SYDNEY (Dow Jones) -- Dry weather in Australia may slash grain production in the next fiscal year even as drought in some of the world's largest producing nations is already squeezing global supplies.
Lower production in Australia, the world's second-largest wheat exporter, could boost momentum for world grain prices that have already surged to near-record levels this year, as searing heat has withered crops in the U.S. and Russia.
Poor rainfall is expected to cut Australian winter grain production in the financial year ended June 30 by a fifth to 36.2 million metric tons, the Australian Bureau of Agricultural and Resource Economics and Science said in a statement Tuesday. That's down from its June estimate of 38.5 million tons.
Abares also reduced its estimate for winter wheat production, by 7% to 22.5 million tons, representing a 24% decline from record output in 2011-12. In Western Australia, the country's largest wheat growing and exporting state, dryness is expected to reduce the wheat harvest by almost 40% to 7.1 million tons.
"This reflects relatively dry seasonal conditions in Western Australia and some parts of southeastern Australia," Abares Executive Director Paul Morris said in the statement. "Sufficient and timely rainfall will be required over the spring to achieve currently forecast yields."
Colin Tutt, general manager of operations at Perth-based CBH Group, said Western Australia needs 15 milliliters a week of rain throughout September to maintain the group's hopes for a 9.5-million-ton harvest. CBH is starting a review of the crop next week that may result in forecast downgrades, he added.
The third near-record surge in world food prices in four years has prompted a wave of concern that the world could once again face a food crisis like that which contributed to the Arab Spring nearly two years ago.
Food and Agriculture Organization Director-General Jose Graziano da Silva earlier this month urged calm over the most recent price surge. The United Nations food agency expects there to be a global shortfall of grains in the 2012-13 crop year.
Australia's grain crop is particularly important because it is a major supplier to Asia, where much of it goes to feed a booming livestock industry.
Concerns about Australia's crop are already pushing Asian wheat prices higher. At $361 a ton for December-January shipment from the west coast, free on board, Australia Standard White wheat--a grade that is milled for human consumption--is actually more expensive than low-grade U.S. wheat in some Southeast Asian countries, according to trade participants.
Allan Winney, chief executive of Australia's fifth-largest grain exporter, Emerald Group, expects wheat to make it into Australia's top 10 most valuable exports to its largest trading partner, China, in the marketing year that ends Sept. 30, as higher prices and growing demand fuel exports.
Abares' reduced forecast "reflects what has been a varied season for Aussie grain producers," said Commonwealth Bank of Australia analyst Luke Mathews. But he noted that large carryover stocks from last season, which Abares has estimated at 11.5 million tons--double 2009 levels--should help support exports in 2012-13.
"We do believe that Australia will remain a very important supplier of wheat in the year ahead," he said.
Richard Williams, a senior project manager at Wheat Exports Australia, said he expected the difference between milling wheat and feed wheat prices to remain narrow because of a shortfall of corn for feed from the U.S. and a good quality Canadian milling wheat crop.
One challenge for Australia's grain exporters could come from India. Exports from the Asian giant doubled in the first half of the year from the same period in 2011, to at least 10 million tons of grain and soymeal, as exporters cashed in on higher prices after New Delhi lifted an almost four-year export ban.
Source: Dow Jones
Posted by Haylie Shipp