The rapeseed market faces an "explosive situation" thanks to the potential for "quite severe" crop losses to drought in Australia and Canada, Oil World warned.
The influential analysis group, saying it was preparing to revise its global forecasts for rapeseed in 2017-18, cautioned that Canada's harvest of the canola variant may fall "to or below" 18.0m tonnes, a three-year low.
The decline would come despite record Canadian canola sowings this year, which official data peg up 1.0m hectares year on year at 9.24m hectares, eclipsing all-wheat plantings for the first time.
However, crops are battling against dryness which is set to resume, after some showers in Saskatchewan and Manitoba earlier this week.
"Moisture supplies were already sharply below normal at the beginning of August, adding to the risk of lower-than-expected Canadian canola yields this season," Hamburg-based Oil World said.
Official data showed soil moisture "short" or "very short" over 70% of Saskatchewan, the top producing province, as of the end of last month, while in Alberta, the 57% of canola rated in "good" or "excellent" condition as of the start of August was down 27 points year on year.
Manitoba said on Monday that "moderate-to-hot weather from past weeks has… caused some injury in canola", evident in "heat blast" damage to crops in some areas and aborted or blank pods.
"Forecasts of above-normal temperatures and below-normal rainfall in the Prairies will further stress developing canola crops in the next two weeks," Oil World said.
Canola crop losses in Canada, and Australia, where dryness has also rung alarm bells, "may be quite severe, sharply reducing export supplies in 2017-18 and requiring demand rationing", Oil World said.
"An explosive situation may be developing."
Improved rapeseed harvest prospects in France and Ukraine "can only moderate but not offset the tightness" stemming from Australian and Canadian downgrades.
In Winnipeg, canola futures for November on Thursday edged 0.1% higher to Can$511.60 a tonne, taking to 2.3% their gains so far this week.
Indeed, the premium of canola over oilseed-peer soybeans, as traded in Chicago, has this week "hit season highs of about $45 a tonne", said Tobin Gorey at Commonwealth Bank of Australia.
Paris-traded rapeseed futures for November stood at a one-month high of E373.50 a tonne, a gain of 0.3% on the day.
Wheat read through
The worries over Canadian dryness have helped support Minneapolis-traded spring wheat futures, which for December stood up 0.2% at $7.46 ¾ a bushel, despite some less-dismal-than-expected reports from the early harvest in the northern US Plains, where dryness has been particularly severe.
"Early harvest results from eastern North Dakota [are] reporting average yields and no quality woes," said Minneapolis-based Benson Quinn Commodities.
Still, the broker added that that the US Department of Agriculture, in its flagship Wasde crop report due later, "should lower" its estimate for Canada's wheat output from 28.35m tonnes, "with private analysts' estimates ranging from 24m-27m tonnes".