China became even more of the 800-pound gorilla in the room when it announced Sept. 3 that it plans to launch an investigation into canola dumping by Canada.
As Canada’s largest foreign canola customer by far, China has always had a good measure of sway over canola futures on the Intercontinental Exchange, and its latest move sent prices tumbling.
Beijing’s action was a response to Ottawa’s recent 100 per cent tariff hike on Chinese-made electric vehicles, as well as a 25 per cent tariff increase on steel and aluminum imports from China.
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Although losses hit down limit that September morning, a record breaking volume of nearly 124,800 contracts saw canola take a decent step away. The nearby November contract ended up losing $23.80 per tonne, and the January retreated by $20.80. While both incurred another round of losses on Sept. 4, the bleeding stopped the next day, but any rally is unlikely.
The vegetable oil market managed to turn around on Sept. 5, with spillover finding its way into canola. While gains in the Canadian oilseed were far from enough to recover losses from earlier in the week, it showed the market wasn’t overly keen on sliding below $570/tonne in the November contract.
Just as Canada’s two largest railways were getting their transportation services back on track (pardon the pun), the Prairie harvest ramped up. Pressure on canola was already being felt when China made its announcement.
Adding weight to the situation are the soon-to-begin United States soybean harvest and early prognostications of Brazil’s next soybean crop. Yields in both countries are projected to be quite hefty.
There is some help for Canadian canola because the crops in the European Union, Ukraine and Australia will be smaller than last year. As well, China is likely to have a smaller canola harvest this year.
It’s unknown how long China’s investigation will take. It may be several months to a year before the results are made public. Maybe longer, maybe shorter. The key is for the market not to overreact in the meantime.
