Drought set to cut wheat crop by 21pc

SYDNEY - Australia's wheat crop is expected to fall by 21 per cent this year due to a severe drought, cutting exports and threatening to push up world grain prices.

The forecast for wheat, Australia's top winter crop, was cut to 16 million tonnes, down from a mid-sized crop of 20 million tonnes in the last growing year.

Australian wheat is a prime source of supply for bread for tables in Asia and the Middle East, while the country's other winter crops are important ingredients for beer and cooking oil.

"With little rain in sight in south-eastern Australia, winter crop production in 2005/06 is forecast to be ... significantly lower than last season," said the Australian Bureau of Agricultural and Resource Economics (Abare).

Western Australia had received enough rain to be assured of a good crop.

Traders had been expecting the wheat forecast to be cut to 20 million tonnes.

"I was surprised. It's basically writing off the east coast entirely. That's a pretty severe cut," said Ingrid Richardson, food and agribusiness research analyst at Rabobank.

The crop will be one of the lowest on record in recent years, although still ahead of the 10 million tonnes produced during a drought in 2002, which cut the country's growth rate by 1 per cent.

Grains traders said the cutback could put pressure on global prices.

"It certainly will have an effect," said rural grains broker Rob Imray of Farmarco, particularly if the predicted US harvest is downgraded, as expected. "That's going to have an impact on world supply and demand. But the immediate market impact will be limited."

The bureau forecast that Australian exports of wheat would fall to 14.6 million tonnes, from 17 million tonnes.

It also slashed forecasts for barley, which is used for brewing beer in China and Japan and for animal feed in the Middle East, and canola, which is widely used for cooking oil.

Forecasts for pulses are also down.

"Lack of rainfall and poor seasonal prospects in the eastern states and South Australia are forecast to result in a significantly reduced area and production of winter crops in 2005/06," the bureau said.

"By early June, no significant planting rainfall had been recorded in most cropping areas of New South Wales, Victoria or South Australia," Abare said.

It expected Australia's total winter crop production this season to fall 17 per cent to 26.1 million tonnes, down from 40.2 million tonnes in the last good growing season, in the year to March 2004.

The bureau noted that prospects remain poor for the rest of the growing year.

- REUTERS