Canola Market Dynamics: Navigating Supply-Demand Imbalances and Price Recovery Potential in 2025

The global canola market in 2025 is at a crossroads, shaped by a confluence of supply-side surpluses, trade disruptions, and evolving demand dynamics. With production hitting a record 90.96 million tonnes for the 2025/26 season, driven by strong harvests in Canada, Australia, and Russia, the market faces a critical test of its ability to balance oversupply with shifting demand patterns, according to Global Canola Market – September 2025. However, trade tensions-particularly China's punitive tariffs on Canadian canola products-have created a fragmented landscape, forcing producers and policymakers to recalibrate strategies.

Supply-Demand Imbalances and Price Pressures

The surge in global canola production has outpaced demand, leading to a sharp correction in prices. As of September 3, 2025, canola futures fell to CAD 616.63 per tonne, reflecting a 9.70% decline over the past month, per the Trading Economics canola chart. This bearish trend is exacerbated by weak export demand, particularly from China, which imposed 100% tariffs on Canadian canola oil and meal in March 2025, as reported by the Northern Canola Growers Association. These tariffs effectively blocked Canadian exports to China, a market that historically accounted for 40% of Canada's canola oil and meal shipments, according to The Global Statistics. Australia, however, capitalized on this void, supplying over 500,000 tonnes of canola to China in recent weeks (Global Canola Market – September 2025).

Meanwhile, the European Union is projected to reduce canola imports to a four-year low of 6.3 million tonnes in 2025/26, driven by declining Ukrainian exports and new export duties in that country (Global Canola Market – September 2025). This shift underscores the fragility of global trade flows in the face of geopolitical and policy-driven disruptions.

Price Recovery Potential: Biofuels and Policy Tailwinds

Despite these headwinds, the canola market is poised for a recovery, driven by robust demand from the U.S. biofuel sector. The U.S. Environmental Protection Agency (EPA) has proposed increasing biomass-based diesel blending mandates to 5.61 billion gallons in 2026 and 5.86 billion gallons in 2027, according to RealAgriculture. This represents a 68% increase from the 2025 mandate of 3.35 billion gallons and is expected to boost demand for canola oil as a substitute for soybean oil. Analysts project that U.S. biofuel consumption of canola oil will reach 14.0 billion pounds in 2025/26, highlighting its strategic role in the energy transition (Trading Economics canola chart).

However, the proposed EPA rule introduces a 50% reduction in Renewable Identification Numbers (RIN) credit value for biofuels produced from imported feedstocks, such as Canadian canola oil, per RealAgriculture. This creates a competitive disadvantage for Canadian producers, who must now contend with U.S. domestic feedstocks that generate full RIN values. The Canadian Oilseed Processors Association has called for a "fortress North America" strategy to ensure equal treatment of Canadian and U.S. feedstocks (RealAgriculture).

China's Tariffs and Trade Reallocation

China's retaliatory tariffs have had a profound impact on global canola trade. While Canadian exports to China collapsed, the country redirected its canola oil and meal to alternative markets, including the EU, India, and Southeast Asia (The Global Statistics). To support this transition, the Canadian government has invested C$150 million in the Canola Oil Transload Facility in British Columbia, adding 1 million metric tonnes of annual export capacity (RealAgriculture).

China, meanwhile, has leveraged the tariff environment to its advantage. First-quarter 2025 imports of canola seed reached 1.026 million metric tonnes, surpassing traditional markets like Japan and Mexico (The Global Statistics). Additionally, China increased crude canola oil imports by nearly 800% year-over-year, capitalizing on the pre-tariff price window (The Global Statistics). These developments highlight the strategic recalibration of global canola trade flows in 2025.

Technical and Fundamental Outlook

From a technical perspective, canola prices have rallied over $180/mt from post-China-tariff lows, with key resistance levels identified at $820/mt and $760/mt (Trading Economics canola chart). Historically, resistance levels have played a significant role in shaping price trends; for instance, a resistance level around $250 from 2022 to 2025 led to a 50% decline in prices (RealAgriculture). The recent breakdown below the $100 support level further confirms the bearish sentiment, as it indicates a shift in market dynamics (RealAgriculture). Analysts project prices to reach 642.03 CAD/MT by the end of the current quarter and 688.14 CAD/MT in 12 months, driven by strong domestic use in Canada and growing biofuel demand (Trading Economics canola chart). However, short-term bearish signals persist, with the 20-day moving average at 633.40 CAD/MT indicating downward pressure (Trading Economics canola chart).

Fundamentally, the market remains sensitive to policy shifts. The U.S. House Ways and Means Committee's proposed extension of the 45Z biofuel tax credit through 2031 could further boost demand for canola-based fuels, provided carbon intensity standards are met (RealAgriculture). Conversely, uncertainty surrounding U.S. President Donald Trump's approach to green fuel subsidies and potential trade war escalations pose risks to the sector (RealAgriculture).

Conclusion

The canola market in 2025 is navigating a complex interplay of supply gluts, trade tensions, and policy-driven demand shifts. While oversupply and China's tariffs have pressured prices, the U.S. biofuel sector offers a compelling recovery path. Investors must monitor key variables, including the implementation of EPA mandates, the resolution of U.S.-China trade disputes, and Canada's success in diversifying export markets. For now, the market remains in a delicate balancing act, where fundamentals and technical indicators suggest cautious optimism for a rebound in 2026.