Wheat Outlook Trimmed by Australia as Dry Growing Season Looms

Jun 10, 2014 9:21 pm ET

June 11 (Bloomberg) -- Australia lowered its forecast for wheat production this season as an El Nino event and drier growing conditions loom in the world’s fourth-biggest exporter.

Output may total 24.6 million metric tons in 2014-2015, compared with 24.8 million tons estimated in March, the Australian Bureau of Agricultural and Resource Economics and Sciences said in a report today. Production was 27 million tons last year, the third-largest ever, it said. The grain will be planted across 13.8 million hectares (34 million acres), higher than the March forecast of 13.6 million hectares, it said.

Wheat in Chicago tumbled 13 percent in May and is poised to enter a bear market as bigger crops in Europe compensate for a drop in U.S. production, boosting global supply. Declining grain costs helped reduce world food prices for a second month in May, according to the United Nations. World reserves will limit any sustained price reaction to El Nino-related supply concerns in Australia, Morgan Stanley said June 9.

“Sufficient and timely rainfall over winter will be critical to the development of winter crops, particularly in those areas where soil moisture levels are presently low,” Abares said in the report. “Yields are likely to be lower than currently assumed if sufficient and timely rainfall is not received.”

An El Nino may be established by August and there’s at least a 70 percent chance of the weather pattern developing this year, the Bureau of Meteorology said June 3. The weather event is often associated with below-average rainfall over southern and eastern inland areas.

Planting Conditions

Western Australia’s harvest, the country’s biggest, may total 8.4 million tons in 2014-2015, down from 10.5 million tons a year earlier, Canberra-based Abares said. Output in New South Wales, the second-biggest producer, will increase to 7.3 million tons from 6.6 million tons last year, it said.

Conditions have been generally favorable for planting in Western Australia, South Australia, Victoria and southern and central New South Wales, according to the report. Conditions have been less favorable in most of northern New South Wales and Queensland and there are low levels of soil moisture in some regions, it said.

The chances of below-average rainfall between June and August is more than 60 percent in parts of southern Western Australia, most of South Australia, southern Queensland, New South and northern Victoria, the weather bureau said May 28.

The impact of an El Nino isn’t uniform and is difficult to predict, according to Abares. Several events over the past three decades have had no significant adverse effect on winter crop output in eastern Australia, it said.

Winter Crops

Australia’s canola harvest is forecast at 3.5 million tons from 2.9 million tons predicted in March. Barley output may total 7.5 million tons, down from a March estimate of 7.7 million tons, Abares said. Total winter-crop production, including wheat, barley and canola, will be 38.8 million tons in 2014-2015 from 44.1 million tons last year, it said.

Cotton production may total 910,000 tons in the 2013-2014 harvest that is largely complete. That compares with 940,000 tons estimated in March. Growth in average yield was constrained by rainfall in March, particularly in cotton-growing regions in New South Wales, Abares said.