• `It's a game-changer,' analyst says, as yields increase
  • Wheat production to drop less than forecast on beneficial rain

Canada, the world’s top canola producer, said output this year will increase 5 percent after last month predicting a 13 percent decline. Wheat production will drop 6.2%, less than forecast.

“Everybody’s jaws just hit their desk,” Ken Ball, an analyst at PI Financial in Winnipeg, Manitoba, said in a telephone interview. “It’s a game-changer for canola.”

Canola output will rise to 17.2 million metric tons from 16.4 million in 2014 as yields climb 8.3 percent to 38 bushels an acre, the second-highest ever, following beneficial rain, Statistics Canada said Friday in a report. In October, the government forecast a 13 percent decline to 14.3 million after drought conditions parched parts of the prairies. This month, six analysts in a Bloomberg News survey projected 15.2 million, on average.

Canola futures for March settlement fell 0.8 percent to C$479.20 ($359.14) a ton at 9:54 a.m. on ICE Futures Canada in Winnipeg. Through Thursday, the most-active contract rose 9 percent this year.

Futures may drop to as low as C$440 if additional supplies bring down the price of soybean oil, Ball said.

Wheat Outlook

Wheat production will drop to 27.6 million tons from 29.4 million in 2014, the government said. In October, the agency forecast 26.1 million. Analysts projected 26.7 million. Canada is one of the top grain growers.

The government contacted 26,400 farmers from Oct. 21 to Nov. 12.

Earlier in the season, parts of the prairies got less than 60 percent of average precipitation and unusually dry conditions stressed crops. Soil conditions in Alberta and Saskatchewan, the biggest producer of wheat and canola, improved following to mid- to late summer rains, the government said.

Eastern Canada and Manitoba had more temperate and consistent conditions “which contributed to robust production for several crops,” the agency said.

“Canola seemed to get the right rains at the right time,” David Reimann, a market analyst at Cargill Ltd. in Winnipeg, said in a telephone interview. “We certainly heard many stories from farmers that the crop did much better than expected.”

The government’s estimate is “way above” the highest trade estimate and will have a bearish impact on the market, Reimann said.

While cheaper canola may spur a increase in export demand from China and India and higher use by domestic processors, inventories at the end of the crop year may be about 2 million tons, Ball of PI Financial said.

Through Thursday, wheat futures on the Chicago Board of Trade fell 19 percent this year.

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