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Canadian Drought Set to Cause a Shift in Global Wheat and Canola Trade

Updated Jul 30, 2021
A prolonged drought in Canada has severely affected crops in the country. Canola and wheat production forecasts will fall, and other global suppliers such as Australia could benefit from Canada’s reduced output. A large portion of Canada’s yearly wheat and canola production is exported. China is Canada’s main customer, and the Asian country may look to Canada’s trade rivals, such as Australia, for produce to fill the gap created by Canada’s anticipated reduction in production and exports. Canola reserves are also limited in Canada, as supplies of the oilseed at the end of 2020 reduced by 24% year on year, reaching an eight-year low, with wheat stocks dipping by 4% year on year, hitting a three-year low.

According to the Agriculture and Agri-Food Canada (AAFC) ministry, the country’s wheat market will tighten in 2021-22 on expectations of reduced wheat reserves from 2021 along with lower acreage and crop yields. Canada's overall wheat production is forecast to drop to 31.06 million tonnes in the 2021/22 marketing year, from 32.75 million tonnes forecast in April and 35.19 million tonnes estimated for the 2020-21 marketing year. Reduced production and limited reserves could curb the country’s wheat exports in 2022 to 22 million tonnes from the 24.2 million tonnes forecast in April. Lower output and carry-over stocks are expected to curb Canada's wheat exports in 2022 to 22 million tonnes from the 24.2 million tonnes forecast in April.

Prairies in North America are experiencing severe drought since the production season began. Minimal rainfall levels and warm temperatures over the past month have worsened the situation, as July forecasts continue to predict that the dry climate will persist at least until the end of July. As of July 12, spring wheat in Canada’s leading spring wheat and canola province, Saskatchewan, was rated 25% good or excellent, a significant drop from 77% in the previous month. Canola ratings also fell, with 18% of the province’s canola rated good or excellent, dipping from 64% a month earlier. The trend continued in Alberta, Canada’s second-largest wheat and canola producer. As of July 13, spring wheat in the province was rated 39% good or excellent, a reduction from 84% a month earlier, and canola quality ratings fell from 80% to 33%. Saskatchewan and Alberta make up about 80% of Canada’s spring wheat and canola output.


Canola farm fields in Alberta, Canada

China set to turn to Australian wheat and canola

The reduction in Canada’s wheat and canola output is significant for the export market as about 50% of the country’s canola crop and about 75% of its wheat is shipped yearly. Canada, the top global canola seed supplier, accounts for approximately two-thirds of global canola exports, and is the world’s third-largest wheat exporter, with a market share of about 14%. During the first nine months of the current marketing year, China’s demand for Canadian wheat doubled compared to the three-year average. China was the leading recipient of Canadian wheat, accounting for 12%, followed by Indonesia and Peru at 8% each. Between August and December 2020, China received 23% of Canada’s canola exports, trailing only the EU.

Despite losses in Canada, Australia could act as an alternate supplier to China. Trade relations between China and Australia soured in 2020 when Canberra announced plans to look into the origins of COVID-19, prompting Beijing to increase tariffs on Australian goods. China placed an 80.5% import tariff on Australian barley which was so severe that it essentially cut off-trade. However, China has been purchasing more Australian wheat and canola. Australia is the second-largest global exporter of canola and fifth in wheat, and the country’s production levels have recovered following years of drought that ravaged past harvests. Australian supply is expected to play a crucial role for the Chinese market to fill the gap left by limited supply in Canada.


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