Trade, biofuel policies continue to influence crop markets
Recent American trade and biofuel policy developments are moving agricultural markets, while producers on both sides of the 49th parallel hope forecasts for rain this week prove accurate.
I’ll first summarize recent developments and later touch on an approach Ottawa might take in negotiating with China to end the tariffs on Canadian canola meal and oil, peas and pork.
The oilseed complex, including canola, was supported when U.S. president Donald Trump said May 12 that the United States and China had agreed to a 90-day partial truce in their trade war, slashing the punishing tit-for-tat tariffs of more than 100 per cent down to 30 per cent for Chinese goods going to the U.S. and 10 per cent for American products going to China.
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Previously, the trade frictions between China and the U.S. and Canada had pressured crop markets through the late winter and spring. Further downward pressure came from the rapid planting progress in the U.S.
This partly offset the upward price pressure from a somewhat tight situation in global vegetable oils and a significant tightness in Canadian canola supply.
The oilseed complex received further promising news May 14 regarding American biofuel tax credit developments that were seen as favourable to fuel made from agricultural feedstocks produced in the U.S., Canada and Mexico.
Also, an American energy and biofuel industry coalition recommended in early April larger than expected targets for biofuel blending for next year. This marked welcome co-operation between Big Oil and the biofuel industry, which are traditionally at odds.
July canola futures peaked at slightly more than $735 a tonne May 14, the highest price since September 2023. The cash basis has also narrowed from what it was during the winter, indicating strong demand for the remaining canola supply.
The bounce higher in soybean oil from the week’s developments also helped the canola crush margin index, indicating that crushers’ revenue per tonne was bouncing back from the dip in early May.
However, the positive news got cloudy on May 15 when the U.S. Environmental Protection Agency sent to the White House its own guidance on the biodiesel blending target. The rumour was that its number was 4.65 billion gallons, much lower than the energy and biofuel coalition’s recommendation of 5.25 billion gallons.
Soybean oil and canola seed futures fell on that news.
We’ll have to see what number the White House finally adopts as the blending target.
Turning to weather, big parts of the Canadian Prairies and the northern U.S. Plains were dry this spring.
As this column was written May 15, the seven-day forecast was for rain in many of the dry areas, particularly in Manitoba, the Peace River region and the Dakotas. Also, the U.S. corn belt was to get significant rain, benefitting newly seeded corn and soybeans.
Meanwhile in Brazil, second corn crop conditions are good. I recently wrote that some areas were dry, and if drought developed, it would support corn and wheat prices. However, timely rain has maintained favourable yield prospects. Harvesting begins at the end of May.
Back in Canada, new agriculture minister Heath MacDonald of Prince Edward Island says he has spoken with the canola industry and recognizes the importance of the trade dispute with China.
China’s tariffs on select agriculture products are a response to Canada’s tariffs on Chinese electric vehicles.
Canola prices have held up well, but the anti-dumping investigation on seed still hangs over the industry.
Peas have already taken a price hit with cash values in northwestern Saskatchewan falling to $340-$350 a tonne, according to data from PDQInfo.ca, down from $390-$400 in January and February.
The tariffs on Chinese EVs were co-ordinated last summer among the U.S., Canada and the European Union. The U.S. and Canada each set a 100 per cent tariff, while Europe was nuanced with varying tariffs set for each Chinese manufacturer.
China responded to the EU with tariffs on brandy and launched an investigation into European pork exports.
News reports now say the EU has approached China to gauge its reaction to a proposal to replace tariffs with a set minimum price for Chinese EVs, making it hard for them to under-price EU-made EVs. China has agreed to negotiate.
This would allow China to export EVs to the EU but recognize that China’s subsidization of its industry is unfair.
European vehicle makers were against tariffs and support this change.
However, Canada’s auto industry strongly supports tariffs on China.
The questions now include whether China will accept the EU’s offer and drop its tariffs on brandy.
Also, is the Canadian government willing to negotiate with domestic automakers about following the EU’s lead, and how would the U.S. react if Canada drops its tariffs?
To contact D’Arce McMillan, email newsroom@producer.com
Source: producer.com