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Opinion: US sowing cuts won't rescue wheat price

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It will take more than US farmers to rescue wheat prices.

The planting decisions American growers are about to take will have an important bearing upon how tight the market looks in a year's time.

But it looks unlikely that they will on their own hold enough sway to pull prices out of the nosedive which has this week taken them, in Chicago, to their lowest for two years.

Smaller force

Investors have two reasons for caution against pinning hopes of higher prices on US sowing strategy.

The first is that US farmers do not have the clout on the world stage that they used to. Their production, as a proportion of world output, has slid from 13.4% in the 1980s to 9.6% in the last decade.

Sure, they punch above their weight on exports, which accounted for 20% of the world total over the last year. But even that is well down on the 35% that America had 20 years before.

What US farmers decide will not have such an impact on world prices.

Cut to the bone

The second reason is that, even if US farmers are disappointed at wheat, they may not cut back plantings that much.

The biggest drops in sowings have tended to co-incide with government programme incentives for not planting crops, such as the payment-in-kind (PIK) programme of the early 1980s.

And farmers appear to have made most of the easy decisions on sowing cutbacks. Plantings last year were, at 59.8m acres, 15.8m acres below the recent high, in 1997.

While it looks entirely possible that farmers will cut a further 2.5-3m acres or so from plantings, getting back to 2007 levels, levels below that have not been seen since the early 1970s, again when the government was paying farmers not to sow.

Rest of the world?

For global wheat stocks to fall below far below the loose 28% forecast for next summer will require foreign wheat farmers making sharp cutbacks too.

Argentine growers are doing their bit, cutting plantings to their lowest for a century. But the decision may be more difficult for farmers forced by drought into leaving fields bare, or without lucrative alternatives, such as soybeans, to plant.

And financial considerations have taken something of a backseat in Russia, which appears hellbent on raising wheat output to gain political influence.

Investors' best hopes for a sharp recovery in wheast prices may lie in acts of God rather than human decision-making.

By by Mike Verdin

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