Trade analysts worry the dispute between China and the U.S. could also have long-term repercussions for Canada
Canadian farmers won’t likely benefit from the escalation in the trade war between the United States and China, says industry officials and analysts.
A number of grain market analysts thought wheat might be the one commodity that could reap the rewards of China’s recent announcement that it is stopping all agricultural trade with the U.S.
But that is not the case because Canada already usurped U.S. market share in China a long time ago, said Cam Dahl, president of Cereals Canada.
China hasn’t purchased any U.S. wheat since March 2018.
“We have seen a significant surge in our wheat exports to China this last crop year due to this political uncertainty as well as the droughts in Australia,” he said.
Bulk wheat exports to China were 1.88 million tonnes through the first 11 months of the 2018-19 crop year, making it the second largest buyer of Canadian wheat behind Indonesia.
Sales are nearly double what they were for the same period a year ago.
China buys high quality, high protein wheat from Canada. With Australia and the U.S. out of the market Canada is the only player left with that type of wheat.
That can change in a heartbeat if the U.S. and China come to terms on a new trade deal or if Australia reenters the market.
The Australian government is forecasting 21.2 million tonnes of wheat production, a 23 percent improvement over last year’s drought-reduced harvest.
China is working with Russia to reduce phytosanitary barriers to trade with that country. But Dahl said that isn’t a big threat to Canadian wheat exports because Russia supplies a lower quality wheat.
The big question is whether China is going to continue its torrid import pace with Canada’s new crop wheat because old crop supplies are depleted.
“The bins are pretty empty … really empty,” he said.
Dahl said the surge in Chinese demand is nice but he would much prefer it was driven by market forces rather than political friction.
“It increases risk and uncertainty for everybody and the risk and uncertainty comes with cost,” he said.
Derek Squair, president of Exceed Grain Marketing, believes China probably saw an opportunity to make a political stand because African swine fever has reduced its need to import soybeans and feed grains.
He doesn’t think there will be much of an opportunity for Canada to pick up demand for soybeans and corn.
“They can get what they need out of South America,” said Squair. “You’ve got to remember we’re not in China’s good books right now.”
Neil Townsend, senior market analyst with FarmLink Marketing Solutions, doesn’t expect any change in China’s canola import restrictions until after the Canadian federal election in October.
“They don’t want to give (Prime Minister Justin) Trudeau a big gift by solving it all right away,” he said.
The longer the dispute lingers the more he worries about the lasting impact of China’s spat with the U.S. and Canada.
“The bigger question longer term, and this is where the trade tensions really, really hurt not only the U.S. but potentially Canada, is how much of the market are we killing off permanently?” said Townsend.
He recalls during the waning days of the Canadian Wheat Board the long-term damage caused by skyrocketing durum and spring wheat prices.
“(Demand) was cut sharply and quickly and it came back slower than you would have thought,” said Townsend.