June 28, 2007

 

New Australia wheat crop could exceed 26 million tonnes
 

 

The new Australian wheat crop could exceed the record 26.1 million tonnes produced in 2003/04, according to a report issued late Wednesday (Jun 27) by Westpac Banking Corp.

 

A drought that slashed wheat production last crop year ending Mar 31 by more than 60 percent to 9.8 million tonnes appears to be coming to an end and recent rainfall has ensured a much larger crop can be planted this year in near-ideal conditions, Westpac senior economist Justin Smirk said.

 

"If season conditions can remain favourable, then there is the potential for a record Australian wheat crop," he said in a quarterly regional report.

 

If Westpac's forecast comes to pass, export availability from the crop to be harvested in November and December would jump sharply after domestic annual demand of about 6 million tonnes is met.

 

A 15-million-tonne rebound in wheat production alone would inject well over A$4 billion (US$3.3748 billion) into farmers' pockets, with a consequent flow through to grain companies and exporters, including AWB Ltd., ABB Grain Ltd. and GrainCorp Ltd., other rural businesses and the wider economy.

 

On Monday, the government's Australian Bureau of Agricultural and Resource Economics, or Abare, reiterated its 22.5-million-tonne wheat production forecast for this crop year.

 

A bigger crop would come at a time when the medium-term outlook for the cereal is more positive than for years, with global stocks low and little increase expected in the near term, Smirk said.

 

Productivity improvements are lifting output and placing downward pressure on prices, but this is being offset by increased demand for grains for bio-fuel production and intensive livestock production, he said.

 

The focus of this demand growth will be on coarse grains, but these factors will support wheat, which is primarily grown for human consumption but is increasingly being used as a substitute for coarse grains such as barley and corn in livestock fodder, he added.

 

So, while it is safe to assume that a record Australian grain crop, and rising grain production in the rest of the world, should skim something off the top of grain prices in 2007, "robust underlying demand and current low global stocks suggest downside risk should be limited," he said.