The canola market was given a shot in the arm on the weekend as the Chinese ambassador indicated that there would be a potential deal between Canada and China regarding the current tariff war.
The ambassador indicted that if Canada dropped its electric vehicle tariff, then China would eliminate its current tariffs on canola, canola products, peas and hogs.
Premiers Scott Moe from Saskatchewan and Wab Kinew from Manitoba were quick to jump on the announcement and called on the federal government to explore this deal.
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Both tariffs and protectionism are reshaping Canada’s agricultural landscape, particularly with the country’s two most critical export markets, the United States and China.
Unfortunately, the decision for the federal government is not that simple.
Chinese EVs are highly subsidised and would essentially be dumped on the Canadian market.
Complicating the decision is a recent announcement by Stellantis (Chrysler/Dodge) to move production of the Jeep Compass from Brampton, Ont., to Illinois. The Canadian auto industry is under direct attack from the United States, and the easing of tariffs for China would only increase the pressure on the industry.
This offer was a very strategic move by the Chinese government because it knows it has backed Canada into a corner. No matter what decision is made, someone will not be happy. Under these circumstances, the Canadian government is likely to delay any decision as long as possible.
Keep this in mind when marketing your canola this year. The fundamentals for canola are largely known, with higher production, slowing export demand and the prospect for rising ending stocks at the end of the year. The marketing strategy in this environment is to sell the rallies due to the expectation of flat to lower markets in the future.
The potential for a deal with China complicates the marketing situation.
Should a deal be reached, it is obvious that canola is undervalued at current levels. Unfortunately, there are no assurance that a deal will be made in the near future.
The best strategy is to stay the course with your canola marketing plan and hope for a resolution to the tariff situation with China.
