Political friction between China and Canada is raising worries that the Asian giant might limit its imports of canola.

Exports of the oilseed lag behind last year’s pace and if our biggest buyer were to slow purchases, it would be a serious thing.

There is worrisome talk that unofficial roadblocks are already hampering new sales, which would be a shame because up till now, booming shipments to China were the good news story in an otherwise lacklustre canola market.

Indeed, to the end of December, the most recent monthly statistics available from the Canadian Grain Commission, China’s Canadian canola imports this crop year were excellent, standing at 2.138 million tonnes, up 29 percent or 479,600 tonnes over the same period a year ago. (And by the way, in the same period, wheat exports to China more than doubled to 991,700 tonnes.)

It was the rest of Canada’s customers that had reduced canola imports.

The United Arab Emirates imported only 95,800 tonnes, down more than 200,000 from the same point last crop year.

Mexico’s canola imports stood at 544,300 tonnes, also down more than 200,000 tonnes from last year.

Pakistan took 291,200 tonnes, down about 140,000 tonnes.

Even stalwart Japan saw its canola imports fall to 872,300 tonnes, down from 985,700.

The most likely explanation is that cheaper American soybeans, excluded from their biggest market China because of the tariff war, were displacing canola in these markets.

The weekly export report from the CGC to Jan. 27, which shows tonnage exported but not the destination, says accumulated canola exports were 5.03 million tonnes, down about 400,000 tonnes from the same point last year.

Agriculture Canada analysts in January were still hopeful that movement would catch up. Its monthly report forecasted canola crop year exports at 11 million tonnes, slightly ahead of last year’s 10.7 million.

At that rate it forecasted that year-end canola stocks would be 2.3 million tonnes, a sliver lower than last year’s 2.5 million but up from 2016-17’s 1.34 million.

The future of the oilseed market remains clouded because of U.S.-China friction over trade and the potential security concerns associated with Huawei Technologies, China’s giant high tech company active around the world in developing 5G communication networks.

The parties reached a temporary truce in the trade war in December, allowing some U.S. soybean sales to China. However, the ceasefire lasts only until March 2 when American President Donald Trump says he will impose additional tariffs on Chinese imports if there is not a satisfactory permanent agreement.

In a goodwill gesture during negotiations last week, China agreed to buy another five million tonnes of U.S. soybeans. The impact of the news on the soybean futures market, and by extension to the canola market, was minimal. A permanent settlement of the U.S.-China trade battle looks closer now but is certainly not a sure thing.

And just for reference, as of Dec. 20, the most recent U.S. export data available, U.S. soybean exports to China for the crop year totalled only 341,000 tonnes compared to 18.9 million tonnes at the same point last year. The recent trade announcements won’t show up in the statistics for several more weeks because the reports are hopelessly delayed due to the partial government shutdown that lasted 35 days.

Meanwhile, Canada is caught in the crossfire of the China-U.S. conflict because it followed its legal obligations regarding America’s request for extradition of Huawei chief financial officer Meng Wanzhou. She faces 13 criminal charges in the U.S. for alleged violations of trade sanctions against Iran. Huawei and Meng deny any wrongdoing, and Beijing sees the charges as part of Washington’s effort to block China from involvement in telecom and internet developments critical to the future of the global economy.

U.S. security experts allege Huawei equipment could become a conduit for China’s government to get data and spy on other countries.

Meng remains under house arrest in Vancouver awaiting a court date of March 6, when the extradition request will be assessed. China has heaped criticism on Canada and the U.S. over this issue. The Chinese have already arrested two Canadians in China on what appear to be trumped up national security charges and you never know when they might further manifest their anger through a trade action. Canola would be an easy target.

Beyond political and trade issues, supply and demand news are also affecting the oilseed market.

On Feb. 1, the day after the Chinese buying announcement, influential consultancy INTL FCStone dropped its Brazil soybean production forecast to 112.2 million tonnes from 116.3 the previous month. Dry weather in December and January sapped yield potential. The last U.S. Department of Agriculture forecast, made in December before the partial government shutdown, was 122 million tonnes and the previous year’s production was 120 million tonnes.

Brazilian farmers are racing ahead with their harvest, reaping 21 percent of the crop as of Jan. 30 compared to 8.6 percent for the five-year average. However, they are complaining of disappointing yields.

So Brazil is providing both downward price pressure because of the early harvest and price support from the declining production estimates.

Often in bad years, crop estimates continue to decline until harvest is complete, so Brazil might yet see a 110 million tonne crop or less, down at least 10 million from last year.

However, that is offset by expectations that Argentina will return to a normal crop. The Buenos Aires Grain Exchange on Jan. 30 estimated its crop at 53 million tonnes. Last year’s crop was a disappointing 37.8 million tonnes.