Wheat futures up on Australian supply concerns

Wheat futures rose on concern that global supplies may fall short of expectations as dry weather threatens to reduce output in Australia.

Parts of Queensland, New South Wales, South Australia, Victoria and Tasmania have less than 40 percent chance of getting above-average rainfall from September to November, as El Nino dominates the outlook in eastern Australia, the country's Bureau of Meteorology said.

El Nino, which causes drier weather in Asia, may reduce Australia's wheat production by 20 to 40 percent, said Ben Barber, futures adviser at Bell Commodities Ltd.

Wheat for December delivery rose 0.7 percent to US$5.02 a bushel in after-hours electronic trading on the CBOT at 11:03 am in Singapore.

New South Wales, Victoria, Queensland and South Australia states were estimated to produce 14.5 million tonnes in 2009-10, up from an estimated 12.5 million tonnes a year earlier, according to a June 16 forecast by Australian Bureau of Agricultural & Resource Economics (ABARE).

The four states account for nearly 70 percent of Australia's total output. But that share may drop to as low as 50 percent if a mild El Nino takes hold in September and damage crops, said John Reeve, agricultural commodity sales director at Standard Chartered Bank in Singapore.

Australia usually produces about 19 to 20 million tonnes, but output averages nine to 12 million tonnes in previous El Nino years, said Barber.

Futures also increased as farmers in Argentina said they will halt some grain and beef shipments from August 28 to September 4, after the government vetoed parts of a bill that cut export taxes for growers affected by the worst drought in decades.

It will curb supply, but will not have much effect on prices because the market has been anticipating smaller shipments from Argentina, said Barber.