Drought ravages Australian wheat crop


The U.S. is the world's largest wheat exporter, normally followed by Australia

Geoff Hiscock
CNN Asia Business Editor

SYDNEY, Australia (CNN) -- Drought in the world's No. 2 wheat exporter, Australia, will shrink winter crop production by 40 percent, the nation's commodity forecaster said Tuesday.

For the third straight month, the government forecaster ABARE has cut its production outlook.

It now says winter grain production will fall by 15 million tonnes to 22 million tonnes in 2002-03, making it the lowest winter crop harvest since 1994-95.

Wheat production will likely fall to 13.5 million tonnes, down from 24 million tonnes last season. Three months ago, ABARE was estimating a fall of only 3.5 million tonnes to 20.5 million tonnes. (Full story)

The latest ABARE forecast comes as wheat futures are rising on expectations that delayed harvests in North America, along with the Australian drought, will crimp global supplies.

Wheat prices are up 46 percent so far this year, with wheat for December delivery trading 2.9 percent higher to $4.22 a bushel on the Chicago Board of Trade Monday.

That is the highest price in more than five years.

'Devastating' impact

"The spreading drought is having a devastating effect on this year's Australian grain crop," ABARE executive director Dr Brian Fisher said Tuesday.

Fisher said rainfall in all of Australia's main grain-producing regions had been well below average from April to August.

With temperatures starting to rise, many crops would struggle to achieve worthwhile yields.

Fisher said most crops desperately need rain in the next two to three weeks, but the national weasther forecaster, the Bureau of Meteorology, expects rainfall will be below the long-term median for September-November over most of the cropping area of southeast Australia.

Only southwestern Western Australia is expected to see rain above the long-term median.

Fisher said ABARE would give an estimate of the cost of the drought on the Australian economy later this month.

Big uncertainty

In a separate survey released Tuesday, Australia's biggest bank, National Australia Bank, said the scale of the drought was one of the "big uncertainties" in assessing the health of the economy.

Australian wheat exports are worth about $2 billion a year, the biggest item in total grain exports of about $3 billion.

According to the U.S. Department of Agriculture, the United States is the world's biggest wheat exporter, with exports in 2002-03 likely to be about 24 million tonnes. It expects Australia to export about 18 million tonnes.

Australian prime hard wheat for September delivery is quoted at $246.70 a tonne, increasing to $251.20 for December delivery. That is a 35 percent increase in the past three months.

Last week, Canada, another one of the world's top wheat exporters, said that it would no longer quote export prices while it assessed the impact of drought on its own wheat supplies.