“Roller coaster ride” of Canadian soybean and rapeseed exports to China

In 2018, Canadian soybean exports to China increased by 80% from a year ago, to almost 3.6 MMT. The reason was raising Chinese import tariffs on U.S. soybeans to 25% in retaliation for an increase in American import tariffs on goods from China. As U.S. soybeans had become more expensive, Chinese buyers were forced to look for alternative suppliers, in particular in Canada.

China's share in total soybean exports from Canada rose from some 30% in 2017 to 60% in 2018. Ron Davidson, executive director of Soy Canada, notes: "Product that would have gone elsewhere has gone to China and made us very, very dependent on that one market. That’s not what you want if you’re after diversified markets to manage your risk."

Initially, the rise in soybean purchases by China was considered beneficial for Canadian farmers. At the same time, industry leaders began warning that other unintended consequences of the dispute between the U.S. and China would ultimately cancel out all gains from the surge in Canadian soybean supplies to China. In particular, falling soybean prices in the United States have hurt farmers in the Canadian regions along the U.S. border, where soybean prices are pegged to American ones. However, soybeans in the U.S. now trade at USD 8.95 per bushel against USD 10.50 in May 2018.

Moreover, since the Chinese market became closed to the U.S. and because of a bumper crop harvested by American growers in MY 2018/2019, roughly 30 MMT of soybeans in the U.S. started looking for alternative markets. This forced Canadian farmers to compete with arrivals of cheap U.S. soybeans in many other markets where Canada had held strong and/or expanding positions before – primarily in Europe.

The most dramatic situation has developed regarding the EU market. In 2018, soybean supplies from Canada to the EU slumped by 45%, to a bit more than 697 KMT. For instance, shipments to Spain fell by 99%, from 305 KMT in 2017 to 2.3 KMT in 2018 (!).

In addition to the soybean problems, Canada and China intensify their rapeseed-related dispute, reports UkrAgroConsult’s analysts.

At the moment, soybean and rapeseed production in Canada encounters the following two key problems:

1. High uncertainty for planning the cropping pattern and margins ahead of the planting season;
2. Uncertainty about directions and prices of supplies to foreign markets. A new increase in U.S. duties on Chinese goods brought to the United States (worth $200 Bl) from 10% to 25% on May 10, 2019 aggravated this uncertainty. But even if the U.S. and China manage to achieve a trade agreement in the near future, trade flows will not be restored in their previous form, and return of American soybeans to the Chinese market does not guarantee that the Canadian product will regain its lost shares in the markets of the EU and other countries.   

In fact, Canada's agribusiness cannot influence the sources of these problems, therefore it is forced just to watch the development unfold.