Dryness in parts of eastern Australia spoiled an otherwise improved picture for the country's canola crop which, with Canadian seedlings also off to a decent start, is counteracting fears for global supplies of the oilseed.

The Australian Oilseeds Federation raised by 231,000 tonnes to 3.20m tonnes its forecast for Australia's harvest of the rapeseed variant this year, citing higher forecasts for seedings in New South Wales unveiled by state farm officials at the end of May.

The upgrade production forecast, above an estimate of 2.94m tonnes from Australian commodities bureau Abares on Tuesday, also reflected rain in the state which, after a worryingly dry spell, had "served the crop well, triggering germination in dry-sown crops and giving early-emerging seedlings a well-needed boost".

Rain had also "benefited greatly" crops in Western Australia, the country's top canola-producing state, where a lack of moisture has been of particular concern.

Sales unwound

However, the federation acknowledged that the failure of rains to reach the south west of New South Wales had led to "staggered emergence", and that parts of neighbouring Victoria state were also "very dry".

At Commonwealth Bank of Australia, Luke Mathews said that conditions had got so poor that farmers were positioning themselves for depleted, or failed, crops.

"There have been multiple reports of producers unwinding forward-sold canola positions because of yield concerns.

"Rain is needed in Victoria and the south west New South Wales grain belt."

EU shortfall

Canola crops in Australia, and top exporter Canada, are being closely watched because of the prospect of another disappointing harvest in the European Union, the top producer and consumer, and in Ukraine, which has historically filled much of Europe's production shortfall.

EU and Ukraine rapeseed harvests were both pegged at six-year lows on Tuesday by the US Department of Agriculture.

Furthermore, China's import requirements are rising too, along with those of other oilseeds such as soybeans.

"Gains in Australia and Canada canola crops are helping to ease the [concern over] global rapeseed losses, with the USDA projecting little overall change in global rapeseed supply at around 60.4mmt but very tight global ending stock," FCStone risk manager Rory Deverell said.

'Favourable prospects'

In Canada, the farm ministry overnight kept at a record 15.1m tonnes its estimate for the country's rapeseed harvest, noting benign conditions.

"Moisture conditions are adequate across the key growing regions of the Canadian Prairies, and crop prospects are favourable based on warm and dry weather," the ministry said.

Separately, the farm officials in Saskatchewan, in their first crop ratings, estimated 76% of canola in the key growing province in "good" or "excellent" condition, up from 57% a year before.