COMMODITIES 2025: Canada’s wheat market to remain stable amid US tariff uncertainty

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

Canadian wheat market is expected to walk into a stable landscape in 2025, with S&P Global Commodity Insights projecting a rise in the marketing year 2024-25 (August-July) outlook, but market participants do not rule out change in trade dynamics amid looming sanctions from the United States.

Commodity Insights analysts project Canadian all wheat production to reach 35 million metric tons in MY 2024-25, rising 6.4% on year, while exports are expected to increase 4.3% on year to 26.5 million mt.

Market sources anticipate that Trump's proposed tariffs on Canada could significantly alter trade flows, but with a prospect for Canadian producers to capture overseas business that would have otherwise been directed to US suppliers.

Over the past five years, China has been the largest importer of Canadian wheat, including durum, with a share of 10% in exports, followed by 9% for Indonesia, and 8% each for Japan and the US, Agriculture and Agri Food Canada told Commodity Insights.

Strong demand expected

Pierre Cera-Huelva, associate director of research and analysis at Commodity Insights said that winter wheat seeding for the 2025 crop is now complete with very good moisture levels and conditions, aligning with an anticipated increase in consumption due to additional milling capacity in the country and marginally growing population.

As flour mills struggle to find suitable replacements for Canadian Western Red Spring (CWRS) wheat due to declining gluten content in other origins such as South America, the Black Sea, and Australia, the demand for CWRS remains strong, according to market feedback.

Analysts at Commodity Insights expect MY 2024-25 total domestic use at 9.1 million mt, and carryout at 4.5 million mt.

Canadian farmers sold a large percentage of their crop for MY 2024-25 soon after harvest wrapped up which quieted trade activity outside of international tenders for fourth-quarter 2024. Market participants expected trade action to pick back up in January 2025, however, many have noted that CWRS wheat demand was well-covered through March.

Canada's wheat imports are projected to continue on a marginal level, with "some light imports possible from the US for feed wheat," Cera-Huelva added.

The spring wheat production, which constitutes nearly 75% of the total Canadian wheat output, is expected to reach 26 million mt in MY 2024-25, rising 2.2% on year, according to Statistics Canada.

"Climate change is one of the key influences on crop production such as rising temperatures, altered precipitation patterns, and increased climate extremes," AAFC said. "Extreme weather events have also intensified uncertainties of crop yield year to year."

The upside to tariffs

Market participants anticipate that Trump's return to the office in January could also bring back a sanctions regime, as was previously seen during his first term.

The president-elect has already hinted at imposing tariffs on Canada, however, the timing and percentage of these tariffs remain uncertain, and market participants will be closely monitoring new developments to gauge the potential impacts on trade dynamics.

"Trump's tariff curveball will shake up markets and trade flows in the near term once in power," a Canadian wheat trader said. "If it's exactly as he states – 25% tariff starting January 20 – then it will stop the flow of CWRS and CWAD south, at least temporarily."

In the year-to-date until Dec. 11, Canada exported a net total of 22.2 million mt of wheat, out of which only 131,800 mt or 0.6% was destined for the US, while China had the largest share at 2.9 million mt, or roughly 13.06%, according to data from S&P Global Commodities at Sea.

In the same period, China's wheat imports amounted to 9.6 million mt, and while Canadian supplies accounted for 30.21%, imports from the US stood at 1.8 million mt, or 18.75%, CAS data showed.

So, Trump administration's proposed tariffs on Canada as well as China could potentially impact the marginal CWRS and CWAD wheat origins moving down South, but will most likely lift Canadian wheat market share in China at the cost of its own.

At the same time, "Canada continues to maintain its existing markets, while also exploring other options to diversify based on import preferences, including quantity, quality, protein content, end use, and competitive price," AAFC said.

Lower prices persist

Prices for Canadian wheat hit their peak in May 2024, when the average price for a cargo to be loaded 30-45 days forward reached $309.84/mt amid global supply concerns.

Prices began trending lower from May-August 2024 when global wheat harvests began coming to the market. CWRS prices reached an all-time low August 26 at $253.17/mt, pressured by large global supplies.

FOB Vancouver 13.5% CWRS wheat prices remained largely stable holding between $265-$275/mt for the majority of fourth-quarter 2024.

Platts' assessment from Commodity Insights shows Canadian CWRS wheat price trading at a low level relative to the past two years, while December prices were down in the range of $40-50/mt on year.

Similarly, while outright prices were holding near multi-year lows, basis values held at yearly highs, offsetting a weaker trend in spring wheat futures.

"This pricing is influenced by factors such as supply and demand for Canadian wheat, global market trends, transportation costs, and geopolitical consideration," AAFC said.

While supply and demand are the main drivers of Canadian wheat prices, international policies and geopolitical risks also influence export market prices, AAFC added.