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Western Canadian canola fields in full bloom in rural Alberta on July 23, 2019.

Todd Korol/Reuters

Canadian farmers expect to harvest the smallest canola crop in four years due to reduced plantings, according to a government report released on Wednesday amid a diplomatic dispute between Canada and China, the top importer of the crop.

The spat, centred on the arrest of a Huawei executive in Vancouver and China’s subsequent arrest of two Canadians, has curbed canola export sales since early this year and weakened prices just as farmers were deciding what to plant this spring.

Dry conditions threatened crops earlier, but timely rains in June and July boosted crop prospects, Statistics Canada said in its first production forecast.

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Canola production looked set to reach 18.5 million tonnes, down 9 per cent year-over-year, and below the average trade estimate of 18.9 million tonnes.

“It’s a little shy of expectations, a little bullish,” said Dave Reimann, market analyst at Cargill Ltd.’s grain marketing services division.

ICE Canada November canola futures traded 0.4 per cent higher in early trading on Wednesday.

Farmers, however, tend to underestimate their harvests in summer when surveyed by Statistics Canada, and final crop figures in December are usually higher, Mr. Reimann said.

Higher prices would be welcome news for Canadian farmers, whose finances have been battered by China’s snub of Canadian canola, soybeans and meat, as well as rising farm debt.

Statscan pegged the all-wheat harvest at 31.3 million tonnes, down 2.9 per cent from last year owing to a smaller harvested area. The average trade expectation was 32.3 million tonnes.

That figure includes a steep decline in output of durum, the wheat used to make pasta, but a large harvest of spring wheat, Canada’s biggest crop.

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Statscan pegged spring wheat production at 25.1 million tonnes, the largest in six years. Durum output of 4.4 million tonnes would be the smallest since 2011.

Bountiful spring wheat production adds “ammunition” for bearish investors in a well-supplied global wheat market, said Neil Townsend, senior market analyst at FarmLink Marketing Solutions. Minneapolis September spring wheat futures dipped 0.7 per cent after the report.

The low durum forecast on the other hand appeared bullish for prices, he said.

Canada is one of the world’s largest wheat exporters and the biggest shipper of canola, a cousin of rapeseed used largely to produce vegetable oil.

On the Grain World Crop Tour of Western Canada earlier this month, scouts forecast a canola crop of 19 million tonnes, higher than Statscan’s estimate.

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