By Feiwen Rong and Jae Hur
Bloomberg
October 11, 2006 (Update2)
SourceOct. 11 (Bloomberg) -- Wheat production in Australia may slump 58 percent this year as drought spreads, exacerbating a global shortage that drove prices to a 10-year high this week.
Output may drop to 10.5 million metric tons in the world's third-biggest exporter, according to the median estimate of five analysts and traders surveyed by Bloomberg News. The forecast is just 9 percent higher than the record low of 9.6 million tons in the 2002 season.
Wheat prices are heading for the biggest annual gain since 1991 on concern developing EL Nino conditions in the Pacific Ocean will limit production in Australia, which supplied about 14 percent of the wheat traded globally last harvest. There is a 60 to 70 percent chance of below-median rainfall from October to December, the Bureau of Meteorology said on its Web site.
``There's no sign of rain and weather is getting warmer and that is a problem,'' Tobin Gorey, Sydney-based commodity strategist at Commonwealth Bank of Australia, said by phone today. ``There's certainly downside risk with my current forecast of 11 million tons.''
Wheat for delivery in December rose as much as 5 cents, or 1 percent, to $5.06 a bushel in after-hours electronic trading on the Chicago Board of Trade. It traded at $5.055 a bushel at 5:26 p.m. in Sydney.
Prices have soared 47 percent in the past year, pushing up costs for companies including flour millers such as Nippon Flour Mills Co., the second-biggest Japanese miller, as dry weather cut harvests in the U.S., Europe and India. Two-thirds of the world's output of wheat, the most important grain after rice, is used for food.
East Coast Exports
Output is likely to fall to the lower end of AWB Ltd.'s September estimate of 12 million to 15 million tons, Peter McBride, a spokesman for Australia's monopoly wheat exporter said today. The Melbourne-based company, which isn't revising its forecast, stopped exports from ports on Australia's east coast to supply the domestic market.
The east coast normally accounts for about 1 million tons of wheat exports each year, said Brett Stevenson from AgRisk Management Co.
Rainfall during the Australian wheat planting season in May ranged from zero to less than 50 percent of the average in most parts of the country, leading to a 16 percent drop in Nippon Flour's shares since mid-May.
Grain Companies Slide
Shares of AWB fell to a record low of A$3.06 today. ABB Grain Ltd., which ships grain from South Australia, dropped to A$6.58, the lowest in 12 months.
GrainCorp Ltd., eastern Australia's biggest grain handler, said Sept. 7 it will miss its forecast for 9 million tons of all grains to be delivered to its depots this harvest. Its shares have fallen 19 percent since May.
Forecasts in the Bloomberg survey, conducted Oct. 10 and Oct. 11, ranged from 9.5 million tons to 11.5 million tons for the October-to-January harvest. The Canberra-based bureau pegged the crop at 16.4 million metric tons in late September.
The likelihood of an El Nino weather event, which can cause drought in the Asia-Pacific region and flooding in the Americas, increased in the past month, the weather bureau said Sept. 26.
That follows predictions on Sept. 13 from the U.S. Climate Prediction Center and the Philippines Atmospheric Geophysical & Astronomical Services Administration of a developing El Nino.
El Nino events, which occur every two to seven years and shift normal weather patterns around the world, are caused by a major warming of the equatorial waters in the Pacific Ocean. Several El Ninos can drive the prices of agricultural commodities higher as output declines.
Western Australia, the nation's largest wheat-producing state, may harvest 5.5 million tons of wheat, said Richard Koch, managing director at Perth-based ProFarmer. That compared with last year's 9.5 million tons.
``The lack of spring rain mainly in the east coast of Australia'' prompted ProFarmer to cut its Australian wheat output to 11 million tons today, Koch said.
To contact the reporters on this story: Feiwen Rong in Singapore on
Frong2@bloomberg.net Jae Hur in Singapore on
Jhur1@bloomberg.netLast Updated: October 11, 2006 04:01 EDT