Curtailing Canadian Canola Consignments: Pain to Farm Margins... but Not Fatal

As China refuses Canadian canola exports, we simulate the possible implications for Canadian farmers.

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China revoked the license of two major Canadian merchandizers last month. They are no longer allowed to import into China, based on allegations surrounding quality of a shipment – meanwhile, Canadian officials blame geopolitical reasons for this move. Canada exports about 90% of its canola as seed, oil, and meal – a combined worth of about CAD 2.7bn in 2018. Because China was home to between 27% and 41% of total Canadian canola seed, oil, and meal exports from 2012 to 2018, this trade action is particularly disruptive.

"We have simulated the possible implications of lower prices for farmers," says Al Griffin, Senior Data Analyst with Rabobank. "We applied Rabobank’s baseline price forecast model to project crop returns, assuming incremental input costs and trendline yields. Our baseline forecast is already showing lower canola prices from softening global demand and improving yields. After shocking our baseline outlook with a sustained 25% loss of Canadian canola exports to represent recent trade limitations, canola margins briefly become negative, but rebounded to positive ranges in the long term."

Rabobank anticipates a general dampening of Canadian canola prices, with or without the trade disruption from improving yields and slowing global demand growth. However, the impact of a trade restriction scenario suggests farmers will feel pain, but not face fatal margin conditions.