Australia cuts wheat, canola forecasts on worries over drought

By Colin Packham

SYDNEY, Dec 2 (Reuters) – Australia cut its 2014-15 wheat production forecast by four percent on Tuesday as drought in key growing regions curbed output from the world’s fourth largest exporter of the grain.

The decline was expected.

Reduced Australian wheat output could further bolster global prices that have firmed in recent days on concerns over international supply.

Production shortfalls will also limit the revenues bulk grain handlers, such as GrainCorp, Viterra and CBH Group, which get income from storage fees and trading.

Winter crop production has suffered from hot, dry conditions across the east and south coast, Australia’s official commodity forecaster said.

Wheat production in the current season was seen at 23.22 million tonnes, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) said, down from the 24.23 million tonnes estimated in September. That is down 14 percent from last year.

The canola crop is forecast to fall 12 percent from last year to 3.3 million tonnes. In September the forcast was 3.4 million tonnes.

The barley production is set to fall by 22 percent to 7.4 million tonnes. In September the forcast was 7.5 million.

“From July on, large areas of the country did not get much rain,” said Phin Ziebell, agribusiness economist, National Australia Bank.

Chicago Board of Trade wheat futures hit a near six-month high on Monday on suggestions Russia may curb exports and concerns over U.S. production.

The cut to Australia’s official wheat production estimates comes as much of the country continues to record hot, dry conditions.

Nearly all of the Australian east coast and South Australia received less than half the average amounts of rainfall over the last three months, denying crops much needed moisture.

Most of the country has seen below average levels of rainfall over the last two years, data from the Australian Bureau of Meteorology shows.

The bureau slashed its estimate for Australian cotton output during 2014-15 by 19 percent to 470,000 tonnes, down from the 580,000 tonnes predicted in September.

It also trimmed canola production to 3.324 million tonnes, from a September forecast of 3.39 million tonnes.

ABARES said the drier weather is also likely to drag on summer crop production.

Production of summer crops, such as sorghum, hay and corn is set to fall to five-year low of 3.192 million tonnes, ABARES said, limiting supplies available for livestock farmers, who have increasingly had to turn to feed grain as pastures wilt.

Should cattle farmers be unable to source feed grain, analysts said the number of animals sent to slaughter could exceed official estimates – increasing Australian beef exports.

Milk production may also suffer. Dairy farmers in Australia traditionally use feed grain to supplement pasture to boost output. That could hit the expansion of Australia’s largest milk processors such as Murray Goulburn, Bega Cheese and Warrnambool Cheese and Butter.

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