Canola Prices Under Pressure: Navigating Trade and Supply Challenges on ICE

The ICE canola market has experienced significant volatility in recent weeks, with prices slipping after a choppy trading session. A confluence of trade disruptions, supply constraints, and regulatory uncertainty has left the market in a precarious balancing act. Let’s dissect the key drivers behind the recent weakness and assess the outlook for investors.

Trade Policies: The Double-Edged Sword of Tariffs

The most immediate headwind stems from geopolitical tensions, particularly China’s 100% tariff on Canadian canola oil and meal imposed in early 2025. This punitive measure slashed demand from a critical market, forcing Canadian exporters to redirect supplies elsewhere. While U.S.-Canada tariff disputes briefly eased (with the removal of U.S. levies on canola in April), the lingering uncertainty has kept prices volatile.

Key data points: Prices surged to a 16-month high of CAD 708/tonne in late April but fell sharply to CAD 697/tonne by mid-May as trade concerns resurfaced. The Canadian dollar’s fluctuations—rising to 72.14 U.S. cents in April—further complicated export competitiveness.

Supply Tightness vs. Global Overhang

On one hand, Canadian exports have hit record highs, nearing 7.5 million tonnes by April 2025, with just 15 weeks remaining in the marketing year. This has pushed projected carry-out stocks to a 13-year low of 1.0 million tonnes. However, revised estimates by Agriculture and Agri-Food Canada (AAFC) raised this to 2.0 million tonnes due to potential demand destruction from trade barriers.

Meanwhile, Australian production is booming, with output projected to hit 6.0 million tonnes in 2025/26—a 20% increase from 2024/25. This non-GMO canola surge threatens to flood markets, particularly in the EU, where it competes with Canadian supplies. The European rapeseed market, a key benchmark for canola prices, has seen prices dip to €482/tonne amid fears of oversupply.

Demand Dynamics: Biofuels and the 45Z Quagmire

Canola’s role in biofuel markets is a double-edged sword. While U.S. biofuel demand has tripled to 4.8 billion pounds in 2025, proposed regulations under the 45Z tax credit program threaten to disqualify canola oil from generating carbon credits. This policy uncertainty could slash demand by 10–15%, as producers seek substitutes like soybean oil.

Speculative Activity: A Technical Battle

Chart-based trading has amplified volatility. The July 2025 contract’s drop below the CAD 700/tonne psychological threshold in May triggered a sell-off. However, technical buyers re-entered as prices rebounded, highlighting the tug-of-war between fundamentals and sentiment.

The Bottom Line: Risks and Opportunities Ahead

Investors must weigh three critical factors:
1. Trade Policy Resolution: A resolution to U.S.-China trade talks could stabilize canola prices by reopening markets, while further tariffs could deepen losses.
2. Supply Surprises: Statistics Canada’s March 31 stocks report (due in May) will clarify whether carry-out inventories align with AAFC’s 2.0 million tonne forecast. A miss could spark another rally.
3. Regulatory Shifts: Advocacy efforts to revise U.S. carbon intensity scores for canola oil (currently unfavorable under 45Z) are critical to preserving biofuel demand.

Conclusion: A Volatile Path Ahead

Canola prices are caught in a high-wire act between tight Canadian supplies and global overhang risks. While short-term weakness is likely if trade tensions persist, long-term fundamentals—such as low stocks and strong crush demand—suggest prices will remain elevated unless production surges in Australia or Canada.

The 100% tariff on Chinese imports and 45Z regulatory hurdles are clear downside risks, while a resolution to trade disputes or a positive U.S. policy shift could ignite a rebound. Investors are advised to monitor ICE futures contracts, Australian production updates, and U.S.-China trade signals closely. For now, canola remains a high-reward, high-risk play in the commodities arena.

Data Sources: ICE Futures, Agriculture and Agri-Food Canada, ABARES, and USDA reports.