China/Canada Trade Dispute Changing Global Trade Flows

The threat of Chinese import restrictions on Canadian canola has added an additional risk to the already volatile global supply and demand outlook for rapeseed & canola in 2024/25. Chinese authorities have reportedly initiated an antidumping probe into canola imports from Canada in response to Canadian restrictions on Chinese electric vehicles last week. Canola futures reacted to the deteriorating export prospects and dropped by 4% on Sept 3. The downtrend continued in overnight trading.

However, details and timing of any measures are still unclear. Hereunder, we summarize possible implications of such a decision:

    1) Timing: Statements from Chinese authorities so far only indicate a probe into potential import restrictions, creating a window of opportunity for Chinese crushers to step up imports prior to actual sanctions.

    2) Extent: During the last trade conflict, which started in early 2019, China blocked canola imports from the two largest Canadian exporters, while shipments of canola oil and meal were not affected. The extent of the new restrictions as well as the products involved will thus be major swing factors to watch. During the previous conflict, China stepped up imports of canola oil and meal to at least partly offset a shortage of them on the domestic market.

    3) External effects: How will global trade flows change in case of Chinese import restrictions on Canadian canola? We expect that China will step up imports of Russian rapeseed in 2024/25, promoted by this year’s record Russian crop of at least 4.9 Mn T (up 0.7 Mn T from a year earlier) and prohibitively high EU import duties on Russian oilseeds and products, which are likely to keep rapeseed crushings in Russia (primarily at plants located at the Baltic Sea) below potential.
 

Large Uncertainties on Supply and Demand Sides

Important uncertainties are shaping up for producers and consumers of vegetable oils in 2024/25. A key variable to watch is to be seen in the magnitude of the prospective declines in world production of sunflower oil and rapeseed oil, contrasting with ample to burdensome supplies in 2023/24. The palm oil market will have difficulties to offset shortages in seed oils owing to the persisting structural problems such as aging trees and subdued yields.

Indeed, ample global soybean supplies shaping up in 2024/25 represent the biggest reservoir for the vegetable oil market. However, the assumed above-average growth in soybean processing will result in a further massive increase of soya meal production...

11-12 Mn T Increase in World Soya Meal Usage Required in 2024/25

We currently expect world production of soya meal to reach a record 272.5 Mn T in Oct/Sept 2024/25, implying an increase of more than 12 Mn T in the second consecutive season. Following relatively tight supplies in Oct/Dec 2023, world soya meal output already recovered substantially in Jan/Aug 2024, exerting price pressure.....

In contrast to the sizeable increase in world soya meal output, combined production of the 7 other major oilmeals is forecast to decline by  1.7 Mn T in 2024/25 compared to an increase of an estimated 3.4 Mn T expected in the current season... More details in the MONTHLY...

Indian Veg Oil Supplies Seen Tightening in 2024/25

In 2024/25 it may become increasingly difficult to satisfy Indian vegetable oil requirements owing to a likely setback of domestic production and tightening world export supplies......

Indian vegetable oil consumption has increased pronouncedly in the most recent two seasons, driven by population and income growth and not least by increasing biodiesel production. But we expect a significant slowdown of the consumption growth of the 8 major vegetable oils to approximately 0.6 Mn T in Oct/Sept 2024/25....

Changes in Trade Flows

Significant changes in trade flows have started to occur and will continue throughout the 2024/25 season. Harvesting of rapeseed is largely completed in the European Union, the UK and Ukraine, with yields and production this year considerably reduced from a year earlier. Rapeseed production in the EU-27 is seen declining sharply by 2.6 Mn T from a year earlier to 17.5 Mn T.

Rapeseed prices in the European Union have strengthened relative to Canada and other origins to attract larger imports and supplement insufficient domestic supplies. We anticipate world exports of rapeseed & canola to decline to a 3-year low of 17.9 Mn T in July/June 2024/25 compared with 19.0 Mn T a year earlier. Significant declines in Ukraine and Australia contrast with prospects of considerably larger exports of Canada and Russia...

Veg. Oil Consumption Continues to Grow Sharply

Indian consumption of vegetable oils is growing pronouncedly for the second consecutive year in the season 2023/24, contrasting with sluggish consumption registered in many other countries ....This season, driving forces behind the ongoing uptrend of consumption are to be seen in strong economic growth in the vicinity of 7% and the annual population growth of roughly 13 million people....

Domestic production of oilseeds and vegetable oils increased remarkably in recent years. We have raised our estimate of Indian vegetable imports to 16.4 Mn T for Oct/Sept 2023/24. This is only 0.9 Mn T below last season's record when excessive arrivals raised Indian vegetable oil stocks to burdensome levels....

World Export Supplies of Palm Oil Declining

World exports of palm oil recovered to 4.65 Mn T in June but still fell short of expectations in the April/June quarter and declined by 1.2 Mn T on the year in Jan/June. This followed a reduction by 2.3 Mn T in Oct/Dec 2023. Larger exports from Malaysia were more than offset by reductions in Indonesia, Thailand and Central America, where palm oil production fell short of expectations....