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Canadian wheat sales to China hit 14-year high despite dispute, displacing U.S. shipments

Rod Nickel and Karl Plume

U.S. shipments@

WINNIPEG, Manitoba/CHICAGO, June 6 (Reuters) - Canada has shipped the most wheat to China in 14 years, contrasting a sudden halt in canola trade amid a diplomatic dispute between the countries, as Chinese buyers shunned the United States.

China bought 1.5 million tonnes of wheat from Canada from August 2018 through April 2019, nearly double the pace a year earlier and the most since 2004-05, according to Canadian Grain Commission data.

China's brisk wheat buying from Canada, even as it refuses canola and detains two Canadian citizens, shows that supply and demand, not just politics, factor into that diplomatic dispute.

Canada and the United States are the two biggest suppliers of high-protein wheat, which provides the gluten strength necessary for baking. Australia's high-protein wheat has suffered from drought.

"If they need the protein, they probably need to come to Canada, rather than the U.S.," said a Canadian wheat exporter. "It's not easily replaceable."

China imposed a 25 percent tariff last year on U.S. wheat in a trade war with the United States, effectively halting sales and shipments to what was the fourth largest U.S. export market the previous season for high-protein U.S. hard red spring wheat. This year, China halted imports of Canadian canola, citing pests in some shipments, shortly after Canadian police arrested an executive with Chinese telecommunications company Huawei Technologies Co Ltd at the request of the U.S.

"China is just not buying wheat from the U.S. because of this trade spat," said Terry Reilly, senior commodities analyst with Futures International. "I don't see China returning as a major importer of U.S. wheat unless the trade war gets completely settled."

The 42,000 tonnes of U.S. wheat exports to China so far this year as of April are the lowest in 11 years, according to U.S. Census Bureau trade data. China did not purchase any U.S. wheat in May, U.S. Department of Agriculture data showed.

May and June Canadian sales to China, which are not yet captured by government data, have continued but at a slower pace, a second Canadian exporter said. The uptick to China comes as Canadian farmers struggle with dry conditions this spring, following a year of depressed incomes.

"Any extra sale is critical this year. That gives us some optimism," said Jim Wickett, a Saskatchewan farmer and chairman of Western Canadian Wheat Growers.

China's buying makes it Canada's second-biggest foreign wheat market this year, after Indonesia, accounting for 11% of total exports. It comes as Canadian Prime Minister Justin Trudeau said he was concerned that China could broaden its crackdown on Canada's exports. (Reporting by Rod Nickel in Winnipeg, Manitoba and Karl Plume in Chicago Editing by Susan Thomas)