Frost and drought have shaved more than one million tonnes off canola production estimates, which has put analysts in a bullish mood.

“We’re not selling anything,” said Derek Squair, president of Agri-Trend Marketing.

He predicts a tug-of-war developing between crushers and exporters for the ever-shrinking supply of the oilseed.

“The crushers have started the tug-of-war. They have moved ahead and been more aggressive buyers here in the short term,” said Squair.

“The exporters are going to have to match those kind of prices in order to get covered if they’ve got sales on, and typically there’s some big sales on for September, October and November.”

He expects most of the heavy lifting will be done through the basis because a record South American soybean crop and prospects of another good harvest in the United States will cap the upside in futures prices.

However, there has already been some upward movement in nearby futures, which closed above the elusive $500 per tonne mark on June 19 for the first time in about a year.

Larry Weber, analyst with Weber Commodities, isn’t quite as bullish as Squair.

“Don’t think it can go to the moon,” he said.

Weber believes a lacklustre export program and already tight crush margins will keep prices from rising too high.

The ICE Canada Canola Board Crush Margin was $43 per tonne as of June 18, down from $133 per tonne a year ago, and that is with canola oil trading above soybean oil for the first time in nearly three years.

“What we need for canola to go ballistic is the exporters and the crushers duking it out again, which they haven’t done for three years,” said Weber.

He isn’t as optimistic as Squair about a tug-of-war developing because with some line companies offering $58 per tonne under July futures for spot delivery, there doesn’t appear to be a huge export program on the books.

China has announced it is scrapping its rapeseed stockpiling program, which could also lead to reduced demand.

Weber sees 7.2 million tonnes of canola exports in 2015-16, which is 800,000 tonnes lower than Agriculture Canada’s estimate. His crush number is also 7.2 million tonnes, 200,000 tonnes below Agriculture Canada’s forecast.

He said he doesn’t understand why Agriculture Canada refused to drop its canola production number in its latest outlook.

“To put out a document on June 18 with a canola production estimate of 14.925 million tonnes is asinine,” said Weber.

He said the department must not be looking at its own drought maps, which show that much of Saskatchewan and Alberta have received less than 60 percent of normal rainfall.

Weber believes forecasting trend line yields at this point is irresponsible, especially given the lambasting Agriculture Canada took from the railways for being late to predict the record crop in 2013.

He has dropped his production number to 13.25 million tonnes, which would be the smallest crop since 2010. He believes 19 million acres will be harvested out of the 19.5 million seeded because of a widespread spring frost.

Weber slashed his average yield to 31 bushels per acre because of the dry conditions, which is well below the five and 10 year averages.

Squair has reduced his production estimate to 13.4 million tonnes, down from 14.9 million tonnes at the beginning of the year.

He is using 19.1 million harvested acres and a yield of 31 bu. per acre, which are almost identical to Weber’s numbers.

“The alert button has been hit all over the place,” said Squair.

It was what everyone was talking about at Canada’s Farm Progress Show.

“The canola is short and starting to bolt already, and it’s really too early for that to happen,” he said.

Dale Leftwich, director of the Canadian Canola Growers Association, has no argument with the 31 bu. per acre estimates.

“It could be lower,” he said.

The analysts believe one to 1.75 million acres of canola was reseeded because of the frost.

Contact sean.pratt@producer.com