SASKATOON — Mike Jubinville spent a portion of his weekend poring over his canola supply and demand balance sheet.
“To be honest with you, I was starting to feel pretty optimistic about canola,” he said.
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The numbers indicated there would be extended periods of 2024-25 where the market would need to ration supplies, resulting in a run-up in prices.
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A couple of days after that bullish thought entered his head, China’s Ministry of Commerce announced it was initiating an anti-dumping investigation into canola seed imports from Canada.
“As of Tuesday morning, all the pieces on the board got thrown on the floor,” said the MarketsFarm analyst.
“Now it feels like a different game.”
Nobody knows how long the investigation will take, but Jubinville is convinced it will result in punitive, trade-distorting tariffs.
The market responded by falling the limit of $45 per tonne Sept. 3.
However, analysts seem to think Canada should be able to weather the looming China storm, at least in the 2024-25 crop year.
People in the trade have told Jubinville that China already forward purchased 3.5 million tonnes of Canadian canola for this crop year.
He was thinking the country would take an additional 1.5 million tonnes before the end of 2024-25, but that additional volume and some of the pre-booked sales might now be in jeopardy.
Chuck Penner, analyst with LeftField Commodity Research, is keeping his fingers crossed that Chinese crushers will import as much Canadian canola as they can before implementation of duties.
“It’s possible that we see a boom in canola exports in the short-term,” he said.
“We could conceivably move a million tonnes or more in the first quarter to China.”
Penner noted that China’s anti-dumping investigation into Australia’s barley exports took 18 months, so it’s conceivable there could be no real impact for the entire 2024-25 crop year.
Even if China does not take delivery of all the canola it has forward purchased, it doesn’t necessarily spell disaster for the oilseed because the industry has become far less export dependent of late.
Penner is forecasting that Canada’s crushers will process 11 to 12 million tonnes of the 2024 crop, leaving about seven to eight million tonnes for export.
“We used to have to export over 10 million tonnes,” he said.
Other markets could pick up the slack caused by a reduced program to China.
Sales to traditional markets such as Japan and Mexico have been languishing well below normal the last few years due to stiff competition from Australian canola.
The Australian government is forecasting 5.5 million tonnes of production in 2024-25, which is in line with last year but a far cry from the 8.27 million tonnes produced two years ago.
So, it is possible that Japan and Mexico could return to buying more normal levels of Canadian canola this year, which would be a huge help.
Penner was already pencilling in higher sales to the European Union, which had a short crop this year. Ukraine won’t be as much help as it has been in the EU market due to a disappointing crop in that war-torn country.
The United Arab Emirates was a big buyer of Canadian canola during the last trade spat, and it could come to the rescue again.
Jubinville agrees that Canada’s canola sector might be OK even if duties are levied before the end of the crop year.
He thinks the market initially over-reacted to the China news, which it tends to do when any type of uncertainty is introduced.
He still sees Canadian canola carryout dropping at the end of 2024-25. While he is no longer “outright bullish” about the crop, there will be times during the year when canola will need to be priced to discourage exports.
However, there are other factors besides China’s announcement that will keep a lid on prices.
“We still have this giant South American/American soybean situation that sort of puts the thumb on the scale here,” said Jubinville.
Not everybody is as optimistic about the outcome as the analysts. Morningstar DBRS, an international credit rating agency, says Canada’s canola industry could suffer losses similar to those incurred during the last dispute with China.
Industry estimates pegged those losses at $1.54 to $2.35 billion per year, according to a Canadian Press story.
Saskatchewan agriculture minister David Marit and trade and export development minster Jeremy Harrison sent a letter to their federal counterparts stating that they warned Ottawa this could happen.
“We are disappointed that once again Saskatchewan will be negatively impacted by Chinese retaliation,” the ministers said in their letter.
Chris Davison, president of the Canola Council of Canada, said the current anti-dumping case is different than the previous phytosanitary-based trade dispute with China.
The current one potentially involves the entire industry, while the previous spat only ensnared Richardson International and Viterra.
The last dispute ran from March 6, 2019, to May 18, 2022, when China lifted its export restrictions against the two grain companies.
Total export volumes were essentially halved during that three-year stretch.
Davison said the council intends to fully participate in China’s investigation.
“We are confident that an investigation into Canada’s canola trade with China will demonstrate alignment with and reinforce our support for rules-based trade,” he said.
In the meantime, the council will be busy promoting the crop in traditional markets and in some potential new ones.
“We will continue to put effort into all markets of significance and opportunity,” he said.
The council remains focused on exports despite the meteoric rise in domestic crush capacity.
“Let’s be really clear, exports are critically important to the success of our industry, and they will continue to be so,” he said.
Davison stressed that any market development efforts will be aimed at complementing rather than replacing the Chinese market.
“China remains an absolutely critically important and valued market for us,” he said.
