Canada Markets

After a $123.80/metric ton (mt) rally from the low March 17 to the high April 17 (so far), a profit-taking correction would be a surprise to no one. The interesting thing about markets is -- they can stay irrational longer than you can stay solvent in an up-trending market as well. Those that are short -- either physically or in the futures market -- are desperately hoping for a pullback, but that doesn't make it happen.

As is often the case, once it is safe to do so (without looking incompetent) and prices are strong, there is more bullish information circulating about the tight supply and strong demand causing the move. The latest explanation for the strength came from April 10's World Agricultural Supply and Demand Estimates (WASDE) update from USDA.

The USDA finally recognized the strong canola export pace to China (from Canada), increasing China's 2024-25 import estimate by 1 million metric tons (mmt), to 4 mmt from 3 mmt (still behind last year's 5.486 mmt). Canada was expected to supply that with our exports being increased by the same 1 mmt, to 8.25 mmt from 7.25 mmt previously. For reference, Agriculture and Agri-Food Canada (AAFC) has long been at 7.5 mmt for canola exports.

The Canadian Grain Commission (CGC) weekly grain statistics report more than backs up USDA's change with week 35 canola exports being the highest in months. Exports of 309,700 mt on the week surpassed the prior week's 233,000 mt and represented a whopping 16 times the 19,059 mt average pace needed for the remaining 17 weeks (to match AAFC's 7.5 mmt). Using USDA's revised 8.25 mmt in exports, shipments need to average 63,176 mt over the remainder of the year.

Week 35's total put exports to date up to 7.176 mmt compared to just 4.071 mmt last year. Domestic use slowed during the week (to 167,400 mt from 244,000 last week) but remains on a record pace at 7.908 mmt compared to 7.399 mmt last year. Most importantly, on a combined basis, disappearance is running 3.613 mmt ahead of last year's pace while Agriculture and Agri-Food Canada (AAFC) suggests it can only be 0.865 mmt ahead to leave ending stocks of just 1.3 mmt. Time is running out for prices to rise enough to discourage demand -- although they are finally trying to.

On the trade war front, no changes to the tariff situation with Canada and Mexico means free trade in United States-Mexico-Canada Agreement (USMCA) compliant agricultural commodities within North America remains. This is critical to canola oil and meal exports.

Regarding U.S. biofuel developments, a coalition of interested parties (from oil, biofuel and ag industries) met with EPA officials and proposed an increased blending mandate for 2026-28 of 5.25 billion gallons of biodiesel/renewable diesel compared to the expired 3.5-billion-gallon mandate (originally suggested to be 5.5 billion gallons to 5.75 billion gallons). That would require an increase in production compared to 2024, implying strong canola oil imports will be required, given the limited supply of soybean oil. Legislation has been introduced to make only homegrown feedstock eligible but even if passed, it would presumably result in soybean oil being taken out of food, feed and industrial use with canola oil replacing it there. For background, the USDA estimates 13.25 billion pounds of soybean oil will be used for biofuel production in 2024-25 with 13.9 billion pounds used for food, feed and industrial purposes.

Given trade between the U.S. and China is virtually blocked until something happens to de-escalate the situation, the loss of Chinese used cooking oil (UCO) imports are going to have to be replaced by something for such lofty biofuel mandate goals to be reached. For background information, the USDA reported total U.S. imports of UCO reached 1.27 mmt or 2.8 billion pounds in 2024.

Back to Canada, February trade data confirmed China had expanded its buying spree ahead of imposing the 100% tariffs (on canola oil and meal) with another 69,731 mt of crude canola oil shipped. That takes the two-month crude canola oil export total to 120,203 mt for China compared to (a revised) 14,708 mt in 2024, 121,287 mt shipped in all of 2023 and 185,109 mt shipped in 2022. Unfortunately, we won't know for sure how much they received in total by the time they imposed the 100% tariffs on March 20 until the trade data to the end of March is available on May 6, but clearly, they already had purchased much more than expected for the entire year by the time they were done in March.

Looking at canola seed export interest, China remained the top destination in February at 221,645 metric ton (mt). It could be assumed that the strong exports since may have been dominated by China as well. With seed not being included in the 100% tariffs imposed on canola oil and meal, China likely has been an aggressive buyer, taking advantage of the price break that they were responsible for.

Not to be overlooked, the European rapeseed situation keeps getting more supportive (for the canola market) all the time. In April 10's WASDE report, the USDA cut its 2024-25 production estimate by another 370,000 mt, resulting in a 3.533 mmt smaller crop than the previous year. Even with a 1.543 mmt increase in imports, EU is expected to use 1 mmt less domestically due to a lack of supplies while ending stocks fall 480,000 mt.

The market responded by making new life-of-contract highs following a rally of 49 euros or $77/mt CAD from Friday's low to Wednesday's high. That has kept the discount for Canadian canola to European rapeseed in the very wide $180/mt area, keeping export interest from them alive and well.

In fact, in February, EU countries accounted for 177,477 mt of canola seed exports -- putting them in the No. 2 spot ahead of Japan and Mexico respectively.

With strong basis levels found in Western Canada backing up this analysis, opportunities exist to market remaining old crop supplies incrementally into rallies at attractive levels. It also confirms previous suggestions that canola remains in the rotation for 2025.

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

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