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Canadian farmers are on course to produce less wheat and canola than expected, according to Statistics Canada's first report on this year's harvest.

Statscan, using a farmer survey, pegged the 2014/15 all-wheat crop at 27.7 million tonnes, down 26 per cent from last year's record harvest and below the average trade expectation of 28.5 million tonnes. Canada is projected to be the fourth-largest wheat exporter this year.

Canola production in the biggest global exporting country looked set to reach 13.9 million tonnes, a drop of 23 per cent from last year and less than the average trade forecast of 14.5 million tonnes.

"I think the trade is going to view this report as fairly friendly [to price]," said Dave Reimann, market analyst for Cargill Ltd.'s grain marketing services division. "The canola number is going to jump out a little bit because we're looking at a tightening supply situation versus last year, and this turns the screw one more turn."

ICE Canada November canola futures and Minneapolis September spring wheat futures were up slightly after the report.

Despite the production drop, the all-wheat crop is Canada's third-largest in the last 10 years and the canola harvest would be the third-biggest ever. Statscan said yields look lower year-over-year at 43.6 bushels per acre for spring wheat, 39 bushels for durum and 32 bushels for canola.

The smaller than expected canola crop raises questions about whether there is enough to supply domestic crushers and export sales, said John Duvenaud, analyst at Wild Oats Grain Market Advisory, on a conference call organized by Minneapolis Grain Exchange. Tighter supplies could give canola prices more upside later in the year than soybean oil, a competitor in the global vegetable oil market, he said.

Expectations for a big U.S. soybean crop otherwise overhang canola prices.

Similarly, global wheat supplies looked to top 716 million tonnes, a record high, according to a U.S. Department of Agriculture report on Aug. 12.

Canada might also have bigger than usual leftover supplies from last year's bumper harvest. Statscan will estimate on Sept. 5 stocks as of July 31.

"In Western Canada, we're moving from a huge glut of wheat to still a pretty big carry-over, but by no means the kind of over-supply we had in the last year," Duvenaud said.

The harvest is off to a slow start in Western Canada, with much of the crop developing more slowly than usual.

Duvenaud said the quality of crops is still unclear. Fusarium head blight, a fungal disease, has downgraded some winter wheat and may damage spring wheat as well.

Crops of oats, barley and durum also look sharply smaller year over year, and smaller than expected.

Source: Reuters