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Market awaits canola report

Final tally | Analysts expect December production numbers 
to reflect yield losses from prairie windstorms and disease

Big question marks float over the size of this year’s prairie canola crop, but the markets aren’t too anxious yet about the Statistics Canada final crop production estimates due Dec. 5.

Crop traders have relaxed so much since the summer drought rally ran its course that it might take big changes in the crop size estimates to shake away the complacency.

“I think it’d really have to take people off guard before you’d really see a whole lot of reaction,” analyst Jon Driedger of FarmLink Marketing Solutions said about the report.

Analysts said traders have spent little time thinking about the report, even though canola stocks are razor thin after this year’s disappointing harvest.

Analysts’ estimates for the final crop size range from 14 million to less than 13 million tonnes, a huge spread for this time of year.

In October, Statistics Canada slashed prairie canola production to 13.2 million tonnes, an 8.1 percent decline from 2011-12 based on a decline of 17.5 percent in average yield.

Wild wind storms swept large parts of the canola growing area after that report’s survey was completed, and continued reports of low yields and quality damage due to disease have appeared.

That would usually lead to intense interest in the Statistics Canada numbers, but the report comes out after a long, grinding decline of crop prices. Markets have fallen back a lot since the summer’s historic and explosive rally of corn, soybean and wheat prices.

The slump in soybeans was particularly brutal for market bulls because tight ending stocks projections for U.S. soybeans have been a driving force for higher prices since late in the first quarter of this year.

However, high soybean prices appear to have hurt demand. Chicago soybean futures have sold off from nearly $18 per bushel to about $14 recently.

Canola’s rally and decline were less pronounced than in soybeans.

Analysts say that means canola is still pricey compared to soybeans.

Guessing the Statistics Canada numbers is a regular activity for analysts, but this year’s number is particularly hard to estimate.

Driedger said canola production estimates tend to grow from October to December, but that has to be balanced against the windstorm damage. However, Ball thinks the windstorm did less damage than many believe and have claimed.

Chuck Penner of LeftField Commodity Research said he also thinks the wind damage was overstated, and thinks most farmers have probably under-reported their yields.

Farmers have already delivered much more of this year’s canola crop than normal for this time of year, if Statistics Canada’s October numbers were right, Penner said.

More likely is that Statistics Canada’s number was too small and that the flow of canola to port is normal. The December numbers will confirm if this is true.

Ball said he wouldn’t be surprised to see the production estimate trimmed by 300,000 to 400,000 tonnes.

“It wouldn’t be a shock to be below 13 million,” said Ball.

Driedger said he thinks 13 million is a reasonable estimate.

However, Penner thinks the estimate is more likely to be increased by hundreds of thousands of tonnes, with it more likely to hit 14 million than fall under 13 million.

“There’s room for it to move up quite a way,” said Penner.

There could easily be a market reaction if the crop drops below 13 million tonnes, analysts said.

“The canola situation is still very tight and demand is still strong, so canola will probably have to become more expensive to kill some demand coming down the road,” said Ball.

Added Driedger: “Because we’re already so tight, if you come out with anything below (13 million tonnes) it’s going to make things really tight.”

However, if the Statistics Canada estimate is little changed, it is unlikely to break canola far from its present relationship to the soybean, corn and wheat markets, analysts said.

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