By John DePutter & Dave Milne – January 18, 2018
“Drought on the US northern Plains took a major bite out of the country’s flax production in 2017.”
– USDA, Jan. 12, 2018
What it means:
Combined with a relatively small crop in Canada, the drop in US flax production means the North American crop is the thinnest since 2012-13.
Friday’s USDA crop production report pegged 2017 American flax output at just 97,590 tonnes, down 55.7% from a year earlier as a big reduction in the average yield – due to the overly dry weather in the primary production state of North Dakota – decimated production.
On this side of the border, Statistics Canada’s 2017 flax production estimate, released in December, was 548,000 tonnes. That was down just a minor 40,000 tonnes from the previous year but represented a big drop from the 2015 crop of 942,000.
With a smaller carryin from 2016-17, this year’s total supply is projected down a major 16% to 748,000 tonnes.
Exports picking up
The US is a regular buyer of Canadian flax, and the unexpectedly small American crop will no doubt mean an increase in US purchases.
For the 2017-18 marketing year, Agriculture Canada is currently projecting total Canadian flax exports at 500,000 tonnes, identical to the previous marketing year. However, that may still have to be revised higher, in view of the tight American supply. Indeed, after a slow start to the marketing year, Canadian flax exports have picked up as of late -thanks also to some recent Chinese buying – and are now running ahead of last year.
Of course, any increase in Canadian exports would tighten the 2017-18 ending stocks forecast, which according to Agriculture Canada currently sits at just 180,000 tonnes, down from 190,000 a year earlier and 277,000 in 2015-16.
The law of supply and demand would suggest that as the flax supply tightens, prices should start to climb.
Some limiting factors
Still, there are a few flies in the ointment. According to Ag Canada, large world vegetable oil stocks, and steady flax production in Kazakhstan and Russia, which may steer some Chinese demand away from Canada, could limit the upside in prices.
An expected decline in Canadian pulse planted area in the spring may push more acres into flax, causing buyers to be less concerned about accumulating supplies, due to ideas about lots of supply in the fall.
On the other hand, continued dryness in the primary flax growing areas of Western Canada and the US northern Plains may offer some further support to prices.
Want to increase your chances of catching the potentially higher flax prices later this marketing year? Keep up to date on the market with our weekly Market Advisory Service.
Try a FREE 3 week trial
The DePutter Market Advisory Service
Make smart decisions for your farm.