Canada bets big on canola as China-US spat creates opening

Winnipeg

AS China plans for tariffs against US soybeans, Canada's farmers are gearing up to exploit an opening for demand by doubling down on oilseeds.

Growers will probably swap out lentils, peas and cereal crops in favour of canola amid higher prices and US-China tensions, said David Reimann, a market analyst at Cargill Ltd.

Plantings could reach 9.7 million hectares in 2018, the most ever and up 4.4 per cent from a year earlier, according to Tony Tryhuk, branch manager of RBC Dominion Securities office in Winnipeg, Manitoba. The crop can be used as a soybean substitute in cooking oil and animal feed.

"If anything, the China thing encourages more canola," Winnipeg-based Mr Reimann said in an interview, noting potential tariffs will probably also boost soybean acres. "It could certainly up canola demand a little bit."

The Asian country's purchases of Canadian oilseed shipments could climb by several hundred thousand tonnes, he estimates.

Canada is the world's top grower of canola, and China is the No. 1 destination for exports of the oilseed. Even before the tariff news, the oilseed was already garnering farmers' attention amid rising demand from countries including Japan and Mexico. Futures reached an eight-month high of C$531 (S$547) a tonne in March and are up almost 7 per cent this year.

Canadian scientists invented canola in 1974 by breeding out undesirable traits from the rapeseed plant. The oilseed has been gaining in popularity as it's rich in heart-healthy fatty acids that lower bad cholesterol and help control blood sugar.

The nation's canola acres surpassed wheat for the first time in 2017 while soybean plantings have more than doubled in the last decade, with sowings forecast by the government to reach a record this year.

Canola prices could climb C$25 a ton in the next month if cold spring weather raises concerns about planting delays, RBC's Mr Tryhuk said. Gains could be limited by a trade war if US soy prices sag, he said.

"There's increased volatility ahead," he said. BLOOMBERG