China has been making canola sales harder, trader says

Canada’s increased difficulty exporting the crop to the Asian giant is linked to political tensions over the Huawei issue

Canada’s dispute with China over the detention of a Huawei executive is hurting canola sales to its top market, says a trader.

“It is definitely impacting our demand scenario into there, for sure,” said the Canadian canola trader who did not want to be identified.

Not much canola is being sold April forward, and product that has been shipped is facing increased regulatory burden at Chinese ports.

“Everybody is scared to bring anything in because ships are delayed discharging, they’re doing testing on the cargoes, they are holding the cargoes in storage before it can be crushed,” said the trader.

“The GMO certs are really hard to get all of the sudden since December. They have found ways to prevent you from getting them.”

Importers have switched to buying soybeans because they are easier to bring in. He said canola is definitely being targeted.

“They are willing to execute what they already have bought, but they’re not willing to make new purchases,” said the trader.

China has been Canada’s top canola export market by far in 2018-19. It purchased 2.14 million tonnes of the crop during the first five months of the campaign, accounting for nearly half of all exports.

China is irate that Canada is holding Huawei chief financial officer Meng Wanzhou for possible extradition to the United States, where she faces 13 criminal charges.

The trader believes the new barriers to canola trade in China are pure retaliation for the Meng’s case and it won’t be resolved anytime soon.

He is noticing that one of Canada’s big elevator companies is already looking elsewhere for canola sales.

“They are taking the view that Chinese demand will not be there and they need movement, so they are looking for any other home they can find for it right now and if they see a bid they’ll hit it,” said the trader.

Bruce Burnett, analyst with Glacier’s MarketsFarm, said this doesn’t bode well for canola prices.

“There is significant risk right now that we’re going to have higher carryout,” he said.

“It’s not painting a great picture here.”

It could lead to reduced canola acres in 2019.

Burnett said growers might want to consider locking in November 2019 futures prices of about $500 per tonne, which is a good starting point for new crop sales, especially if the China situation lingers.

However, they should also keep in mind that if there is a resolution to the U.S.-China trade war, that could boost the entire oilseed complex.

However, if things stay the same, it is going to be tough to find new markets for the canola China is no longer buying, especially with cheap U.S. soybeans competing for demand, said Burnett.

The trader said markets like the U.S., Japan and Mexico are not big growth markets, so it is hard to drum up additional demand.

Canadian canola would be price competitive into the European Union’s biodiesel sector, but shipping to that market requires sustainability certificates and there is a limited amount of certified canola.

Pakistan is another potential target, although there is stiff competition from cheap sunflowers and soybeans in that market.

The lull in Chinese sales hasn’t been reflected in prices so far, largely because growers haven’t been big sellers. But it will eventually catch up to the market as sales back up and stocks blossom.

“If you think you’re going to need cash flow over the next six months, you should be aware that the price prospects aren’t looking great these days as a result of that conflict,” said the trader.

Burnett worries about the long-term consequences of the dispute. Will the trade woes continue even after the resolution of the Meng case?

His gut feel is that Canada and China will eventually work things out because they have a long and fruitful trading relationship with one another.

“I don’t think we can remain in the deep freeze forever, but certainly temporarily we are in the deep freeze,” he said.

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