Canola's Rally Faces Crosswinds: Navigating the July 2025 High Amid Global Tensions

The July 2025 ICE Canola futures contract (RSN25) surged to a 2025 peak of CAD 708.00/MT on May 2, 2025, marking a 12.57% year-to-date gain. This rally, fueled by tight domestic supplies and robust demand, masks deeper structural challenges that could reverse the momentum. Investors must weigh short-term optimism against long-term risks driven by trade disputes, global oilseed competition, and regulatory uncertainty.

The Rally’s Foundation: Supply Tightness and Strong Demand

The price spike reflects depleted Canadian stocks and surging exports. Canadian Grain Commission data shows cumulative 2024-25 exports hit 7.694 million metric tons (MMT)—a 69% increase over the prior year—while domestic disappearance (use for processing and livestock) rose to 8.693 MMT. Analysts attribute the surge to record crush volumes, driven by demand for canola oil in food and biodiesel markets. However, this supply crunch is temporary: Agriculture & Agrifood Canada revised carry-out stocks upward to 2.0 MMT in March 2024 due to policy uncertainty, signaling potential oversupply risks later in the marketing year.

Headwinds Loom: Trade Tensions and Global Oilseed Competition

While the U.S. exempted CUSMA-compliant canola from tariffs in April 2025, China’s 25% tariffs on canola oil and meal (in place since early 2024) continue to bite. These tariffs cost Canada $920 million in exports to China in 2024 alone, forcing farmers to pivot toward wheat or soybeans. Meanwhile, global competitors are flexing muscle:
- Russian rapeseed output was revised upward by 1+ MMT, swelling global inventories.
- U.S. crushers are blending cheaper wheat and barley into feed rations, reducing rapeseed crush margins.
- Soybean and palm oil surpluses are diverting biodiesel demand away from canola.

These trends align with USDA forecasts predicting canola’s biofuel consumption to fall to 4.8 billion pounds in 2024, as the U.S. Treasury’s 45Z tax credit excludes canola due to its carbon intensity score. Industry advocates are pushing for regulatory recalculations—a win here could revive demand, but failure risks prolonged stagnation.

Crude Oil: The Double-Edged Sword

Canola’s inverse correlation with crude oil prices remains critical. When oil prices dip—as they did in late April 2025 due to oversupply fears—canola futures follow. A would reveal this tight link. Conversely, a crude rebound (e.g., due to OPEC cuts or geopolitical tensions) could lift canola prices anew. However, the Canadian dollar’s appreciation adds a wildcard: a stronger CAD makes exports costlier for international buyers, potentially stifling demand.

Technical Outlook and Risks

• Short-Term (Q2 2025): Analysts project prices to $714.48/MT, but the July/November spread narrowing to $52.00 over suggests traders anticipate weaker deferred pricing.
• Long-Term (12 months): Forecasts of $769.20/MT by mid-2026 hinge on stable biodiesel mandates and reduced global oilseed surpluses. Yet risks loom large:
• Policy Volatility: U.S. 45Z rule changes or new tariffs could disrupt demand.
• Weather Risks: Canadian growing conditions and U.S. spring plantings could alter supply.
• Consumer Shifts: U.S. health trends favoring tallow over seed oils may erode demand further.

Conclusion: A Volatile Market Requires Caution and Precision

The July 2025 Canola futures peak at $708/MT highlights the crop’s strategic importance but also its vulnerability to external shocks. While short-term fundamentals like tight stocks and U.S. demand support prices, long-term risks—from trade wars to competing oilseeds—demand cautious positioning. Investors should:
- Hedge exposures using spread trades (e.g., July/November) to mitigate volatility.
- Monitor crude oil and CAD movements daily.
- Track policy developments in the U.S. and China.

The Canola Council of Canada estimates the sector contributes $11.2 billion annually to the U.S. economy, underscoring its systemic importance. Yet with global inventories rising and demand uncertain, the path to sustained gains is narrow. As one analyst put it: “Canola’s future hinges on resolving trade disputes and winning a seat at the biofuel table—or else its rally could be just a fleeting bloom.”

Investors would be wise to tread carefully in this crosswind-strewn landscape.