SINGAPORE (Reuters) — Australian farmers are holding back wheat crop sales as dryness in parts of the country’s eastern grain belt cuts yields.
It’s raising the likelihood of a boost to global prices, which have dropped 13 percent this year.
Farmers in the world’s fourth biggest wheat exporter have sold only a quarter of this year’s crop. Analysts peg sales at 50 percent of production by the end of December compared to 70 percent last year.
The hoarding could force key importers of Australian wheat to seek supplies from the United States and Canada.
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“There is a lot of uncertainty on how big the crop will be,” said Ole Houe, an analyst at Sydney-based brokerage IKON Commodities.
“Victoria is the biggest challenge because it is so dry out there, and even in New South Wales there is talk about lower yields.”
Analysts have cut crop estimates to 22 to 23 million tonnes, five to nine percent below the official forecast of 24.23 million tonnes.
A clearer picture will emerge after harvest.
The U.S. Department of Agriculture has reduced its most recent estimate for Australia’s crop to 24 million tonnes from 25 million tonnes in October.
The country produced 27.013 million tonnes last year.
Parts of Queensland, New South Wales, Victoria and South Australia have seen dry weather, which will not only reduce yields but also raise fears about next year’s planting, which starts in April.
“Given how dry it has been, perhaps farmers will become reluctant sellers for a longer period as sometimes they tend to hold grains as a hedge against drought,” a Melbourne-based analyst said.
“Forecasters have reduced the chances of El Nino, but try telling that to farmers in northwestern Victoria, which hasn’t seen much rain for the last three months.”
The U.S. weather forecaster recently reduced its outlook for the likelihood of El Nino developing during the Northern Hemisphere winter to 58 percent.
Asian buyers have yet to shift wheat buying to other origins because demand is weak due to slowing economic growth.
“Buyers are still looking at Australian wheat as it is cheaper, but if fears of drought continue to block shipments, they will have not much choice but to seek wheat from other origins,” a Singapore-based trader said.
