Larger canola crop provides cushion, demand still strong

(Commodity News Service Canada) — Canada’s 2010/11 canola crop will come in well above trade expectations, according to official production estimates released Friday by Statistics Canada.

However, strong demand is expected to keep values well supported.

Barley production, meanwhile, was much smaller than traders had expected, while wheat was revised slightly higher.

Production on all crops was down from the previous year due to some of the problems with excessive moisture seen during the growing season.

StatsCan pegged canola production at 11.866 million tonnes, which compares with pre-report trade estimates that ranged from 10.4 million to 11.5 million, and the previous forecast of 10.43 million. Canada grew 12.417 million tonnes of canola in 2009-10.

“The canola number is significantly higher than what the market had anticipated,” said Gerald Klassen, manager of GAP Grains in Winnipeg, adding that “this suggests canola has defined its upside potential and the fundamentals will not be as tight as earlier anticipated.”

Ron Frost, of Frost Forecast Consulting in Calgary, said the larger canola production will help provide more of a cushion for the market, but expected values will still need some price rationing down the road, given active export and domestic crusher demand.

“Supply just is not the issue in canola,” added Ken Ball of Union Securities in Winnipeg, noting “the demand is there and it will be more a function of vegetable oil.”

A number of market participants also questioned the acreage base used by StatsCan to come up with their production number for canola, and expected that actual canola production may have been lower.

Barley down

While canola came in above trade expectations, barley was significantly lower. StatsCan pegged barley production at 7.605 million tonnes, down from 8.259 million in their previous report and well below average market expectations that ranged from 7.9 million to 8.6 million. Canada grew 9.517 million tonnes of barley in 2009-10.

The tight barley supplies could support prices, but Ball noted that a larger corn number in Eastern Canada may offset some of that lower barley production.

In addition, Canada’s wheat crop was revised higher to 23.166 million tonnes from 22.205 million in October. That came in at the high end of trade expectations, but was mostly anticipated given some of the recent comments from the Canadian Wheat Board increasing its export projections, according to Klassen.

With more of the Canadian wheat crop being of lower quality this year, feed wheat may also help alleviate some of the tightness in the barley market. Canada produced 26.848 million tonnes of wheat in 2009-10.

Oats production came in at 2.297 million tonnes according to StatsCan, down only slightly down from the previous report but below the 2.906 million tonnes grown in 2009-10.

Flaxseed was revised down to 423,000 tonnes from 537,000. After Canada grew 930,000 tonnes of flax the previous year, the tight supply situation was seen as bullish for the commodity. 

“When we get into these types of markets with flax, it gets extremely volatile,” Klassen said.

With all of Canada’s major grains and oilseeds down from the year-ago level, Frost anticipated that there could be some battles for acres heading into the next spring.

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