Mecardo Analysis - “We are not taking your canola, eh”
- By: "Farm Tender" News
- Cattle News
- Mar 26, 2019
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By Andrew Whitelaw | Source: Mecardo, CME.
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Political intervention and trade tensions have been a primary driver of markets in the past year. We have had the US-China soybean tariffs, the Aus-China barley dumping investigation and now the Chinese block of Canola imports from Canada. In this update we look at the situation, and what it might mean for Australian producers.
In early March the Chinese government removed the import registration for major Canadian agribusiness Richardson International. This was a major blow for Richardson, who are the countries largest grain handler.
The reasoning for the ban was based on non-compliance for pests. However, there is speculation that this was related to the Canadian arrest of the CFO of Huawei. The arrest was carried out at the request of the United States on fraud charges.
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The Canola Council of Canada, however, released information on Monday which claimed that Chinese importers were “unwilling to purchase Canadian canola seed at this time”.
This is a major blow for Canadian producers, as they are the world’s largest exporter, closely followed by Australia (Figure 1). Canadian seed exports have averaged 9.5mmt over the past 10 years, with 40% of the total seed/oil/meal typically being dispatched to China.
In Figure 2, the top five importers are displayed. China has averaged around 3.8mmt, with the EU following behind at 3.4mmt. If the tensions between the two nations continue, then the trade flows will have to change. Will the EU preference for Non-GM result in price falls to make the trade work?
So what has the immediate impact been in Australia? The price received by producers has stayed relatively flat over recent weeks, trading in quite a narrow range. However, ICE futures have declined markedly. This has resulted in premiums over ICE increasing by approximately A$12/mt across most port zones (Figure 3).
Key points
* Canada (9.5mmt), Australia (2.5mmt) and Ukraine (1.6mmt) make up the overwhelming majority of canola exports.
* China is the worlds largest importer of Canola. This equates to roughly 40% of Canada’s exports.
* The premium for Australian canola over ICE futures has risen A$12 since Thursday.
What does this mean?
We continue to live in interesting times, where geopolitics seem to have bigger influences on grain and oilseed prices than fundamentals.
If these tensions endure between the two nations, it is likely to have a considerable impact on Canadian producers and the wider economy.
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At an Australia level, the change in trade flows could result in increased demand for Australian exports in the coming season.
It will certainly be an interesting couple of weeks whilst this develops and could result in some benefits for Australian producers.
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