Latest China-canola controversy not easy to fix

Whenever Canadian canola receives national attention, it isn’t usually a good news story.

Officially, the Chinese say the cancellation of Richardson canola exports is due to some sort of pest problem in shipments. Although this is highly unlikely, it isn’t impossible. Remember back when traces of unregistered genetically modified flax were found in Europe? Canadian officials initially discounted the possibility.

If indeed, as most observers expect, the Chinese action is a response to the arrest of Huawei executive Meng Wanzhou, this opens the door to an array of questions and scenarios.

Did this decision come from some intermediate level of the Chinese bureaucracy or was it orchestrated at the highest levels?

And why single out Richardson? Because it’s the largest canola exporter? Because it’s a Canadian owned private company? Some lingering grudge over the canola dockage issue from a few years ago? Because Richardson dropped out of the Canola Council of Canada last year? Or some combination of the above?

The even bigger question is what happens next. Will other Canadian exporters be targeted? There must be a certain level of trepidation as Richardson’s competitors load vessels of canola bound for China.

And we shouldn’t forget that China is a leading buyer of other Canadian commodities, most notably wheat, peas, flax and barley.

Amazingly, while the Canada-China situation deteriorates, there’s a great deal of optimism that the United States and China will reach some sort of agreement to stop their trade war. Heavy Chinese tariffs on American soybeans have been a factor in the softening of soybean prices and that has dragged canola prices lower as well.

A resolution between the superpowers could boost soybean prices, but canola might not benefit if Canada remains in Beijing’s bad books.

Even though it was an American extradition order that generated the arrest of Meng Wanzhou in Vancouver, China seems happy to negotiate with the U.S. while playing the part of schoolyard bully when it comes to Canada. We’re obviously a safer target.

As long as the Huawei queen is under house arrest at her Vancouver mansion, it’s difficult to contemplate a reversal of China’s approach. Unfortunately, court proceedings are likely to take years. The only potential salvation might come from the U.S. dropping its extradition order.

Canola prices that were already dropping fell even further when Richardson was targeted. A few months ago, you might have targeted canola at $11 a bushel in your 2019 cropping plans. What should that number be now — $10.50, $10 or even lower?

Beyond the politics, an important supply and demand issue looms. African swine fever is decimating China’s hog industry. Just how much hog production will drop is anyone’s guess, but some analysts expect a dramatic reduction in their grain supply needs. This will make it even easier for China to play favourites among export suppliers.

The Trudeau government is under tremendous pressure to fix the mess, but at this point no easy answers are evident.

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