Canada-China canola spat could lead to more U.S. soybean demand

The canola market received a gut punch this week. China announced an anti-dumping investigation into Canadian canola imports following Canada imposing tariffs on Chinese electric vehicles. I’m not going to dive into the political rhetoric behind the news, there are plenty of other sources for that information. Instead, I feel it’s important to examine the effect the situation could or will have on commodity prices. Eventually, every market “takes a hit,” and this one was steep. Following the announcement Intercontinental Exchange canola futures experienced a limit move lower. While U.S. producers and non-canola growers may have shrugged off the news, the situation could have impacts among other commodity markets — particularly for soybeans and its by-product markets.

The announcement leaves plenty of unanswered questions looming over oilseed markets. However, this isn’t the first time canola has been in the crosshairs between the two countries. China previously banned canola imports from two of Canada’s largest exporters from March 2019 to May 2022. Like this past week’s announcement, it followed a political spat (again, I’ll spare you the political details). According to Statistics Canada, exports of canola to China in the 2023 calendar year totaled nearly 4.6 million tons, up from 2.2 million in 2022. That’s an increase of 170% during the first full year of the lifted embargo. Impressive but it’s still below the 4.8 million tons shipped in 2018, prior to the last canola trade dispute with China. It’s also worth noting that 2024 shipments have been on pace to meet last year with 2.7 million tons being shipped over the past six months. Is it dumping? Either way, the move will have repercussions.

Playing devil’s advocate, it’s also worth noting that China’s edible oil market is not strong. According to Chinese sources, domestic supplies are abundant, consumption has slowed, and crush margins have turned negative. If that’s true, the headlines this week could be a ploy — China’s way of slowing down imports without officially declaring the country is experiencing slowing demand. Not only grain demand, but also their economic situation. Outside markets started the shortened week lower due to weaker than expected economic data from the U.S. and China. This has been an ongoing back-and-forth narrative which makes the relationship important to understand. Especially as grains have continued to rally despite sharply lower crude oil prices. For fundamental traders, that’s an inverted relationship and a potential sign.

Typically fundamental traders rely on high oil prices to justify increased biofuel demand which ultimately firms corn and soybean markets. If China’s economy is slowing, the country’s demand for oil will slow as well. With that, one would assume corn and soybeans would trend lower. That was not the case this past week which is a welcomed sign. To me, this proves grain markets got overloaded to the sell side. However, that doesn’t mean grain futures are suddenly entering a bull market. Remember, grain fundamentals haven’t changed. The next round of monthly USDA reports will be released next week on Thursday, Sept. 12. Economic headlines will also be taking center stage over the next two weeks with monthly Consumer Price Index data being released followed by the highly anticipated Federal Open Market Committee meeting on Sept. 17-18. For producers, make sure you are using the recent rally to your advantage because the current outlook can quickly change.

It’s a revolving circle — literally. All of these moving pieces are going to continue to circulate across headlines and move markets. While one headline may not seem directly relevant to grain markets, it can have ramifications across numerous commodities. For producers, it reiterated the importance of taking advantage of opportunities as they arise and remaining in position in case it falls apart. Don’t let the market gut punch your operation.

Tags: China, export, canola, Canada, Production, imports, U.S., futures, Market