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CHICAGO/DEVILS LAKE, N.D., Aug 31 (Reuters) - Gordon Stoner, who grows wheat in Montana about a mile from the Canadian border, would like to sell his wheat to grain elevators in nearby Saskatchewan. But due to a quirk in Canadian law, the high-protein variety he raises would be automatically downgraded by government inspectors to the lowest possible category - fit for animals only - regardless of its quality.
When I cross the border, my wheat is automatically treated as feed wheat," said Stoner, referring to a Canadian grain classification.
The label translates to a deep discount: Saskatchewan grain elevators this month were paying about 30 percent more for premium-graded wheat used to make breads and pasta versus feed grade wheat fed to animals.
Stoner and other northern U.S. farmers have found sympathetic ears in the administration of U.S. President Donald Trump, which dragged the decades-old issue of Canada categorizing all U.S. wheat as livestock feed into the North American Free Trade Agreement (NAFTA) renegotiation.
Northern U.S. wheat growers - particularly those like Stoner who produce specialty grains like durum used to make pasta - are the sort of constituency the Trump administration has sought to protect with his "America first" policy, aimed at reviving industries such as coal and manufacturing and bringing back jobs from overseas.
The grading issue contributes to a striking imbalance in the U.S.-Canada wheat trade: 50,751 tonnes of U.S. wheat was exported to Canada in 2017 while 2.8 million tonnes of Canadian wheat was shipped into the United States, according to U.S. Department of Agriculture data.
The bilateral agreement the U.S. and Mexico announced on Monday - before Canada rejoined NAFTA talks - called for "non-discriminatory treatment in grading of agricultural products," according to the Office of the U.S. Trade Representative.
The USTR included "eliminating discriminatory barriers and unjustified technical barriers, including to U.S. grain and alcohol" in its objectives for renegotiating NAFTA. The USTR's chief agriculture negotiator under Trump is Gregg Doud, a Kansas native who once worked for the U.S. Wheat Associates in Washington.
Trump addressed wheat growers' concerns at a rally in North Dakota this summer, saying fellow Republicans Senator John Hoeven and Representative Kevin Cramer had flagged the problem to him.
Canadian wheat markets consistently discriminate against the United Statess wheat by grading it as feed, Trump said at the time. I dont know what the hell it means. I just know its a bad deal."
Hoeven's office said the senator had spoken with the President as well as Agriculture Secretary Sonny Perdue about what he called unfair treatment from Canadian grain elevators. He brought it up with Vice President Mike Pence this week, spokesman Alex Finken said.
Canada's agriculture ministry and the Canadian Grains Council said U.S. farmers can work out better deals for high-quality wheat directly with buyers.
"There is nothing in the current grain handling system preventing U.S. producers from entering into contracts with grain handling companies or processors located in Canada to get a fair price for the quality of product being delivered, said Guy Gallant, spokesman for Canadian Agriculture Minister Lawrence MacAulay.
He did not respond to a question on whether the issue was part of NAFTA negotiations.
U.S. farmers say the grain grading system effectively keeps Canada closed to the U.S. while Canadian wheat can freely move to U.S. flour mills.
I suspect it will be fixed through NAFTA, assuming we dont blow it up, said Stoner.
Cramer, who is trying to unseat Democratic Senator Heidi Heitkamp in November, could not immediately be reached for comment. Democratic Senator Jon Tester of Montana last year introduced a resolution in Congress urging Canada to change its wheat grading procedure. Stoner said Montana's second senator, Republican Steve Daines, has met with Trump frequently.
"Hes been a vocal advocate on our behalf, Stoner said.
Daines said in a statement that he was "hopeful that this issue can get resolved in the ongoing NAFTA negotiations."
PASTA MAKERS TURN TO CANADA
Durum wheat, the specialty variety used to make pasta, has been particularly affected by Canadian policy, farmers said. After a strong Canadian harvest last year, durum has flooded into the U.S. and prices have fallen to eight-year lows.
U.S. pasta makers are increasingly buying Canadian wheat as Italian demand wavers due to strict origin laws introduced last year requiring pasta to include labels telling consumers where the wheat was cultivated. The law has favored Italian durum and U.S. farmers are producing less of the grain as a result.
"If I was a farmer in Canada, I'd be hauling every kernel of durum down here, too," said Mark Martinson, a North Dakota farmer who is also president of the U.S. Durum Growers Association.
U.S. plantings of durum wheat fell to 1.887 million acres in 2018, down 18 percent from 2017 and 22 percent from 2016, according to the USDA. That's about 4 percent of total U.S. wheat acreage.
While U.S. prices for durum are generally higher than prices at elevators in Canada due to greater demand from millers, so much Canadian durum has entered the market this year that, since June, durum has fetched more in some parts of Canada.
That makes not being able to sell across the border all the more frustrating for U.S. farmers.
Martinson said the Durum Growers had recently hired lobbyist Jim Callan "to roam the halls" in Washington. Callan has been working with a different group, the North Dakota Grain Growers Association, since March.
"We want to level the playing field for U.S. durum. We don't want to see it left off the table," Callan told Reuters.
Martinson said he recruited two "bright, young, 30-plus-year-old farmers" to the Durum Growers board, only to have them quit two years later, struggling to turn a profit. But he sees evidence of grain flows from Canada in truck stops in Minot, North Dakota, about 50 miles south of the Canadian border.
"I get going through Minot quite often, and the parking lot is full of Canadian trucks out of Saskatchewan," Martinson said. "You can't find an American truck." (Additional reporting by Rod Nickel in Winnipeg; Editing by Caroline Stauffer and Brian Thevenot)