Drought Threatens Canada, A Major Producer, When Wheat And Canola Prices Soar

Foreign media, March 23: Just as global wheat and canola prices are soaring, Canada, the world's leading wheat and canola producer and exporter, could face another drought.

Canada's crop was cut last year because of dry weather, and now wheat crops in the U.S. and China are also facing unfavorable growing conditions. U.S. Department of Agriculture data show that Canada accounted for 13 percent of global wheat exports in 2020 before the drought, and Canada is also the world's top canola exporter, accounting for 59 percent of global canola exports in 2020.

Long before the outbreak of the Russian-Ukrainian conflict, spring wheat crops in Canada and the United States suffered from the effects of drought and reduced production, has led to a tight global supply, boosting wheat prices higher; since the end of February, the Russian-Ukrainian conflict, Ukraine banned commercial operations at Black Sea ports, further exacerbating the tight wheat supply. Ukraine is also the world's top sunflower oil exporter, which has pushed global vegetable oil prices to record highs.

Market participants have been expecting a bumper spring crop in Canada to fill the supply shortage. Although southern Manitoba has seen significant snowfall, much of the Canadian prairies remain dry. The Canadian Drought Monitor reported that southern Alberta and central Saskatchewan were in extreme drought conditions as of Feb. 28.

Trevor Hadwin, an agro-climatologist with Agriculture and Agri-Food Canada (AAFC), said too much water was consumed last year and there are now no moisture reserves in the soil that would normally be available after winter, so this year's crops are extremely vulnerable to drought.

Jonathan Dellegre, vice president of Riflefield Commodity Research, said the drought issue could affect what crops farmers choose to plant. If someone is concerned that it won't rain in the spring, they may turn to crops that are more drought tolerant. Canola also grows relatively well in low-water conditions, but it requires a lot of fertilizer and is more expensive to grow than some crops. The company expects both canola and spring wheat acreage in Canada to increase by 2 percent this year over last year, a modest increase because of the need for crop rotation.

Analysts noted that canola prices are expected to remain near record highs for another year, given that the relative inelasticity of canola demand means that small changes in supply can lead to large price swings.