Wheat, canola crop prices climb on basis of ‘shock’ estimates

A drought that singed parts of the Prairies will crimp wheat and canola output more than expected by analysts, government data showed, sending crop futures to one-week highs.

Wheat output this year will decline 3.3 per cent from 2017 to 29 million tonnes, as average yields drop more than 11 per cent, Statistics Canada said Friday in a report. That’s the smallest crop in three years. The average estimate of analysts in a Bloomberg survey was 30.4 million.

Canola production will tumble 10 per cent to 19.2 million tonnes, the lowest since 2015. Analysts expected 20.7 million.

Much of Western Canada, one of the world’s top wheat exporters and the top canola producer, suffered from lower-than-average precipitation and high temperatures, eroding yields, the government said. An August heat wave scorched parts of the southern Prairies hit by drought earlier in the season. Swaths of Alberta, Manitoba and Saskatchewan got less than 60 per cent of average rain for a large part of the growing season, government data showed.

The crop estimates are “a shock to the trade,” Jerry Klassen, a manager of Canadian operations and trading at Gap SA Grains & Produits in Winnipeg, said in an interview. “This is a very bullish report for Canadian grains.”

The industry will be “seriously monitoring yields” as the harvest progresses, Klassen said.

While the government estimates are based on a survey of farmers in July and may be revised upward, forecasts were so far below expectations that prices for spring wheat, durum and canola probably will rise, he said.

Spring-wheat futures in Minneapolis may rise as high as $7 a bushel, and canola futures might gain as much as $40 a tonne in the coming months amid tighter supplies, Klassen said.

Since July, wheat yields in some parts of the prairies, including Manitoba, have been better than expected and may be revised upward in the final report later this year, said Brian Voth, president of Intelli Farm Inc. The sentiment still may remain bullish amid adverse weather in Europe and the Black Sea region, he said.

“We are taking a little bit of caution with some of these numbers because of the time when the estimates were done,” Voth said on a conference call. “When these estimates were done back in July, there was a lot of pessimism about what yields might actually be.”