Canada Markets

No matter what the reason is for tariffs that have been put in place against Canada by U.S. President Trump, it has become increasingly clear there is nothing Canada can do to change the outcome. It looks like it is time to accept the fact that those tariffs will likely be in place for some time, take the emotion out of it, and figure out a plan forward.

The economy is far too large and complex to venture out of my lane, but I would like to look at canola as an example. With it likely having the greatest risk given the growth in demand for canola oil alongside the growth of the U.S. biodiesel and renewable diesel industry, that's a prime spot to start.

Up until 2023, the U.S. imported a fairly consistent 1.5 million metric tons (mmt) or 3.3 billion pounds of refined canola oil, primarily for use in food, feed and industrial processes. That would likely be more price-inelastic with importers more willing to cover the tariffs and pass them on to consumers. For the last two years, it has jumped by another .44 mmt or 970 million pounds with that more likely tied to the increase in renewable diesel production. The potential for that demand to be maintained is more likely tied to the Trump administration's support for the industry through a reinstatement of blending credits (or equivalent).

The surge in canola oil exports to the U.S. helping to feed the dramatic increase in biofuel production was the crude product displayed in the accompanying chart. As you can see, by 2024 (in green) American firms imported just over 1.4 mmt of crude canola oil from Canada or 3.09 billion pounds, up from only .242 mmt in 2020. At the same time, Chinese imports of crude canola oil from Canada fell from 1.09 mmt in 2020 to just 665 kilograms in 2024.

If exports to the U.S. fall because of tariffs, Canadian crushers will surely be trying to re-establish connections with China -- who would also be looking to replace U.S. soybeans thanks to their own tariff war. That would work into a political frame of letting China save face by restricting Canadian canola seed imports as part of their anti-dumping investigation, while still supporting the industry through canola oil and meal purchases. The same thing happened during the Huawei dispute between Canada and China from 2018-2021 (see chart).

Regarding canola seed sales, the United States has been an insignificant export destination for years with only 277,000 mt shipped to them compared to imports from the U.S. of 144,600 mt in calendar year (CY) 2024. China on the other hand imported 5.864 mmt of canola seed from Canada in CY 2024.

Going forward, European countries look likely to take over as the primary destination for canola seed with a combined 304,147 mt of canola imports in December alone. France took top spot for the month at 130,800 mt.

Given EU rapeseed production in 2024 fell by 2.694 mmt, or 13.5%, from the previous year, USDA expects they will need to increase imports by 1.393 mmt over last year (to 6.850 mmt). The problem is, "Other Countries" including Australia and Ukraine have less to export with that category's 2024-25 total exports expected to fall by 2.247 mmt. So where will the canola come from? Canada, as much as possible according to USDA.

For reference regarding their capacity, in calendar year 2020 European Union countries imported 2.523 mmt of Canadian canola. Clearly the greatest obstacle in the months ahead will simply be the supply of canola in Canada.

The market is helping with the process given ICE canola's unusually large discount to European rapeseed remaining. As the production difficulties in 2024 unfolded in Europe and the Chinese anti-dumping investigation into Canadian canola was announced, the discount for canola relative to rapeseed widened to a near record $211/mt CAD set on Dec. 17. It narrowed to $92/mt in early February but recently increased to $160/mt, well above the normal range of even money to $100/mt discount for ICE canola. In short, canola is still on sale as far as Europe is concerned.

That continues to be reflected in weekly export data released by the Canadian Grain Commission. According to the weekly grain statistics report for week 29, exports have already hit 6.021 mmt compared to 3.287 mmt at the same point last year and current annual projections of 7.5 mmt. That was thanks to another strong week with 174,900 mt exported, up from 172,800 mt the week before and almost triple the 64,300 mt average needed for the remaining 23 weeks. Domestic disappearance was not to be outdone with 6.604 mmt consumed in the first 29 weeks compared to 6.045 last year.

For the 20024-25 crop year, it is easy to see from this that a slowdown in crush once current canola oil export contracts have been fulfilled would not be the end of the world as the tariff situation is sorted out. In the meantime, it's hard to imagine the Canadian canola crushing industry not being in contact with the Chinese.

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I welcome feedback along with any suggestions for future blogs. My daily comments can be found in Plains, Prairies Opening Comments and Plains, Prairies Quick Takes on DTN products.

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

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