Winnipeg (CNS Canada) – ICE Futures Canada canola contracts moved steadily higher over the past week as grain markets reacted to a mounting trade dispute between China and the United States.
While no sanctions are yet in place, the back-and-forth sabre rattling between the two large countries now includes proposed Chinese tariffs on U.S. soybeans, which weighed heavily on the Chicago Board of Trade Futures as China is a major buyer of U.S. beans.
“I suspect there is plenty of bluster, but the issue will eventually settle down,” said analyst Mike Jubinville, of ProFarmer Canada.
Read Also
Federal government to unveil promised aid for canola sector soon
Canada will soon unveil a series of promised measures to help the steel and aluminum sector deal with U.S. tariffs, and will also aid canola farmers, government officials said on Thursday.
However, in the meantime, the prospect of tariffs on soybeans “could actually be an aid to canola,” said Jubinville pointing to the possibility that China could end up buying more canola from Canada.
The Vancouver cash basis has moved from about C$40 per tonne above the futures, loaded on the boat, to around C$60 per tonne over the past day, according to Jubinville. “I think China is doing some anticipatory buying as a precaution,” he said noting that port prices for soybeans in Brazil were also seeing a jump.
“This is providing some underlying support for canola futures.”
In the bigger picture, if China buys fewer soybeans from the U.S., they’ll still buy them from somewhere else. If Brazil is then selling more beans to China, that means they have less to sell to Europe or elsewhere, which in turn opens the door for the U.S. to go other places.
“It’s not that we’ll trade less soybeans out of the U.S., it’s just trading the dance partners,” said Jubinville.
While the China/U.S. dispute may yet blow over and the volume of grain traded will remain the same, it will create increased volatility in the marketplace, said Jubinville.
While Canada could see more demand, the pipeline is limited and canola is still facing its own logistics issues.
“The garden hose to the West Coast is only so big,” said Jubinville.
