Flax Market Outlook2011 and Beyond

Flax Market Outlook2011 and Beyond

Jan 2011

Presented by:

Chuck Penner

Canadian Situation Setting the stage

Remainder of 2010/11 2011/12 Outlook

Acreage/Production Price Ideas

Beyond 2011/12

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North American Flax Production

Canada USA3

Lowest production since 1992

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Canadian Flax Supply

Carry in Production Imports4

Carry-in decent size, but quality is a question

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Flaxseed Exports by Destination

Europe USA Japan China Other

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Exports forced lower this year because of tight supplies

Japan1% China

11%

Europe67%

USA18%

Other3%

2008-09 Canadian Flaxseed Exports

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Japan4%

China32%

Europe35%

USA24%

Other5%

2009-10 Canadian Flaxseed Exports

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China saved our bacon last year

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Cumulative Licensed Flax Exports

10 Year Average 10/11 Crop Year 09/10 Crop Year

Exports on par with 09/10 but will fall behind

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Cumulative Flaxseed Farm Deliveries

2010/11 2009/10 10-Yr Avg

Deliveries limited by supplies

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Canadian Flax Ending Stocks

On-farm Commercial

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Very low ending stocks happen every 6-8 years

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US$

per

tonn

eGlobal Linseed Prices

CIF EU FOB Sask NDak

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Still off the 2008 highs

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Flax Price - Manitoba & Saskatchewan

Manitoba Saskatchewan12

Can we hit $20/bu again?

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lFlax and Crude Oil Price Comparison

Sask Flax (left axis) NYMEX Crude Oil (right axis)13

Oil is a “cheaper” substitute now

Bullish factors Extremely tight supplies Decent demand is continuing from Europe (Triffid protocol working) Solid price-inelastic demand from Omega-3 feeders Feed prices in Europe still rallying to help linseed meal values

Bearish factors Larger crop in USA China mostly priced out of the market Substitution occurring at higher prices

Oil users and feed compounders in Europe

Fearless prediction Prices mostly steady through Jan/Feb Modest upside potential to fill spring vessels, but don’t expect a big

surge unless petroleum markets take off

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acr

esCanadian Flax Seeded Acreage

Limited by seed supplies?

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0100200300400500600700800900

1,0001,1001,2001,3001,4001,500

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esCanadian Flax Total Supply

Small carry-in

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Flax Prices & Supplies

Sask cash price Supplies17

Low supplies will support prices

Bullish factors Low supplies expected to continue Seeded area in Canada possibly limited by seed supplies

Bearish factors Some recovery of acres (if everything gets planted)

Gross margins (with $12 NC bids) look good against other crops

Acres also expected up in USA and UK Competition in EU from Russia and Ukraine?

Fearless prediction Tight supplies will support prices $12.00-14.00 if acres get planted, but no room for weather

problems

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esWorld Linseed Production

Canada China US India EU-27 Russian Federation Ukraine Other

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Some small shifts in production

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esBlack Sea Linseed Production

Russian Federation Ukraine20

Is this the start of a longer term move?

Ride the environmental wave In 2009, bamboo had 5% of $1.6 billion wood flooring

market in US As of Dec 2009, ~ $80 million, growing at 5% per year

Resilient flooring market in US is $2.5 billion

We grow flax/sunflowers/soybeans Ship the seed to US and bring back the oil What’s wrong with this picture? Need a push for North American market

Crush and manufacture here?

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*

Thou

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esCanadian Veg Oil Imports from US

Sunseed Oil Linseed Oil Soy Oil* Jan-Oct only

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Equivalent of 350-400,000 tonnes of seed

0%

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% o

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Linseed Meal as % of Crush Value

NDak/Minn NW Europe23

Linseed meal worth more in Europe

40%

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% o

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Linseed Oil as % of Crush Value

NDak/Minn NW Europe24

Linseed oil worth more in US

Production from other countries Ukraine & Russia

Downside of high prices Demand isn’t completely price inelastic / petroleum substitution Could cause permanent erosion of demand (Japan)

Environmental benefit Need a continued push in North America for flooring and other

uses Health benefit of seed

Human consumption and as livestock feed More potential with inelastic demand

Understand and promote value of meal to increase crush value

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