[SYDNEY] The quality of Australia's near-record wheat crop will likely be hit, as a sudden spike in a climate indicator shows there is a high chance of crop-damaging rains linked to a La Nina weather event over the next few months, analysts and traders said.
The La Nina - which brings cooler, wetter weather for much of Australia's key wheat growing region on the east coast - had in 2010 decimated the region's crop and downgraded the quality of the grain to animal feed.
As of now, Australia, the world's fourth-largest exporter of wheat, is expected to harvest its second-largest crop on record during the 2016/17 season after near-perfect conditions across much of the country, the country's chief commodity forecaster confirmed this week.
But with the Southern Oscillation Index (SOI) - that measures sea level pressure differences and is one of a number of indicators of a La Nina - rising to its highest level in two months, analysts and traders say the outlook for Australia's silo-bursting supplies remains in doubt.
"The SOI after remaining in neutral range has risen above seven, a threshold for La Nina. Today it is at 11.8 which means there are higher chances of La Nina developing in the near future," Rajesh Singla, head of agriculture research at Societe Generale, said on Friday. "If there are excessive rains from La Nina in October and November, it could hit the quality of Australian wheat crop."
Australia needs dry weather in October to ensure good quality and to get the crop ready before the harvest at the end of the year.
Lower export supplies from Australia could support global wheat prices, which are mired near 10-year lows in a world market that is flush with supplies following a bumper output in the northern hemisphere.
However, Australia's Bureau of Meteorology (BOM) said the SOI reflects more unseasonably warm waters around Australia's north rather than an imminent La Nina.
Wet conditions are likely, but not in the same intensity as five years ago, the BOM added.