Australia cuts 2017-18 wheat forecast to 8-year low

SYDNEY, Sept 12 (Reuters) – Australia on Tuesday cut its forecast for 2017-18 wheat production by nearly 10 percent to an eight-year low, as dry weather cuts yields across the country’s largest producing regions.

With harvesting set to begin in coming months, wheat production is expected at 21.64 million tonnes, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) said, down from a March forecast of 23.98 million tonnes. The August U.S. Department of Agriculture forecast pegged Australia’s crop at 23.5 million tonnes.

This would represent a one-third decline from 2016-17, when production of Australia’s largest rural export hit a record 32.64 million tonnes.

ABARES also said canola production during the 2017-18 season will total 2.75 million tonnes, down from a previous estimate of 3.69 million tonnes.

The revised forecast by the world’s fourth-largest wheat exporter may ignite fresh concerns about global supplies of high quality wheat, with benchmark prices hitting a two-year high in July despite abundant stocks of lower quality grain. Prices have since fallen, weighed down by a record large harvest in Russia.

Lower output will also affect Australia’s broader economy. Fuelled in large part by wheat, the country’s agricultural sector grew 23 percent last year, contributing nearly a third of GDP growth during the 2016-17 financial year.

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Lower Australian wheat production has been widely expected.

Many of Australia’s wheat producing regions received less than half of average rainfall between June 1 and Aug. 31, official data showed, although some recent timely rains averted bigger losses.

Frost has also plagued the country’s east coast in recent weeks, with production in New South Wales and Queensland set to fall 45 percent from last year, ABARES said.

Australia’s east coast produces the country’s high quality wheat, which has been in demand after dry weather in the United States crimped spring wheat crops.

Less wheat will also brings headwinds to future earnings for GrainCorp, Australia’s largest listed bulk grain handler which has near dominance across the east coast.

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