The oilseed market news has taken a sharp turn as canola/rapeseed fundamentals appear to be weakening, influenced by political and trade developments. Previously bullish market conditions could now face challenges due to recent actions from U.S. President Trump and Canadian Prime Minister Justin Trudeau, signaling potential changes in the global trade landscape for oilseeds, particularly canola and rapeseed.
Trade Tensions Between the U.S. and Canada
A significant development that could impact the oilseed market is the announcement from U.S. President Trump regarding a 25% tariff on all goods imported from Canada, set to take effect on February 1, 2025. This announcement has raised concerns among market participants, as it may drastically alter the flow of canola from Canada to the U.S., which has traditionally been one of Canada’s primary export markets.
The situation is further complicated by Canadian Prime Minister Justin Trudeau’s commitment to a “robust” response, with the market anticipating retaliatory tariffs. Should these tariffs be imposed, the canola market could see a significant shift. Smaller volumes of canola may flow into the U.S. from Canada, contrary to earlier market expectations. This could have two major effects: it could ease Canadian supply and demand fundamentals as more canola becomes available, and it could also redirect a portion of the supply originally earmarked for U.S. consumption to the EU, alleviating supply concerns there.
Impact on the EU Canola Market
Market players noted that the Matif/WPEG spread was around $117/mt on spot for the week commencing January 20, 2025, which encouraged increased flow of canola into the EU from Canada. If this arbitrage level persists, the EU could see a significant increase in imports over the coming months, potentially exerting downward pressure on prices. This shift could significantly affect the global supply-demand balance for rapeseed and canola.
Biodiesel Margins and Their Impact on Oilseed Demand
Another factor contributing to a more bearish outlook for the canola/rapeseed market is the ongoing weakness in biodiesel margins. Margins remain below full cost across the entire curve until November-December-January (NDJ-26), with industry insiders commenting that these margins are currently unattractive. As a result, it seems unlikely that biodiesel producers will enter the market soon unless there is a significant improvement in margins.
Typically, demand for Rapeseed Methyl Ester (RME) weakens after the winter months, as it is heavily used for its ability to work in engines during cold temperatures. If RME demand remains subdued, rapeseed oil volumes originally destined for biodiesel consumption may instead be diverted to the open market, contributing to the bearish sentiment within the broader rapeseed and canola complex.
Market Uncertainty and Volatility
The situation is made even more uncertain by the ongoing volatility surrounding U.S. trade policies, with market players viewing the Trump administration as unpredictable. One source noted, “In fact, the only thing predictable is that he [President Trump] is unpredictable.” This unpredictability has led to significant volatility in the oilseed market, with many players closely watching announcements and grappling with the uncertainty of how trade policies—whether realized or not—could impact the oilseed sector.
Conclusion: A Changing Landscape for Oilseeds
As we move forward into 2025, the oilseed market—especially the canola and rapeseed complex—faces growing uncertainty due to the evolving trade tensions between the U.S. and Canada and the weak demand for biodiesel. With the potential for retaliatory tariffs, changes in export flows, and the possible redirection of oilseed volumes, the market is likely to experience continued price pressure and volatility in the coming months. As always, market participants will need to remain vigilant and responsive to these developments in order to navigate the challenges ahead.
Written by Nick Wood
