Special Market Report - Sept 2025
Canola Outlook May Be Better Than the Recent Negative Sentiment Indicates
There is a great deal of negative sentiment in grain markets these days. This is understandable as prices keep grinding lower, delivery opportunities have all but disappeared for some crops, and Canadian farmers are at the tariff-whims of foreign governments. For canola, specifically, the November futures contract fell over 15% from the mid-June highs, while weakening basis levels added to the drop in bids to farmers.
A natural question many farmers are asking is, ‘Will canola prices continue to move lower or are there reasons to be optimistic about values going forward?’. No one has a perfect crystal ball, but understanding some of the (many) moving parts that affect the canola market can help in making an educated guess on some potential scenarios. And as much as China’s tariffs on Canadian canola seed (as well as oil and meal) is a bearish factor, there are other things impacting values a well.
Over time, commodity prices are driven by the balance between supply and demand (although bouts of short-term ‘noise’ can cause unpredictable swings in the interim). While the crop isn’t yet in the bin, it’s looking increasingly like Canadian production could be the largest since 2018, probably exceeding 20.0 mln tonnes. This compares to expectations in spring that were closer to 18.5 mln tonnes. While still not unusually large, canola supply expectations have increased over the past three months.
Global production is higher as well, including across most of the major producers. Australia’s crop recently got revised up to 6.4 mln tonnes, one of the largest on record. EU production is set to be nearly 3.0 mln tonnes more than last year, at close to 19.7 mln tonnes, reducing import needs. Russia is also expected to be higher at 5.5 mln tonnes, more than offsetting the dip in Ukraine’s crop. The global balance sheet isn’t heavy, but there has been some cushion added in recent months as yield expectations increase.
The demand side of the equation for Canada is both dynamic and uncertain, led by Chinese tariffs. Canada exported an average of 4.7 mln tonnes of canola to China over the past three seasons. Volumes will essentially be zero as long as tariffs are in place. There is no way to easily find over 4.0 mln tonnes of new canola demand elsewhere. At the same time, it’s too pessimistic to assume prairie farmers will end 2025/25 with a huge backlog of canola that can’t be moved.
Most significantly, growing crush capacity in Canada somewhat reduces the reliance on seed exports. Crush set a record in 2024/25 of 11.4 mln tonnes, and could potentially increase to as much as 12.5 mln tonnes or more in 2025/26, depending on the timing of when new expansions fully come online. Rising demand for vegoil in the US will help encourage strong crush volumes, regardless of whether Canadian canola oil is viewed as a favorable feedstock once final policy details are known. Even if trade relations with China were normal, exports would be forced lower as supplies simply won’t allow for shipments to reach what they were last season.
It's also reasonable to expect some non-China importers will take larger volumes from Canada than might otherwise have been the case. One key driver of how this plays out is the extent to which China reopens to Australian canola. A number of vessels have already been booked, and it’s looking increasingly like more volume could move during the coming year. If so, it opens the door for Canada to export more into other countries.
While the combined effect of bigger domestic crush and increased exports to non-China destinations can help partially offset the impact of tariffs, it may take some time to work through markets. This could particularly be the case if farmer selling of canola is heavier through the fall and early winter given weakness in other crops. But it’s possible the market eventually finds itself in a place where demand has quietly been stronger than initially feared.
Looking further ahead, the outlook is even murkier into the 2026/27 season. It’s possible the lingering uncertainty and cumulative impact of tariffs (assuming they remain in place) makes the canola market even more challenging next year. But while it’s impossible to project 12 – 18 months out given the multitude of unpredictable factors at play, it wouldn’t be surprising to see canola hold up relatively better than some fear. Lower prices have a way of uncovering demand that otherwise might not have been there, and over time exporters may end up working more volume into different markets. This could create pricing opportunities for growers that have the ability to use the various risk management options that are available for canola (and are not as accessible for many other crops) to lock in reasonable returns, such as early forward pricing, hedging with futures and options, or using other marketing programs offered by buyers, as long as farmers are paying attention to markets and keeping their pencils sharp.
Canola prices were already facing headwinds going into the fall given rising production estimates in Canada and elsewhere. Import tariffs into the largest export destination for seed further adds to the bearishness at a time when most crops were also trending lower. But markets also tend to look darkest near the bottom. There is potential for more downside before canola prices find a low, and we are living in a period when external shocks can come at any time and derail the outlook, but based on what we see today, the prospects are reasonably good for values to show at least some improvement in the months ahead.
Special market report provided by Jon Driedger, LeftField Commodity Research.