2005-10-07 | Volume 18 Number 18 | ISSN 1494-1805 | AAFC No. 2081/E

Flaxseed: Situation and Outlook

Canada continues to be the world's largest producer and exporter of flaxseed, representing about 80% of world trade. As a result, Canadian supply conditions have a major impact on the world flaxseed market. Canada has exported an average of almost $250 million per year in flaxseed for the past 5 years. For 2005-2006, Canadian supplies are forecast to rise by about two-thirds as the largest flaxseed crop in recent history is moderated by record low carry-in stocks. Exports are also expected to increase significantly. Prices are projected to fall sharply, to a near normal $325 a tonne (/t), from over $500 /t for much of 2004-2005. This issue of the Bi-weekly Bulletin examines the situation and outlook for flaxseed for 2005-2006 and 2006-2007.

World

World production of the 10 major oilseeds (soybeans, cottonseed, canola/rapeseed, peanuts, sunflower seed, palm kernels, copra, sesame seed, flaxseed, and castorseed) is estimated at 377.3 million tones (Mt) in 2005-2006, an increase of only 3 Mt over 2004-2005. Flaxseed production is estimated at 2.60 Mt, less than one percent of world output.

World production of flaxseed has ranged between 2.0 Mt and 2.5 Mt over the past 5 years. By contrast, the world flaxseed crush has averaged a stable 1.86 Mt annually over the past five years. The EU-25 has the largest domestic crushing sector followed by China and the US. The crushing process produces two products, linseed (flaxseed) oil and linseed (flaxseed) meal.

For 2004-2005, world processing of flaxseed declined slightly to 1.82 Mt from 1.92 Mt in 2003-2004, because of a reduced EU-25 crush. Flaxseed was in short supply following a mid-August frost across the major flaxseed growing regions in Canada which struck a late seeded and immature crop. As a result, both crop volume and quality were in short supply, resulting in demand rationing of Canadian flaxseed into the EU-25.

The reduced EU crush was mostly offset by an increase in US crush to about 0.37 Mt for 2004-2005. The increase in US crush was supported by increased imports from Canada and by a stable US production of 0.27 Mt. Chinese crushing of flaxseed remained stable at 0.42 Mt supported by the availability of domestic supplies.

Trade

For 2004-2005, world trade in flaxseed declined sharply to 0.64 Mt, from 0.82 Mt the previous year due to production problems in Canada. Most of the world trade in flaxseed consists of Canadian exports to the EU-25 and to the US. Minor volumes are exported from the US and Argentina, with North American shipments ranging from 11,000 t to 100,000 t over the past five years while Argentine exports peaked at 23,300 t in 2004-2005.

The EU-25 imports from 0.4 Mt to about 0.6 Mt of flaxseed annually, while the US typically imports 50,000 t to 150,000 t of flaxseed a year.

Linseed Oil and Meal

World production of linseed oil ranged from about 0.6 Mt to 0.7 Mt over the past 5 years. The major producers of linseed oil are the EU-25, the US and China. As it is commonly used in industrial products such as paints, paint thinners and linoleum, all of which compete against petroleum based products, demand and prices for linseed oil are more affected by world crude oil prices than they are by other vegetable oils. Rising crude oil prices are expected to support the demand for linseed oil. Not surprisingly, the EU-25, China and the US are the major users of linseed oil. World trade in linseed oil is slightly above 0.1 Mt annually, with the EU-25 and the US each roughly accounting for one-third of the trade.

World linseed meal production ranges from 1.1 Mt to 1.4 Mt annually over the past 5 years. The EU-25 produces roughly about one-third of the world's linseed meal, followed by China at one-quarter and the US at slightly under one fifth market share. Most of the meal is consumed within the producing country with only about 60,000 t per year traded over the past six years. Of that, Canada accounted for about one-half of the world's exports in linseed meal which went to the US and the EU-25.

Situation

For 2005-2006, world production of flaxseed is estimated to rise by over 0.5 Mt on support from increased production in Canada and the US. World flaxseed supplies are expected to rise by about 25% as the higher output more than offsets the decline in carry-in stocks. World usage is projected to rise supported by increased supplies and higher crude oil prices which continue to trade at over US$60 a barrel. World trade is forecast to rise by 36% because of higher Canadian exports to the EU-25. Carry-out stocks are forecast to rise sharply, with about one-half of the ending stocks located in Canada.

