Dryness threatens Western Australia's wheat crop

August 19, 2012

RECORDER REPORT

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Dry weather is threatening wheat output from Australia's top producing and exporting region, deepening concerns over global grain supplies after a devastating drought in the US grain belt and a decline in the Russian harvest. Forecasts suggest dry conditions could continue in Australia's wheat belt at least in the short term before sufficient rain patterns return.

Parts of Western Australia received some of the lowest levels of rainfall on record in July, prompting at least one analyst to reduce production forecasts for the state by 300,000 tonnes or 4.3 percent of the latest estimated total output of 8.08 million tonnes.

The crop needs significant amounts of rain before the end of September to avoid further deterioration, the analysts added. Australia is the world's second-largest wheat exporter, and the government forecaster estimates that wheat production this year to fall 18 percent from last season's record to 24.1 million tonnes. Western Australia typically produces more than a third of the nationwide wheat output.

"We have a lot of crops that are stressed by a lack of moisture," said Graydon Chong, senior analyst for grains and oilseeds at Rabobank. "Its going to come down to what happens during the rest of August and September, and in particular September. Significant follow-up rains are needed over the next couple of months."

Any disruption in Australian wheat supplies is likely to send US wheat futures even higher. Wheat futures have rallied more than 20 percent since mid-June, tracking US corn higher, as the worst drought in the US Midwest for 56 years has wilted crops. Supplies from Russia, the third-largest wheat exporter, may also fall due to drought, which some analysts estimate may reduce the 2012/13 wheat harvest by 20 percent to about 45.5 million tonnes. The head of Russia's Grain Union, however, said last week that exports may be larger than expected.

The dry weather over Western Australia is expected to remain for the next week, the Australian Bureau of Meteorology said. But estimates until the end of October show the south-west corner of Western Australia, the state's wheat belt, may receive rainfall that is between 40 and 45 percent above average. Farmers co-operative CBH Group maintained its estimate for the Western Australia wheat crop at between 6.65 million and 7.35 million tonnes, but acting general manager for operations Mick Daw said it was "essential" that the region receive "substantial" rains in September. Andrew Woodhouse, a Sydney-based analyst for brokerage Advance Trading Australiasia, said he downgraded his Western Australia wheat forecast by 300,000 tonnes. While the Western Australia wheat crop is under stress, the crop in New South Wales, the second-largest producing state, enjoyed a strong start to the season.