The trade war between the United States and China is having a nice spillover effect for Canada’s canola industry.
As part of the escalating tit-for-tat dispute China announced it is applying an additional 25 percent tariff on U.S. soybeans and other goods starting July 6 in response to tariffs the U.S. is applying on $50 billion of Chinese goods.
The tension ratcheted up last week when U.S. President Donald Trump threatened to impose a further 10 percent tariff on another $200 billion of Chinese products. China said it would respond in kind and soybeans would once again be in the crosshairs.
Nearby soybean futures prices have plunged nearly $2 per bushel since March 1, when Trump started the war by threatening to apply tariffs on imported steel and aluminum from China and other exporters.
James Rea, assistant vice-president of oil and co-products marketing with Richardson International, said the tariff tiff has been positive for Canadian canola, oil and meal
because China needs to replace lost U.S. soybean imports with other oilseeds and oilseed products.
“It has amplified the demand but China’s interest has been there really in the past several years,” he said.
China’s canola seed imports are restricted by the country’s blackleg rules. There are a limited number of crushers at specified locations that can import Canadian canola.
But Rea said the capacity at those plants exceeds the four to 4.5 million tonnes of annual Canadian canola imports by a wide margin.
“It would seem like there is some room on the dial,” he said.
Chinese demand for Canadian canola oil has picked up tremendously in the last six months with the pace of sales in 2018 well above the past two years.
Meal sales have been consistent, with no appreciable increase or decrease. But a recent policy change could provide a boost.
According to the Dim Sums blog, China has waived inspection and quarantine requirements for imported canola meal and a bunch of other alternative meals as of June 1,
2018. But it has kept the requirements in place for soybean meal and distillers grains.
“While the customs notice claims that the items were selected on the basis of risk evaluation, the choice of items appears to be based on strategic considerations of protecting domestic industries and fostering alternatives to soybeans,” stated the blog.
Rea said he hasn’t seen any uptick in canola meal demand yet but it is a positive development.
“If you can get in there without having to jump through the same hoops as the other guy, then it certainly shouldn’t hurt demand for our products,” he said.
Rea said the escalating tariff dispute is only one factor behind strong Chinese demand for Canadian canola, oil and meal.
Another major factor is China’s declining domestic rapeseed production. The U.S. Department of Agriculture is forecasting 14.2 million tonnes in 2018, down from the high of 14.9 million tonnes in 2015. Some in the trade believe the real number is a fraction of that.
Rea said the government has also significantly drawn down its rapeseed oil stocks the last couple of years. Some of that may have been transferred into commercial hands but he doubts it is based on the pace of new purchasing of rapeseed/canola oil.