Opportunity For Australia

Australia, the second-largest canola exporter, has a chance to benefit as it regains market access after a long ban. However, it probably won’t fully compensate for the loss unless China’s demand for imports drops significantly. Canadian officials were disappointed by Beijing’s decision and expressed their willingness to talk and reduce trade tensions. Canola is Canada’s biggest cash crop and is used for cooking oil and animal feed in China. We expect immediate and ongoing downward pressure on ICE Canada Canola futures contracts. The loss of China, the top buyer, creates a significant surplus in Canada that can’t be quickly absorbed. Statistics Canada already predicted a healthy 2025 harvest of over 20 million tonnes in their July report, so this oversupply will likely lower prices in the coming weeks.

Market Dynamics And Strategy

This situation presents a clear opportunity for substitute oilseeds, mainly soybeans. China needs to replace millions of tonnes of canola for its cooking oil and animal feed industries, making soybeans a natural alternative. Last week, we saw a 4% increase in CBOT Soybean futures, and we expect this trend to continue as China’s buyers establish new supply sources. The currency market will reflect these changes in agricultural fortunes. We recommend taking a long position in the Australian dollar against the Canadian dollar (AUD/CAD). As the second-largest canola exporter, Australia is well-positioned to capture some of the lost demand, which should support its currency. Historically, Australia’s export capacity has faced challenges, such as during trade disruptions in the early 2020s, indicating they can’t fully replace Canada’s volume. However, the immediate sentiment favors Australian exporters. Data from the Australian Bureau of Statistics for the second quarter of 2025 shows a tightening in grain inventories, suggesting that any new large-scale demand will boost prices. Additionally, we expect the Canadian dollar to weaken against the US dollar. The loss of a C$5 billion export market, which canola represented in 2024, significantly impacts Canada’s trade balance. This situation could complicate the Bank of Canada’s policy, as a major hit to an export sector may require a more cautious economic approach. Traders should consider buying put options on canola futures to hedge against or speculate on further price drops. At the same time, call options on soybean futures look appealing to capture the expected demand increase. This strategy allows for managing risk while taking advantage of the trade disruption. Create your live VT Markets account and start trading now.

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