Canada: Analyst confident canola can weather anti-dumping storm

Canada is well equipped to handle the latest canola dispute with China, says an analyst.

For one thing, the industry has become far less export dependent the last couple of years, said Chuck Penner, analyst with LeftField Commodity Research.

He is forecasting that crushers will process 11 to 12 million tonnes of the crop in 2024-25, leaving about seven to eight million tonnes for export.

“We used to have to export over 10 million tonnes,” he said.

China’s Ministry of Commerce announced Sept. 3 that it is initiating an anti-dumping investigation into canola seed imports from Canada.

For many in the trade, it brings up painful memories of March 6, 2019, when China suddenly blocked shipments of Canadian canola from Richardson International and Viterra over supposed phytosanitary concerns.

Penner said the current situation is an entirely different scenario than five years ago. He thinks Canada is well equipped to weather the storm on the horizon.

The market does not appear to share his chill attitude. Nearby canola futures plunged by the daily limit of $45 per tonne on Tuesday as the market expressed “fear and anxiety” about Canada potentially losing its top customer.

Penner noted that the anti-dumping investigation is likely to take months. During that time, Chinese crushers could well be frantically importing as much canola as they can get their hands on before any duties are applied.

“It’s possible that we see a boom in canola exports in the short-term,” said Penner.

“We could conceivably move a million tonnes or more in the first quarter to China.”

That would take a lot of pressure off for the 2024-25 marketing campaign.

He also noted that sales to traditional markets such as Japan and Mexico have been way down the last couple of years due to stiff competition from Australia.

The Australian government is forecasting 5.44 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 big 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 (UAE) was a big buyer of Canadian canola during the last trade spat, crushing it and selling the oil to China.

The UAE may do the same again in 2024-25 because almost all of Canada’s canola oil is going to the U.S. renewable diesel market these days, where in the past large volumes were moving to China.

If all those things transpire, Canada might not need China to buy canola during the last half of the year.

Chris Davison, president of the Canola Council of Canada, said the council is going to 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.

“Let’s be really clear, exports are critically important to the success of our industry, and they will continue to be so.”

Davison said 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.

The council said China’s investigation is part of its response to Canada’s decision to impose tariffs on Chinese electric vehicles, steel and aluminum.

“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,” said Davison.

He agrees with Penner that the current potential trade conundrum is a far cry from the previous one.

“The situations and the measures are very different,” he said.

Industry officials believe the previous dispute was political retaliation for Canada detaining Huawei chief financial officer Meng Wanzhou.

The restrictions were lifted on May 18, 2022, shortly after Canada dropped its extradition proceedings against Meng.

Only the exports of Richardson International and Viterra were affected during that long-lasting dispute. All the other grain companies were still allowed to ship canola to China.

Total export volumes were halved during that three-year stretch.

Davison said it is still early days, and China has released no details about the scope, process or duration of its anti-dumping investigation.

Penner said the best parallel for the current scenario is China’s recently resolved anti-dumping case against Australian barley.

There was a brief investigation followed by implementation of an 80 per cent tariff on Australian barley, which effectively killed trade between the two countries.

He expects a similar result in the Canadian case.

“Canola has become a bit of a favourite whipping boy for China,” said Penner.

“I’m always a little surprised that they’re willing to cut off their nose despite their face because there are limited other options for canola.”

There were plenty of other options for Australian barley, including Canadian exports, which soared during that dispute.

Penner scoffs at the notion that China’s case is based on soaring canola imports from Canada, which experienced a 170 per cent increase in volume in 2023 compared to the previous year.

He noted that is because exports from Richardson International and Viterra were still banned for almost half of 2022.

“The fact that volumes change is no evidence at all of subsidies or dumping,” said Penner.

Tags: Market, anti-dumping investigation, China, exports, canola, Canada, imports