relationships suggest they will be up by an even larger amount this spring. The carryover will more than double from last year to this year and might be even bigger next year.

Flax prices are declining and probably will continue to do so if those larger plantings materialize.

One thing that lower new crop prices do for any crop is slow down spot sales. Japan, specifically, at the moment is hand-to-mouth on flax. Nobody -- traders or users -- is building any position in flax.

Flax has a $3 per bushel spot advantage over canola. The current relationship of flax to canola favors a shift to flax plantings, even though the new crop spread is tighter.

Canola supported by soy

Canola values became divorced from the soybean complex given the unique situation in Canada with the large crop and rail backlog. We are now projecting canola prices to move in line with the bean complex for the following reasons. First, the soybean market is functioning to encourage acreage in the U.S., which will support the overall oilseed complex. The Brazilian harvest is more than 51 percent complete and soybean values have not come under pressure as expected. The market needs a sharp year-over-year increase in U.S. soybean production. Secondly, world vegetable oil prices have strengthened from the dryer conditions in the palm producing regions of Malaysia and Indonesia. Enhanced domestic canola crush margins will underpin canola as soyoil remains firm. Finally, it appears that Western Canadian rail logistics will improve, given the recent government intervention. The export pace will improve moving forward, and the worst is behind us.

While the canola carryout is still projected to come in near 3 million metric tons, the market is starting to focus on upcoming acreage estimates and production forecasts. We anticipate a 10 percent increase in acres, but a return to a five-year average yield will cause production to come in near 17 million metric tons in 2014, compared with the 2013 crop of 18 million metric tons. The market is not getting more bearish but rather looking neutral to slightly positive. The market may chop around at these levels but soon the focus will be on yield estimates. Lower production for new crop will support old crop canola values, and the firm bean complex will further underpin canola.


Feedgrain and milling wheat

The corn market has been very resilient at current levels, slowly ratcheting higher since mid January. The U.S. Department of Agriculture has been trimming the 2013 to '14 U.S. corn carryout, and the upcoming acreage appears to be uncertain heading into spring planting. Analysts are looking for a 5 to 10 percent decline in U.S. seeded acreage. If seeded acreage is down 10 percent from last year, we can make the argument that the 2014 to '15 fundamental structure once again becomes quite snug and similar to the bean complex.

While the domestic Canadian wheat market has been isolated from world wheat values because of the burdensome carryout and logistical problems, we are forecasting lower Canadian spring wheat acreage and production for 2014. The U.S. carryouts for soft red winter and hard red winter wheats are also sharply below the five-year average. Similar to canola, the wheat market is not becoming more bearish, but rather looking neutral to slightly positive moving forward. The corn and feedgrains complex will further underpin the wheat market. We don't feel political uncertainty will undermine the wheat trade from the Black Sea, but the market is nervous. We've seen in the past how the market responds to adverse trade from this region, most recently the droughts of 2010 and 2012.

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 or visit

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