November 26, 2004

 

 

Reduced Crop Yields May Cause Australia to Cut Wheat Forecast

 

Australia may trim its forecast for wheat for a second time after unseasonably hot weather last month parched fields and reduced yields, according to analysts and traders. Australia is the world's second-biggest wheat exporter.

 

The October-to-January harvest may reach 20.7 million metric tons, according to the median forecast of analysts and traders surveyed. The Canberra-based Australian Bureau of Agricultural & Resource Economics pegged the crop at 22.3 million tons on Sept. 7 and releases its next forecast Nov. 30.

 

A smaller crop will cut grain sales for AWB Ltd., Australia's monopoly wheat exporter, and may ease a global oversupply that has caused wheat prices in Chicago to fall 18 percent this year. Melbourne-based AWB on Nov. 24 forecast a crop of between 20 million and 22 million tons, citing a decline in seasonal conditions.

 

"It's difficult to see where a crop bigger than 20 million tons would come from,'' said Malcolm Bartholomaeus, a grain analyst with Callum Downs Commodity News at Clare in South Australia state. "Too many crops are yielding less than people expected.''

 

Forecasts ranged from 19.5 million tons to 21.5 million tons in the Bloomberg survey of seven analysts and traders.

 

GrainCorp Ltd., southeastern Australia's dominant grain handler, on Nov. 24 lowered its forecast for the amount of winter crops it expects to be delivered to its depots by 8.7 percent to 10.5 million tons.

 

Adelaide-based ABB Grain Ltd. and Perth-based Co-operative Bulk Handling Ltd. also cut their harvest forecasts after daytime temperatures in some growing areas reached as high as 42.9 degrees Celsius (109 degrees Fahrenheit) in mid-October.

 

Scorching heat in October causes crops to mature before they have fully developed.

 

Abrupt End

 

"There was an abrupt end to spring across most areas of Australia -- that's what caused the problems,'' said Dennis Wise, a grain analyst with Perth-based commodities consultancy ProFarmer Australia. Wise is expecting a 20 million-ton harvest.

 

Fewer grain shipments from Australia, the biggest rival to US exporters, may increase demand for US supplies, Bartholomaeus said. AWB said this week it won a contract to supply 1.5 million tons of wheat to China, a sale US exporters would have been vying for.

 

"Chicago wheat futures probably won't reflect lower Australian production until traders can see that the US is picking up some exports that might normally go to Australia,'' Bartholomaeus said. "I don't know that Australia has the capacity to sell a lot more wheat to China.''

 

Changes in Australian grain production are the biggest influence on AWB's profit, Chief Financial Officer Paul Ingleby said this week. Every 1 million ton change in the volume of wheat AWB trades changes annual pretax profit by between A$6 million and A$7 million, he said.