April 9, 2008

 

Australia 2008 wheat crop could soar, weighing on global prices

 

 

Australian wheat crop production in 2008 could more than double to a record level, which in turn would weigh on global prices, according to a regional economic report issued late Tuesday by Westpac Banking Corp.

 

Record-high wheat prices and favorable weather conditions in some areas suggest Australian wheat farmers have the potential to plant their largest-ever crop, and if 2008 turns out to be even an average rainfall year, it could easily translate into a record crop, according to the report.

 

Australian wheat production peaked at 26.1 million tonnes in 2003, more than doubling from 10.1 million tonnes in the drought year of 2002.

 

A month ago, the government's Australian Bureau of Agriculture and Resource Economics, or ABARE, forecast wheat production in 2008 at 26.0 million tonnes, doubling from drought-reduced production of 13.1 million tonnes in 2007 and way up from the 2006 drought crop of just 10.6 million tonnes.

 

If ABARE's forecast for 2008 is achieved, export availability of wheat will soar after annual domestic demand of about 7 million tonnes is met.

 

Just as most events in 2007 conspired to hold back production and boost prices, events could quickly reverse in 2008, the Westpac report said.

 

"The Australian wheat crop is a potential negative for wheat prices," it said.

 

Westpac forecasts that wheat prices will fall to US$7.5 per bushel in December from the latest weekly average price of US$11.2 per bushel, down from a peak of US$11.5 per bushel in February.

 

Westpac said soil moisture conditions in many parts of northern New South Wales and Queensland states are the best in 20 years after the best December-February rains in nine years.

 

But wheat producers in Western Australia, South Australia and Victoria do not have the same confidence that arises from full soil moisture profiles, it said.