Dry weather eats into wheat harvest

WHEAT production is forecast to be 24 per cent lower this year with the industry facing mixed prospects heading into spring.

By InvestSMART · 12 Sep 2012

By InvestSMART ·
12 Sep 2012

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WHEAT production is forecast to be 24 per cent lower this year with the industry facing mixed prospects heading into spring.

The Australian Bureau of Agricultural and Resource Economics and Science expects wheat production of 22.5 million tonnes in the 2012-13 financial year, down from the previous year's record output.

The overall winter crop production is projected at 36.2 million tonnes, which would be about 20 per cent below last year's record but still 17 per cent higher than the five-year average to financial 2010-11.

The downgraded forecast was widely expected. But the lower production could provide further support to global wheat prices, which have surged almost 40 per cent since June as the US farmbelt was hit by drought.

The ABARES executive director, Paul Morris, said the lower production forecasts reflected dry conditions in Western Australia and some parts of south-eastern Australia.

"In contrast, conditions have been more positive in northern NSW and Queensland, where crops are forecast to achieve above-average yields," he said.

Mr Morris said while wheat production was forecast to fall this season, wheat available for export would remain high, reflecting higher production of the past two seasons.

Wheat stocks held by bulk handlers at the start of August were about 11.5 million tonnes.

World wheat prices fell this week, snapping three straight sessions of gains, buoyed by expectation of lower yields in Australia and worries in Russia, the world's No. 4 supplier, would cut exports.

ABARES is also forecasting barley production in 2012-13 to fall by 19 per cent to about 7 million tonnes, while canola production is expected to drop 2 per cent to about 2.8 million tonnes.

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Frequently Asked Questions about this Article…

What did ABARES forecast for Australian wheat production in 2012–13?

ABARES forecast Australian wheat production at about 22.5 million tonnes for the 2012–13 financial year, a drop of roughly 24% from the previous year's record output.

How does the winter crop outlook compare to last year and the five‑year average?

ABARES projected overall winter crop production at about 36.2 million tonnes — around 20% below last year’s record but roughly 17% higher than the five‑year average to financial 2010–11.

Why is wheat production expected to fall this season?

The downgraded wheat forecast largely reflects dry conditions in Western Australia and parts of south‑eastern Australia, although conditions have been more positive in northern NSW and Queensland where yields are expected to be above average.

Could lower Australian wheat production push global wheat prices higher?

Yes — the article notes that lower Australian production could provide further support to global wheat prices. Prices had already surged almost 40% since June amid drought in the US farmbelt, although world prices did see a pullback recently after a run of gains.

Will reduced production mean less wheat available for export?

Not necessarily. ABARES said wheat available for export would remain high because of the larger crops in the previous two seasons. Bulk handlers held about 11.5 million tonnes of wheat at the start of August, supporting export availability.

How are other Australian winter crops faring in the ABARES forecast?

ABARES forecast barley production to fall about 19% to roughly 7 million tonnes in 2012–13, while canola production was expected to decline about 2% to around 2.8 million tonnes.

What global factors are influencing wheat market sentiment right now?

The article points to drought in the US farmbelt — which helped drive a near 40% price surge since June — and concerns about possible export cuts from Russia (the world’s No. 4 supplier) as key factors affecting world wheat prices and market sentiment.

What should everyday investors take away from the ABARES crop forecasts?

Investors should note that regional weather differences are driving a mixed outlook: overall production is down but exportable supplies remain bolstered by prior seasons. Reduced domestic output can support global prices, while stocks on hand and international factors (like US drought or Russian export worries) also influence market moves.