Canada's canola stocks to slump to 18-year low

Canada's canola inventories will near-halve to their lowest in 18 years, farm officials said, citing weaker farmer seeding expectations than initially thought, at a time of resilient export demand.

Canada's farm ministry, AAFC, slashed to 500,000 tonnes, from 1.40m tonnes, its forecast for domestic inventories of canola at the end of 2015-16.

Stocks at that level would be the lowest since the end of 1997-98, when the country was producing less than half the amount of the rapeseed variant that it does now.

The downgrade reflected the inclusion in official forecasts of surveys by Statistics Canada on crop inventories and farmers' sowings plans both of which came in lower than expected for canola.

'Disease concerns'

AAFC, which had forecast Canadian canola plantings to rise to 8.23m hectares, downgraded its estimate to 7.86m hectares, in line with the StatsCan findings.

"Seeded area in Canada is forecast to decrease by 5% under pressure from disease concerns, already overly-tight rotations and comparatively attractive returns from competing crops," the ministry said.

Assuming an average yield, the forecast fed through into a harvest of 14.93m tonnes, down 630,000 tonnes year on year, and well below the record 17.97m-tonne crop reaped in 2013.

On the demand side, exports were forecast at 8.0m tonnes, 400,000 tonnes below the previous estimate, with AAFC noting "a combination of reduced domestic supplies and a burdensome world oilseed stock".

However, even allowing for the weaker expectation for shipments, and a downgrade to ideas for the domestic crush too, the reductions were insufficient to prevent the hefty cut to the stocks forecast.

It also reflected an unexplained - hike of 525,000 tonnes to the estimate for the "feed, waste and dockage" drain on canola supplies for 2014-15.

'Seeding is ahead of normal'

In fact, many observers believe that canola sowings will prove higher than the StatsCan estimate showed, with an early spring a benefit for plantings of a crop which is typically early seeded.

"Seeding is ahead of normal, and definitely ahead of 2014-15, on support from an early spring following a warmer-than-normal winter with lower0than-usual snow cover," AAFC said.

Furthermore, the ministry nudged higher to Can$450-490 a tonne, from Can$430-480, its forecast for average Canadian canola prices in 2015-16, so enhancing the financial incentive for the growing the crop.

The ministry trimmed by Can$5 a tonne its forecasts for wheat prices next season, to $205-235 per tonne, and for barley prices, to Can$190-220 a tonne.

Frost damage

However, the dryness which has helped speed initial spring sowings is also raising fears of there being insufficient soil moisture for good crop emergence.

Areas of Alberta and Saskatchewan, Canada's biggest crop growing provinces, received less than 40% of normal rain this growing season, according to officials.

Meanwhile, this week frost is believed to have caused some crop losses in parts of the Prairies, besides in the northern US.

"Canola damage was suspected in the south western Prairies early Monday," said Terry Reilly at Chicago-based broker Futures International.

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