The big news in grain markets last week was China imposing tariffs on Canadian canola. In theory, this should be good for Australian canola prices, but markets are yet to see it that way
Long before Trump came in and started toying with tariffs and international markets, China were already wielding their power through trade. Grain growers will no doubt shudder at the thought of the barley tariffs imposed as an ‘anti-dumping’ measure, which eliminated the trade to China overnight.
Canadian canola growers have just copped the same hit, but they likely saw it coming. Last week, China imposed a 75.8% tariff on Canadian canola as an anti-dumping measure. China had already imposed tariffs on Canadian canola oil and meal, but seed was the biggest market.
China is Canada’s largest customer for canola, having taken 38% of Canada’s exports to June. Other large markets are Japan, the EU for biofuel, and Mexico. The US doesn’t take much canola seed, but a lot of canola oil and meal.
The reaction of Canadian canola markets was a swift decline. Figure 1 shows ICE Canola falling around $50/t last week as traders have to find new markets. Matif rapeseed, which is a French contract for non-GM canola, lifted slightly, and prices here were relatively steady for both GM and non-GM canola.
The market is likely digesting the move, and with little canola being traded at this time of year, rapid moves are unlikely.
In the US, the news boosted soybean prices, with canola and soybeans being somewhat of a substitute in oilseed markets. A lift in GM canola prices could be expected here too, with the expectation that the market could again open soon. The timing seems convenient.
The spread between Australian non-GM canola, which is largely exported to Europe, and GM canola could narrow on increased Chinese demand. Although with other markets still in common with Canada, it’s hard to see our GM canola prices moving to a large premium over ICE Futures.
What does it mean?
Canola is looking like the saving grace for grain growers who produce it this year, with cereal prices in the (relative) doldrums. Chinese tariffs on Canadian canola won’t be bad for our prices and could give GM values a boost
Key Points
- Wheat prices have been easing, while canola prices have been stronger in recent weeks.
- Short covering is helping support canola, while continued bearish news depresses wheat.
- With increased costs of production, some expect markets to be approaching lows.
Click on figure to expand
Data sources: ICE, Bloomberg, CME, Mecardo
