September 7, 2012 / 3:07 PM / in 5 years

Canada canola, wheat stocks fall more than expected

WINNIPEG, Manitoba (Reuters) - Canadian stocks of canola and wheat fell more sharply than expected at mid-summer from a year earlier, Statistics Canada said on Friday, whittled down by strong export demand.

Canola stocks fell to 788,000 metric tons (868,621 tons) from 2.2 million tonnes, while all-wheat stocks in commercial storage and on farms dipped to 5.879 million tonnes from 7.2 million tonnes.

As of July 31, the end of the 2011/12 marketing year, canola stocks dropped to an 8-year low, while all-wheat supplies were the smallest in four years.

Traders surveyed by Reuters, on average, expected canola stocks of 1 million tonnes and wheat supplies of 6.1 million tonnes.

"(Canola) is pretty close to expectations but it's certainly tight, the lowest we've seen in a long, long time," said Ken Ball, commodities broker at Union Securities.

"The canola number should be supportive, given that we have a crop (production) number that is shrinking daily in people's minds."

Canola yields across much of the Canadian Prairies have been disappointing in the harvest so far. Canada is the biggest grower and exporter of the oilseed, which is mainly used to produce vegetable oil and meal for livestock feed.

Although the Statscan data looked bullish, ICE Canada canola futures were down after the report due to weakness in Chicago soybeans and with farmers harvesting the new canola crop, a trader said.

In estimating supplies at the end of the crop year, Statscan also raised its estimate for last autumn's canola harvest by 2.3 percent to 14.5 million tonnes.

Canada exported a whopping 23 percent more canola in 2011/12 than the previous year, while domestic crushers processed more. But lower-than-expected carryover stocks and dwindling new crop prospects likely meant that demand, which looks to be greater than supply, will need to be rationed, said Jonathon Driedger, an analyst at FarmLink Marketing Solutions.

"We know the canola will find a home somewhere, it's just a matter of where and maybe at what price," Driedger said on a conference call about the Statscan report organized by the Minneapolis Grain Exchange.

Tight canola supplies came as global demand also looked to outstrip supply of soybeans, an oilseed cousin, after a severe drought this summer in the U.S. Midwest.

The lower-than-expected all-wheat stocks will not be too significant in the global market, Union Securities' Ball said. Canada, the No. 6 wheat producer, is expected to harvest its second biggest wheat crop in 16 years this autumn.

The 2011/12 crop year marked the end of the Canadian Wheat Board's marketing monopoly on western wheat and barley, and that may have given the CWB incentive to sell aggressively leading up to the open market, which took effect August 1, Driedger said.

Canada's all-wheat export sales rose 9.5 percent to 17.7 million tonnes in 2011/12.

Barley stocks at July 31 were down 15 percent from a year earlier to 1.2 million tonnes, while oat supplies rose 6 percent to 817,000 tonnes. Both estimates were slightly higher than expected.

Statscan's higher-than-expected oats estimate suggested the government agency may have understated the size of last year's crop, said Randy Strychar, an analyst at Oatinsight.com.

Stocks of durum, used in making pasta, tumbled 9 percent to 1.4 million tonnes, as expected.

Statscan surveyed 15,105 Canadian farms between July 25 and August 1.

Reporting by Rod Nickel in Winnipeg, Manitoba and Alex Paterson in Ottawa; Editing by John Wallace and Jeffrey Benkoe

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