Struggling U.S. wheat sector cheers trade action against China

By Karl Plume and Tom Polansek

CHICAGO (Reuters) - U.S. wheat farmers, struggling to make money as prices sink and global supplies swell, could be the main beneficiaries if Washington wins a case it brought last week against China over an estimated $100 billion in domestic grain market supports.

On Tuesday, U.S. trade officials said they would file a case at the World Trade Organization (WTO) against China over allegations that aggressive pricing supports prompted Chinese farmers to overproduce corn, wheat and rice, fuelling a global crop glut and depressing world prices.

This is the latest salvo in fraught trade relationships between the world's leading agricultural producers.

More than half of the Obama administration's 23 complaints to the WTO have been against China and the two countries are also embroiled in bilateral trade deal discussions and a Chinese investigation into alleged dumping of animal feed grains by U.S. producers.

The U.S. Trade Representative's (USTR) announcement comes less than two months before a presidential election in the United States and with a debate over the Trans Pacific Partnership trade agreement looming.

China came under scrutiny last year from consultants commissioned by U.S. farm and trade groups in 2011 to look into exporting issues. Subsidies in China were "the biggest problem, even though there were serious problems with some of the other countries," said Craig Thorn, a partner at the consulting firm, DTB Associates.

With that conclusion in hand, U.S. farm groups began to push the USTR more actively to open a case into trade with China, Thorn said. DTB provided U.S. officials with its analysis.

The trade groups that funded DTB's research included U.S. Wheat Associates, an industry group that promotes exports, along with the U.S. Grains Council and USA Rice.

WHEAT IN FOCUS

U.S. Wheat Associates then funded an additional study from Iowa State University to look at the economic impact of China's subsidies. That estimated that if the subsidies were removed, the United States would produce nearly 1 million tonnes more wheat by 2022 and export almost 1.5 million tonnes more to China. Beijing's program led to at least $650 million in lost revenue for U.S. farmers last year, the study found.

"China is huge in everything and Chinese policy has enormous impacts for the U.S. The potential benefits to the U.S. of minor policy changes in China are enormous," said Iowa State University economist Dermot Hayes, who conducted the analysis.

While the U.S. allegations cover corn and rice as well as wheat, China has already reformed its corn policy and rice exports were never a major part of U.S. agricultural income.

It is wheat that is now causing most pain in America's farming heartland. U.S. wheat prices are at decade lows and some farmers could face losses next year of $55 an acre. In the coming weeks, they are likely to plant the fewest winter wheat acres in a century..

The USTR's case at the WTO could take 18 months to resolve, Thorn said. But while there will be no short-term fix, it could help turn the tide for those farmers who survive, said Dalton Henry, vice president of policy at U.S. Wheat Associates.

"By starting to take action now, it ensures that in 12 or 18 months when we finally have a ruling and some resolution to these policies, it will make a difference then," he said.

Traders and industry analysts, however, question how the United States, which has ceded its dominance in wheat over the past two decades to Russia and the European Union, would recapture market share.

"I do not think it makes any difference. The wheat market ... is all about price," said Dan Basse, president of AgResource Co.

(Writing by P.J. Huffstutter; Editing by Jo Winterbottom and James Dalgleish)

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