Duvenaud: Flax market takes a tumbleFlax took a bit of a tumble in the past two weeks on little fundamental news. The best explanation could be this excerpt from the March 17 issue of Wild Oats: “Flax markets have been supported by the Kazakh flax crop, which wound up covered with snow last fall.” That meant European users had to source elsewhere, and that generally means Canada.
By: John Duvenaud,
WINNIPEG, Manitoba — Flax took a bit of a tumble in the past two weeks on little fundamental news. The best explanation could be this excerpt from the March 17 issue of Wild Oats: “Flax markets have been supported by the Kazakh flax crop, which wound up covered with snow last fall.” That meant European users had to source elsewhere, and that generally means Canada.
Lots of flax sat out over winter on the prairies and is almost always fine in spring. Probably about 200,000 metric tons of Kazakh flax will be available in April and May. European bids have dropped $40 per ton in the past three weeks. We’ll likely see about a $1-per-bushel drop in Canadian bids this spring.
That extra flax is all being sold as soon as it can be moved. Buyers around the world, in particular China, have backed off Canadian-origin flax.
Canadian supplies are not tight. AgCanada forecasts an increase in carryover stocks for 2014 to ’15, and a further increase this year.
Markets are relatively strong. Legumex Walker is paying $13 to $13.50 per bushel freight on board farm and $14 delivered. Elevators are about $13.50 per bushel, but report few deliveries.
Soybeans have dreadful fundamentals — a record 2014 American crop followed by an even bigger record crop in South America followed by a further increase in crop area for the American crop. It really couldn’t be a lot worse.
Chicago Board of Trade futures have lost $6 per bushel since May 2014. Probably all the bad news is already in the market. Current soybean prices are cheap and attracting demand. The U.S. Department of Agriculture’s latest supply and demand report reduced the American carryover again.
The National Oilseed Processors Association reported a crush of 148.4 million bushels of soybeans in May, a new record for the month, 15 percent above May 2014 numbers.
Meal demand, in particular, continues to grow. Meat prices are high, and feeders around the world are putting on the pounds as quickly as possible. USDA has lowered the Brazilian carryover from 575 million bushels to 397 million, citing higher exports to Indonesia, Vietnam and Bangladesh.
Problems are showing up in American soybean plantings. Progress is only at 87 percent in the U.S., well into June, and a hurricane is going through. USDA forecasts 84.6 million acres of soybeans will be planted in the U.S. this year. As of June 15, 11 million acres have still not been seeded. There could be as many as 3 million acres of American soybeans that won’t be seeded.
Prices have already fallen hard. Manitoba bids are about $9.50 (Canadian) per bushel. They probably don’t have much further to fall and could be rising.
Canola prices incorporated a risk premium from uncertainty in production earlier in May. Late frosts along with below-normal precipitation resulted in the cash prices reaching $11 per bushel in many regions of Western Canada. Canola prices divorced from the soybean complex during this time.
We now find this risk premium eroding and cash prices in Western Canada coming under pressure because of the surge in farmer selling. Looking forward, many domestic crush plants will go down for their yearly maintenance later in summer, and export demand has subsided at the higher levels. The market has rationed demand at the higher prices, while commercial crushers and exporters have their nearby requirements covered.
Feed barley, feed wheat
Lethbridge, Alberta, feedlots have been buying feed barley in the range of $224 per metric ton to $226 per metric ton, which is up nearly $25 per metric ton from the May lows. We have also seen marginal price increases in the nonmajor feeding regions of Western Canada. At the same time, feed wheat in Southern Alberta has jumped up to $220 to $225 per metric ton delivered.
Domestic demand decreases by nearly 30 percent from May through the end of the July, as feedlots liquidate fall placed calves. Export demand for feed barley has gone quiet, given the stronger domestic prices relative to European and Black Sea export values. Feed wheat export movement is also quiet because of strong competition from other major exporters.
The feed grains complex has strength-
ened because of dryer conditions in Alberta and Saskatchewan. But it is difficult to project further upside, as one timely rain can have a significant impact on yields.
Duvenaud publishes the Wild Oats Grain Market Advisory. For a free copy, call 800-567-5671 in Western Canada and North Dakota. All others call 204-942-1459.