July 19, 2012

Dryness in Australia following US drought may threaten wheat supply

Australia, the second-biggest wheat exporter, is expected to receive below-median rainfall in the next three months, further bringing down grain production as the worst drought in a generation hits the US, the largest shipper.

Australia may produce 24.1 million metric tonnes of wheat in 2012-2013, 6.2% lower than an earlier estimate, on concern dry weather would curb plantings, the Australian Bureau of Agricultural and Resource Economics and Sciences said June 13. Output was a record 29.5 million tonnes in 2011-2012 as La Nina-linked rains boosted yields on the east coast.

"It certainly presents a risk to agricultural production, particularly as we enter into the critical spring growing period," Luke Mathews, a commodity strategist at Commonwealth Bank of Australia (CBA). "If we were to see lower exportable supplies here in Australia, that would help push the international market higher."

Wheat has surged 41% since mid-June as the worst US drought since at least 1988 scorches crops and dry weather threatens output in Russia. Corn has climbed 53% and soybeans rose 21%, threatening to boost world food costs. Conditions may approach or exceed El Nino thresholds, which can bring dry weather to Australia's east, during late winter or spring, the bureau said yesterday.

About 55% of the contiguous US states were in moderate-to-extreme drought at the end of June, the highest percentage since December 1956, according to the National Climatic Data Center. Crop conditions for corn and soybeans are the worst for this time of year since 1988. World wheat production will be 665.3 million tonnes in 2012-2013, down 1% from a June estimate, the US government said July 11.

Russia's Agriculture Ministry yesterday cut its grain-crop forecast by as much as 5.9% because of a drought. Farmers have harvested more than 15.7 million tonnes of grain, including 13 million tonnes of wheat, the ministry said.

Wheat for September delivery fell 1.6% to US$8.71 a bushel on the Chicago Board of Trade at 5:44 p.m. in Singapore. Prices reached US$8.985 yesterday, the highest level for a most- active contract since Feb. 15, 2011.

The rally in grain prices may drive world food costs to a record this year, Danske Bank A/S (DANSKE) said July 16. An index of 55 food items tracked by the UN's Food & Agriculture Organization fell 15% since reaching a record in February 2011.