China may delay new canola dockage rules

It appears that the canola industry may get a little more breathing room to work out a dispute with China over dockage.

China’s quarantine agency, AQSIQ, notified the Canadian Food Inspection Agency Feb. 22 that canola exports from Canada would have to contain less than one percent dockage beginning April 1.

China is concerned dockage could contain blackleg disease spores that will make their way into the country and infect its rapeseed crops.

The new allowance is a dramatic shift from existing trade rules allowing a maximum of 2.5 percent dockage for commercially clean grain.

The Canola Council of Canada said the policy would bring $2 billion of trade with Canada’s top customer to a grinding halt.

However, it appears China may be willing to delay implementation of the new policy, according to a Canadian grain industry executive.

“The rumour mill that is going around is that maybe this thing gets delayed now until July,” said Lawrence Yakielashek, general manager of FarmLink Marketing Solutions.

He thinks the rumour makes sense because China is playing a high stakes game.

“Realistically, if the Chinese did stop the first cargo on April 1, you’re going to get a WTO (World Trade Organization) challenge,” said Yakielashek, who is the former president of Toepfer Canada, the Canadian arm of Germany’s largest grain trader.

The Canola Council of Canada was contacted for this story but said there is nothing new to report because negotiations with China are still ongoing.

Agriculture Canada was also contacted but did not respond in time to meet publication deadlines.

Another source in the grain industry, who requested anonymity because it is a politically sensitive subject, has heard that implementation of the policy may be moved back to Sept. 1 to allow further negotiations and grandfathering of existing contracts.

“Basically kick the negotiating can down the road,” said the source.

In the meantime, exporters have put the brakes on shipments to China. Yakielashek believes sales will fall one million tonnes short of the 4.3 million tonnes he had originally slotted for that destination.

“But since the China development, our domestic crush is just screaming higher. We’re going to probably pick up another 300,000 to 400,000 tonnes on our domestic crush,” he said.

Members of the Canadian Oilseed Processors Association crushed a record 188,081 tonnes of canola for the week ending March 16.

That is up 19 percent from the previous week and represents 91 percent of total crush capacity, which is well above the 82 percent average for the year.

Exports to other destinations have also picked up as buyers took advantage of lower prices. Before China made its announcement about tighter dockage, nearby canola was trading around $470 a tonne, but with the news it dropped to about $440 and was weak for several days before gradually rallying back toward $470.

“We were the cheapest canola in the world,” said Yakielashek.

Despite the uptick in domestic crush and sales to other customers, he expects carryout will blossom by 500,000 tonnes due to the China incident. However, he doesn’t find that worrisome.

“Our carryout was (going to be) extremely tight, just over one million tonnes. If you look at our five-year average we’ve never been there,” he said.

Some in the trade disagree with the council’s bleak outlook for trade with China if the less-than-one-percent dockage policy is implemented.

Derek Squair, president of Agri-Trend Marketing, who worked in the elevator system for 25 years, said grain companies typically clean to zero and then add dockage back in.

“It’s not a big deal to clean canola to two percent or to one percent,” he said.

He said companies will make up for the lost dockage by upping the price on shipments to China.

Yakielashek said that might be the case for big elevator companies, but he knows of a couple of smaller port terminals in Vancouver that couldn’t meet China’s new stricter allowances, and he doesn’t believe there is canola cleaning capability at the Port of Prince Rupert.

“You have to look at the amount of canola we’re trying to pound through these ports today. I know of a few facilities that wouldn’t be able to get it to one percent,” he said.

The policy could also prove problematic for inland grain terminals because those not located near feedlots have no outlet for their screenings.

He believes Canadian exporters will do little business with China.

The risk is too high, considering that a typical vessel loaded with 65,000 tonnes of canola has about $32 million of product on board, which could be stranded at sea, he said.

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