August 22, 2012 / 2:42 PM / 5 years ago

Canada set for big wheat crop; canola view smaller

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WINNIPEG, Manitoba (Reuters) - Canadian farmers are on track to harvest the second-largest wheat crop since 1996, while record canola output will fall short of what traders had expected, Statistics Canada data showed on Wednesday in its first production forecast of the year.

In a report that may offer a degree of relief to global grain markets on edge after a year of severe droughts in the U.S. Midwest, Russia and South America, the agency said all wheat production in the world's seventh-largest grower would rise 6.9 percent to 27 million metric tons, bang on forecasts.

However the country's canola production -- the country's second-largest crop after wheat, which is also in focus as the U.S. soybean harvest shrinks -- has suffered greater than expected damage after mid-summer heat arrived in the western Prairie provinces just as some canola was in its key flowering stage.

With yields damaged by heat, disease, insects and hail, Canada's canola production will reach 15.41 million metric tons in 2012/13, Statscan said. While it's a new record high well above last year's 14.2 million metric tons, the figure is a full 1 million metric tons below the average trade estimate.

"Probably for the first time in several years, guys are going in and having fewer bushels coming out than they thought," said Jonathon Driedger, an analyst at FarmLink Marketing Solutions. Flooding has reduced Canada's crops for the last two years.

"I think there would have been some pessimism and caution (when Statscan surveyed farmers), but I don't think that's unwarranted."

ICE Canada November canola futures gained 1 percent after the report's release, touching a four week high. The harvest is in its early stages in Western Canada, and traders have held a variety of views on the extent of damage to yields.

Canada is the world's biggest canola and rapeseed grower and exporter.

Canola Yield Short

Statscan estimated a smaller than expected average canola yield for Canada at 32.8 bushels per acre, but most of the crop is still in the field in the biggest canola-growing provinces of Saskatchewan and Alberta.

Crop problems could still whittle down Saskatchewan's forecast average canola yield of 30.5 bushels per acre, while Alberta's estimated 37.3 bushels may have some upside, said Keith Ferley, a commodity trader at RBC Dominion Securities.

Statscan's canola production estimate is plausible, even if surprising to some, Ferley said.

"I'd rather have a realistic number like this than something we know" is too optimistic," he said.

Wheat Up 6.9 Pct

All-wheat production will climb to 27.013 million metric tons from last year's 25.3 million metric tons, Statscan said. Traders surveyed by Reuters had expected, on average, an all-wheat harvest of 27 million metric tons.

Canada will produce more wheat despite a forecast drop in average yield to 42.9 bushels per acre from 44 bushels, as farmers expanded their seeded area due to dry spring conditions.

The oat harvest looks to hit 2.994 million metric tons, about the same level as last year. Barley production is expected at 9.508 million metric tons, up more than one-fifth from last year and higher than expectations.

"Pretty much across the board, the feeling is cereals were the better-looking crop," Driedger said.

Durum production is forecast at 4.273 million metric tons, edging up 2 percent from last year, but falling well short of trade expectations.

Statscan surveyed 15,105 Canadian farms between July 25 and August 1. The government agency's next crop production report is due on October 4.

Reporting by Rod Nickel in Winnipeg, Manitoba and Alex Paterson in Ottawa; Editing by Jeffrey Benkoe and Sofina Mirza-Reid

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