July 15, 2011

 

Australia's bumper wheat harvest may help cool global food costs

 

 

Australia is expected to harvest about 25 million tonnes of wheat in the coming year, the second straight bumper harvest for the country, which may help curb global food costs.

 

Australia's government forecaster increased its estimate for the coming wheat crop by 7.8% to 26.2 million tonnes in June after rains in the west and good soil moisture in the east improved prospects and growers boosted plantings.

 

The median estimate of six analysts and traders surveyed by Bloomberg is 5% below the record 26.3 million tonnes the previous year, but 15% above the drought-hit 21.8 million tonnes in 2009-2010, government data show.
 

"It's not out of the realms of possibility," said Luke Mathews, a commodity strategist at Commonwealth Bank of Australia, who predicts a 24.3 million tonne crop. The western growing areas may have a slightly above-average season and conditions in the southeast are mostly favourable, he said. Harvesting starts around October.

 

CBH Group, the top grain handler in Western Australia, lifted its estimate for the state grain crop by one million tonnes June 30 after rain. Total output may be 9-11 million tonnes, said Max Johnson, manager of grain operations.

 

"They've had rain and conditions are looking much better," said Neil Burgess, a senior commodity analyst at Westpac Banking Corp., who forecasts a 26 million tonne harvest. "They still need some more rain but certainly for those export markets out of the west coast, there's more optimism."

 

New South Wales is likely to have an average to above-average harvest because of rain and subsoil moisture, said Rob Proud, general manager distributions and grower services at Emerald Group Australia Pty. He predicts a national crop of 23.7 million tonnes and as much as 7.5 million tonnes in New South Wales.

 

Sustained supply from Australia, the fourth-biggest wheat exporter, may cap global prices that jumped 15% this month as the US, the biggest exporter, cut its estimate for domestic inventories next year.

 

The crop may help constrain near record global food costs tracked by the UN that advanced in June for the 10th time in the past year, a trend that helped drive 44 million people into poverty since mid-2010, the World Bank says.

 

"Production has been responding," said Michael Creed, an agribusiness economist at National Australia Bank Ltd. in Melbourne, who predicts a 15% decline to US$6 a bushel by the end of the year. "It certainly expands global supply."

 

Wheat soared to US$9.1675 a bushel on February 14, the highest level since 2008, as drought in China threatened crops and unrest in the Middle East and North Africa spurred government stockpiling. The price plunged to US$5.92 a bushel on July 1 after Russia eased its export ban and as rains eased concern over droughts in China and Europe, finally trading at US$7.055 on July 14.

 

The bumper harvest in Australia may help replenish global stockpiles of wheat that the US government predicts will drop to a three-year low of 182.2 million tonnes before the 2012 harvest, as demand exceeds production for a second year.

 

Shipments may climb 8.5% to 19.8 million tonnes in 2011-2012 because of large stockpiles and production, the Australian Bureau of Agricultural & Resource Economics & Sciences said June 15. Exports from Western Australia may jump 13% to 6.2 million tonnes, it said.

 

Mice in eastern growing states and a dry spring may reduce the crop potential, said Creed from National Australia Bank.

 

Winter crops in New South Wales, the biggest producer last season, were threatened by the worst plague of mice in nine years, the state's Department of Primary Industries said in May. Poison was provided to farmers as about two-thirds of the state reported mouse activity, according to its website.

 

"The outbreak of mice has been highly variable by region, yet in the worst affected areas, where bait has been ineffective or undersupplied, some farmers have had to re-sow entire crops and many others are concerned about the degree of crop establishment," Rabobank said earlier this week.

 

A decline in costs may offset the increase in rice prices that resulted from a slump in US acres and a planned increase in guaranteed farm prices in Thailand, the biggest shipper. Rice, the staple for half the world, has surged 14% this month to US$17.07 per 100 pounds (45.36 kilogrammes), the most expensive since 2008.