Canadian farmers grew a record canola crop this year at 21.8 million metric tonnes, according to Statistics Canada's final Production of Principal Field Crops, released December 4.
But it comes at the same time Canada's largest buyer, China, has implemented hefty import tariffs – 100 per cent on canola oil and canola meal and a 76.8 per cent levy on canola seed.
Canada is not the only country to grow a large canola crop either this year as Australia and Russia did the same, said Chuck Penner, Grain Market Analyst with Left Field Commodity Research.
Penner says the Chinese tariffs and uncertainty about U.S. government biofuel policy are impacting his canola export projections. He expects smaller exports this year, but increased crush demand.
"A good part of it depends on what the U.S. decides in terms of importing canola oil for biofuels, whether it qualifies for incentives or not. And that question is still being debated or still under review anyway, so we'll see how that rolls out." said Penner, but also said increased crushed capacity with the Cargill plant coming online soon in Regina and facility expansions at Louis Dreyfus Company (LDC) and Richardson Pioneer International in Yorkton will help "offset some of that lack of export possibilities."
The current canola carry over forecast for the 2025-26 crop year is not looking too promising at this point, he said, expecting just over 4.5 million tonnes.
"But there is, again, there's always this potential for some change in the U.S. demand situation. Is it possible that China could roll back its tariffs on either oil, meal or seed itself? Those are possibilities, but not that we want to stake our outlook on those kinds of possibilities. We tend to be kind of cautious in that way and so it could be more optimistic possibly, but we try to think in terms of what's the highest odds of happening."
Penner says canola prices typically rise closer to seeding around May, but the question is whether that seasonal increase will occur with the large Canadian crop produced and projected carry over.
"We think it'll be kind of modest, but still some strength possible going into the spring." Penner said.
While there is a "negative tone" on the outlook for canola, Penner believes there is optimism for the market.
Pulse Crop Outlook
Tariffs are also the main factor impacting pulse crop markets. China has had a 100 per cent tariff on yellow peas since March, while India re-introduced a 30 per cent tariff on lentils imported from all countries last month.
Canada also grew more peas and lentils this year but with reduced sales, this is expected to result in a higher carry over at the end of the crop year.
Penner believes there will be more demand for peas and lentils later, but unless China lifts the tariffs on peas, demand will only go so far.
"The pea demand can only improve so much or shift to other countries like Pakistan and Bangladesh, those types of countries that are more price-sensitive buyers. You can only move so much to those places, but that's still helpful." said Penner, adding yellow pea prices and carry over will be issues if China doesn't change its tariff policy.
"Ending stocks for peas and for lentils are going to be very heavy at the end of this year as well, too, so limited price movement," he said."So it's just difficult to see any kind of meaningful price improvement. I mean, we see bids perk up a little bit once in a while when somebody needs to fill a sale, but otherwise it’s largely going to go sideways. And there is some risk of them even going lower if farmers give up on the market and then just start dumping. Then there's the risk that it could go a little bit lower."
As for potential lentil carry over, Penner said there isn't much for red lentils as there is for green lentils.
"That is one of these multi-year situations where it's going to take a while to work those supplies lower."
He said while it's not "cheery news" and would like to see the current challenges go away, he believes "we need the low prices to help clear the markets."
(With files from Neil Billinger, CJWW)
