Canada Markets

It is completely understandable if soybean acres fall further from the March Prospective Plantings report estimate given the escalation of tariff wars between President Trump and China -- and the resulting breakdown of the new-crop soybean/corn price ratio. Not only does that suggest an opportunity for American producers in the event of a de-escalation of tensions, but it also sends a very strong message to Canadian producers to keep oilseeds in their rotations.

The soybean/corn price ratio is simply the price of November soybeans divided by the price of December corn (when comparing new crop). It is designed to represent the profit potential advantage of one crop compared to the other, thereby affecting seeding decisions. The market's reaction to the planting intentions report and the impact on the ratio is important in predicting what to expect for final seeded area.

As you can see from the accompanying chart, the initial reaction was a jump back over 2.30 -- suggesting the March intentions report could mark the peak in corn acres with soybeans regaining some of the flex acres. According to the traditional benchmark of 2.50 being the tipping point, that might not have been the case, but the high cost of growing corn appears to have altered that recently. For more see my previous blog on the topic here: https://www.dtnpf.com/….

Then came the reciprocal tariff announcement that included a 34% increase in tariffs on imports of Chinese goods, taking them to a 54% increase since inauguration day. China retaliated by imposing a matching 34% tariff on imports of U.S. goods, taking them to 44% to date and in effect pricing American soybeans out of the market. The impact was as swift and aggressive as one would expect, dropping November soybeans $.61/bushel in two days, severely impacting the price ratio as seen on the chart.

Corn had much more of a muted reaction given China's absence from the corn market to date while exports have thrived. With producers being acutely aware of all of this as the planters are heading to the fields, a further reduction in soybean acres from the March estimate is now very likely.

That does provide an excellent opportunity for those remaining American soybean acres given the unsustainability of the tariff war between the U.S. and China. To stop trade between countries cold turkey after taking decades to develop such a significant interaction would have devastating impacts on both countries. So much so that some sort of a resolution will be hard to avoid. Even if relations don't return to normal, trade will surely be needed.

That takes us to potential opportunities. At 83.5 million acres of soybeans estimated by the USDA, production may barely be enough to satisfy current demand projections depending on yield, let alone a further reduction in area. Obviously, that is based on a resolution to the tensions with China.

The signals are much clearer to Canadian producers -- keep oilseeds in rotations as much as possible, even consider expansion. Not only does the soybean/corn price ratio and tariff war imply a cut in U.S. acres, supporting oilseed values in general, the tensions suggest interest in Canadian canola (or product) imports from both countries could be higher. The fact that the reciprocal tariff announcement did not contain any new issues for Canada, USMCA compliant agricultural commodities can continue to flow freely within North America (including canola oil and meal).

Soybean production in western Canada in particular should be met with strong demand from China from either a lack of U.S. production based on reduced acres or from trade tensions with America. With China responsible for the greatest positive basis in Western Canadian history (+$4/bushel over Chicago soybean futures in late fall 2022), more of the same is looking possible this year.

With recent advances in a 2026-28 national biofuel policy in the U.S. potentially seeing a biodiesel and renewable diesel blending mandate of 5.5 billion to 5.75 billion gallons versus the expired 3.5 billion-gallon-mandate, canola oil demand should remain strong. Should tariff wars eliminate imports of Chinese used cooking oil, interest could increase further. Crush capacity in the U.S. and insufficient markets for excess soybean meal would likely limit the ability of soybean oil to fill the used cooking oil void.

All of this has occurred after the market put canola seed on sale for the world, encouraging demand at a time when it should have been discouraging it. With total disappearance to date now 3.412 million metric ton (mmt) ahead of last year while Agriculture and Agri-Food Canada is predicting a mere .865 mmt year-over-year increase, leaving just 1.3 mmt of ending stocks, demand needs to be slowed. But time is running out and price rationing looks to be the only remaining option.

The market also needs to ensure that fears over the Chinese tariffs on canola oil and meal don't result in a serious reduction in acres. With the potential for increased demand resulting from trade tensions, the crop has no room to shrink further.

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Mitch Miller can be reached at mitchmiller.dtn@gmail.com

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