July 23, 2011

East Australian wheat outlook declines on bad weather

Some wheat growing districts in eastern Australia are on the decline under the influence of poor growing factors, raising queries about output and earnings of companies with exposure to crops, analysts said Friday (Jul 22).

Luke Mathews, a farm commodities analyst at Commonwealth Bank of Australia who toured central west New South Wales this week, said recent conditions through the region have been too dry and cold for favourable crop development.

"Crop development is slow, about 2-3 weeks behind schedule, the crops are thin and yield potential will soon start to fall, if it hasn't already," he said. "A kind spring is needed to ensure production potentials."

Historically, New South Wales produces about 30% of national wheat output but this figure jumped to 40% last crop year when a severe drought limited output in Western Australia.

In June, the Australian Bureau of Agricultural and Resource Economics and Sciences forecast wheat production of 26.2 million tonnes this crop year ending March 31, 2012, down 100,000 tonnes on year, with New South Wales estimated to produce 8.3 million tonnes or 32% of the national total. Most of the national crop typically is available for export.

Separately, in a review of the outlook for GrainCorp Ltd., Credit Suisse told investors to take profits on the stock due to increasing grain production risk from drier-than-ideal conditions on the east coast.

"While crop conditions along the east coast generally remain favourable, drier cold frosty conditions through June and July have increased the prospect of downgrades to area sown and yields," CS analyst Grant Saligari said.

The brokerage sees downside risk to Abares' June forecast of 17 million tonnes of wheat and barley production along the east coast. That could negatively impact GrainCorp's intake into its grain storage system, revenue and earnings, he said.