U.S. and Chinese tariffs set to devastate the entire Canadian canola industry
The prospect of U.s tariffs on Canadian products has put significant pressure on the canola market. Since Trump’s election, Canadian canola prices have experienced high volatility, fluctuating in response to the progress, or setbacks, of trade negotiations between the U.S. and Canada. While U.S. tariffs on canola products and other goods remain on hold until April 2nd, market participants still hope for a resolution to this trade dispute. However, this scenario seems increasingly unlikely, especially after the recent escalation following Trump’s announcement of new tariffs on Canadian steel and aluminum, further straining bilateral relations.
Adding to the turmoil, China announced on March 8 its intention to retaliate against Ottawa’s measures on Chinese electric vehicles by sanctioning Canadian imports. As of March 20, China will impose a 100% tariff on canola oil and canola meal, further destabilizing the market. This announcement triggered a sharp decline in canola prices amplifying uncertainty for the entire Canadian canola industry.
As the world’s largest producer and exporter of canola and products, Canada plays a crucial role in the global canola market, and the recently announced U.S. and Chinese tariffs on Canadian agricultural products are causing significant disruptions. While Canadian canola seed exports to the U.S. are minimal, the U.S is a key market for canola oil and meal, both of which could be severely impacted by the 25% tariffs to be applied by the USA. The share of canola oil exports to the U.S. in Canada’s total exports has surged from 50-60% five years ago to 96% in 2023/24, following the EPA’s approval of rapeseed oil as a biodiesel feedstock in late 2022, which significantly boosted demand for Canadian canola oil. Similarly, over 60% of Canada’s canola meal exports were destined to the U.S. in 2023/24. To meet this demand, Canada expanded its crushing capacity by more than 25 to 30% since 2022.
On the other hand, China remains a key market for Canadian canola, accounting for 36% of canola meal exports. In addition, China imported 4.7 Mt of canola in 2023/24, which represents 70% of total Canadian exports. For now, China has excluded canola seed from its list of taxed products, offering temporary relief for Canadian exporters, but the risk of future restrictions persist since the Chinese antidumping investigation into imports of Canadian canola seed is still ongoing.
With nearly the totality of Canada’s canola oil and meal exports reliant on the U.S. and China, losing access to these two markets could have devastating consequences for the local industry. In response to lower prices, Canadian farmers may significantly reduce their canola planting, while crushing demand could decline sharply. Although Canada could redirect more canola seed exports to China, the EU, Japan, and Mexico, this would likely fail to offset the reduction in domestic crushing demand. If China extends tariffs to canola seed, the crisis will deepen, leaving Canada with limited export alternatives, which should be even more bearish for Canadian canola prices.
Disruptions Ahead for the US Soybean Market
In another chapter of the trade war, on Monday, March 10, China implemented an additional 10% tariff on U.S. soybeans in response to US tariffs on Chinese goods. Meanwhile, these tariffs are not set to cause huge disruption in the Chinese soybeans market. Indeed, over the past decade, China has steadily reduced its reliance on U.S. soybeans. In 2016/17 (before the 2018 trade war between the U.S and China), the U.S. soybeans accounted for 39% of China’s total soybean imports, but this share declined to approximately 23% in 2023/24. Meanwhile, Brazil’s share in China’s soybean imports grew significantly from 53% to 73% for the same period.
This shift from U.S. to Brazilian soybeans was largely driven by the 2018 U.S.-China trade war, when China responded to U.S. trade measures by imposing a 25% retaliatory tariff on American soybeans. As a result, U.S. soybean exports to China plummeted in favor of the Brazilian origin.
For the current marketing year, with abundant Brazilian soybeans available on the global market, China is unlikely to face supply constraints. Additionally, China has heavily invested in Brazil’s ports, enhancing the country’s ability to meet growing demand. Hence, with Brazilian origins benefiting from Chinese demand, Brazilian soybean prices are expected to rise, whereas U.S. prices could come under pressure since China accounts for more than half of U.S. soybean exports. Nevertheless, despite the increasing tariffs, the U.S. soybean flows to China could persist, although lower than initially forecast, provided that U.S. prices decline enough to remain competitive compared to Brazilian soybeans. The potential drop in U.S. exports could benefit to the domestic crushing industry, particularly given the expected strong demand for soybean oil in the food sector and for biodiesel production, potentially offsetting reduced purchases of Canadian canola oil. However, crushing dynamic could be constrained by meal demand, especially if counter-tariffs from Mexico and Canada were imposed, further weighing on U.S. meal exports. These two destinations accounted for 23% of U.S. soymeal exports in the 2023/24 marketing year.
Authored by:
Nouha Slama: Oilseed Market Analyst
Vyashini Chokupermal: Soybean Market Analyst
Anaïs Pigot: Rapeseed Market Analyst
