December 22, 2016 / 7:10 PM / 10 months ago

European flax demand shifts to Canada over Dow herbicide

WINNIPEG/HAMBURG, Dec 22 (Reuters) - Demand for Canadian flax, used in linoleum flooring and health foods, has pushed prices of the oilseed to one-year highs as Europe shuns Russian supplies laced with a herbicide made by Dow Chemical Co.

The European Union, the world’s second-largest importer of flax after China, slashed acceptable levels for haloxyfop by 90 percent last June, shifting demand to Canada, where farmers do not use it.

The limit was lowered due to concerns about safe levels of the weed-killing chemical in food.

Canada and Russia are the world’s two biggest suppliers of flax, a blue-flowering crop whose seed is used in breads and that produces oil for paints and linoleum.

“Europe’s need to import more Canadian flaxseed has contributed to increasing prices of flaxseed in the EU in recent weeks,” said Thomas Mielke, chief executive of Hamburg-based forecaster Oil World.

Canada’s good fortune is a reversal from 2009, when it was mostly locked out of EU trade after genetically-modified flax showed up in shipments. It also comes as Canadian farmers have substituted some flax plantings in recent years with more profitable canola and lentils.

Dow is aware of concerns about haloxyfop in flax and is trying to find a “pragmatic way forward,” with the European Commission, said spokeswoman Rachelle Schikorra.

“The EU has shown little willingness to consider the impacts on the trade of bulk agricultural commodities,” she said, adding other companies sell generic versions of haloxyfop.

PRICES ON THE RISE

Western Canadian flax prices range between C$12 and C$13 per bushel, their highest since 2015, said Canadian analyst Chuck Penner of LeftField Commodity Research.

Some Russian shipments pass the EU’s strict inspection and currently sell for nearly one-third more than at the beginning of 2016, a European oilseed broker said.

“We’re going to be looking at the effects of this right through next October, November,” said Don Kerr, president of Flax Council of Canada.

Higher demand has generated more sales for delivery in spring, when Canada’s inland shipping channels reopen, Kerr added.

Canadian exporters, who include Richardson International and Glencore Plc unit Viterra Inc, may be hard-pressed to fill flax demand, however, after farmers harvested their smallest crop in four years, with mixed quality.

Canada’s agriculture department on Wednesday forecast Canadian 2016-17 flax exports of 600,000 tonnes, down 2 percent from a year earlier.

Consumers are not likely to notice higher food prices, since flax makes up a small portion of cost, but industrial linseed oil users may get pinched if prices stay high well into next year, said LeftField’s Penner.

Canadian farmers are likely to plant more flax in 2017, partly replenishing global supplies, he said.

China may now buy more Russian flax, since it does not have the same strict standard, Penner added, while Turkey is already buying more from Russia at a discount, according to the European broker. (Additional reporting by Gus Trompiz in Paris, editing by G Crosse)

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