Will 2020 Flax Prices Reward All Year Long?
Flax prices in Canada have hit multi-year highs to start 2020, intuitively rewarding those who planted the oilseed in the 2019 growing season. However, given the price sensitivity that flax prices have to production, I think that there’s going to eventually be some headwinds that are on the horizon for 2020. This includes the impact of flax production from Black Sea and current flax prices buying more acres for Plant 2020.
Flax Prices Supported by Production Pullback
Up until last moth, the 2019 Canadian flax harvest was expected to bring in 577,000 MT. Moreover, up until June, Agriculture Canada was forecasting a flax harvest that was above 600,000 MT. However, due some dry conditions to start the growing season, followed by some wet weather (and abandoned acres), this year’s Canadian flax harvest is now pegged at just 486,000 MT. This is a 30% drop from the five-year average and slightly below the 2018 flax harvest of 492,000 MT.
From the above chart, it’s important to note the flax harvest from 2014/15 and 2015/16 as in the few years previous to that, production was depressed. The aggressive expansion of flax production in those two years pushed flax prices down into the $11 – $13 CAD / bushel range we’ve been seeing for the past 3 years.
Can Exports Sustain Elevated Flax Prices?
Despite the production drop of nearly 100,000 MT by AAFC from November to December, Canadian flax exports were only lowered by 50,000 MT to 450,000 MT. When looking at actual flax shipments though, this total-year forecast seems a bit far-fetched: Canadian flax exports are currently tracking 44% below last year with just 63,000 MT shipped out through the middle of December or Week 19.
Looking at this chart, you might be wondering why flax exports saw such a poor start to the 2019/20 campaign. One word: Kazakhstan. Last year, in 2018, Canadian flax lost its status as the top supplier to the world, being passed by the Black Sea country after their 2018/19 harvest totalled 900,00) MT!  Instead of buying from Canada right off the bat, flax exports from Kazakhstan are getting snapped up first by Chinese, European, and other buyers, mainly because their harvest comes of a bit earlier. There’s also the imminent threat that China could turn off their buying at any moment, be it for coverage reasons or political ones. 
Therefore, the need for Canadian flax before November isn’t as prevalent as it’s been in year’s past. Regardless, demand is picking up, and combined with the smaller flax harvest, flax prices have responded in order to pull more product out of farmers’ bins. While average Saskatchewan flax prices have hovered around that $13 CAD/bushel mark lately, we’ve seen more deals trading closer to the $14 handle. At this level, flax prices are feeling a bit top heavy and given how quickly buyers go in and out of the market, a return to lower values seems more likely that not.
Flax Prices Remain Sensitive
Put another way, flax prices are quite sensitive! If we’re thinking beyond today’s prices, the immediate hurdle that comes to mind when asking if 2020 will see the same prices, is that current prices are buying more 2020 acres. Given the price elasticity of flax, if Canadian flax acres expand like they did in 2014/15 (up 54% over 2013/14), then average flax pries could drop back below $13 CAD/bushel rather quickly.
That said, one of the more bullish factors to consider is that Canadian flax stocks by the end of the 2019/20 crop year set to come in at just 30,000 MT as per Agriculture Canada’s most recent estimate. This is clearly well below the five-year average of 161,000 MT carried forward (albeit the heavy flax stocks from 2015/16 and 2016/17 sways this average a bit).
Ultimately, with canola becoming a bit of gamble given the non-fundamental factors influencing the market (read: politics, as per our 2020 outlook on canola prices), more farmers might consider switching a field or two into flax. But those fields or two can start to add up quickly and that’s how you get seeded acres climbing from the 937,000 seeded in Canada in Plant 2019, to something in the 1.2M or 1.3M acres neighbourhood. If realized, sub-$13 CAD/bushel flax prices are certainly coming back, with harvest 2020 pressures more than likely pushing levels even back below $12.
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