China is expected to be the world's second largest producer of flaxseed in 2005-2006, producing 0.48 Mt which is a slight increase from 2004-2005. Most of the linseed grown in China is processed domestically with only about 5,000 t expected to be exported. China is also not a major trader in linseed oil or meal.

The US is forecast to produce 0.43 Mt of flaxseed for 2005-2006, a sharp rise from the 0.27 Mt per year produced for the previous 3 years. The increase is due to a rise in seeded area resulting from the unusually high flaxseed prices of 2004-2005. Total supplies are forecast to rise to slightly under 0.6 Mt as the US imports about 0.12 Mt of flaxseed from Canada. Total American usage is expected to rise with about 0.55 Mt being processed domestically and around 0.05 Mt being exported. Linseed oil output is forecast to rise to 0.19 Mt while total meal production is about 0.36 Mt. Most of the oil and meal is expected to be consumed domestically, while about 50,000 t of linseed oil and 40,000 t of linseed meal is exported.

In the EU-25 for 2005-2006, the supply of flaxseed is forecast to rise as output rises marginally and imports are forecast to increase to 0.6 Mt, from 0.45 Mt, for 2004-2005. As a result, crushing of flaxseed is forecast to rise by 0.1 Mt, to 0.58 Mt, for 2005-2006 while about 0.18 Mt of flaxseed are destined for bakery products and animal feed, etc. Carry-out stocks are forecast at a minimal 30,000 t. Linseed oil production is forecast to rise to around 0.2 Mt, most of which will be consumed internally. Similarly, linseed meal output is forecast to return to a near normal 0.35 Mt, which will be largely consumed within the EU-25.

Canadian production of flaxseed is estimated to more than double for 2005-2006, partly the result of an over 50% increase in seeded area and partly because of a sharp rise in expected yields. However, total supplies are projected to increase by only 67% due to record low carry-in stocks. Exports are projected to rise to the highest level since 1998-1999 due to strong EU and US import demand as a result of spillover support from high crude oil prices. Total domestic use is forecast to rise by 56% as a result of higher crush, increased food consumption and higher feed, waste and dockage. Carry-out stocks are forecast to rise fivefold but at 0.15 Mt are not considered burdensome. Flaxseed prices are forecast to average about $330 /t for 2005-2006, a sharp decline from 2004-2005 due to increased supplies.

Canadian linseed oil production is forecast to rise slightly, but remain below 30,000 t for 2005-2006 with both imports and exports expected to range between 5,000 t to 10,000 t. Similarly, linseed meal production is forecast to rise to slightly below 50,000 t. About 20,000 t is expected to be exported, mostly to the US.

Outlook

For 2006-2007, world flaxseed production is projected to decline slightly mainly due to lower production in Canada. However, total world supplies are projected to rise marginally as sharply higher carry-in stocks offset the drop in output. World crush of flaxseed is projected to rise marginally, to slightly over 2.0 Mt, indicating a slight increase in world linseed oil and linseed meal output. World trade is projected to rise slightly. Carry-out stocks are also projected to rise slightly.

For 2006-2007, the area seeded to flaxseed in Canada is expected to decrease under pressure from lower prices in 2005-2006. Total output of flaxseed is projected to decline to under 1.0 Mt due to the combination of lower area and lower yields. In early October, 30% of the flaxseed remained unharvested. Flaxseed supplies are projected to rise slightly as sharply higher carry-in stocks more than offset the decline in output. Exports and total domestic use are projected to remain stable. Carry-out stocks are forecast to rise while flaxseed prices rise slightly on support from high crude oil prices.

Flaxseed Futures Contract

On September 8, 2005, the Winnipeg Commodity Exchange (WCE) announced that it was de-activating the flaxseed futures and options contracts from trading on the electronic trading platform. The WCE Oilseeds Committee is recommending to the WCE Board of Directors that the flaxseed futures and options contracts be de-listed due to the lack of liquidity in these contracts. The flaxseed futures contract has not traded since December 7, 2004. The Board of Directors will reconsider the recommendation at their meeting scheduled for October 19, 2005.

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by Chris Beckman, Oilseeds Analyst

While the Market Analysis Division assumes responsibility for all information contained in this bulletin, we wish to gratefully acknowledge input from the following: Flax Council of Canada, Market and Industry Services Branch (AAFC)