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El Nino seen hurting Australian wheat; Japan warns it will intensify

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Australia cut its wheat-crop outlook as the first El Nino since 2010 threatens to curb yields, adding to signs the pattern may disrupt food production around the world, with Japanese forecasters saying Wednesday it will intensify.

[MELBOURNE] Australia cut its wheat-crop outlook as the first El Nino since 2010 threatens to curb yields, adding to signs the pattern may disrupt food production around the world, with Japanese forecasters saying Wednesday it will intensify.

The harvest may total 23.6 million metric tons in 2015-2016 from 24.4 million forecast in March, the Australian Bureau of Agricultural & Resource Economics & Sciences said in a report on Wednesday. Output was 23.7 million tons a year earlier and 25.3 million in 2013-2014, it said. Farmers in the world's fifth- biggest exporter begin harvesting about October.

Australia last month declared the El Nino, which can parch the country's eastern states, and cause droughts in Asia and wetter, cooler summers in North America. The event may cut global wheat output 1.4 per cent, the United Nations' Food & Agriculture Organization predicted. India said the pattern may crimp this year's monsoon, potentially hurting food output.

"It's really difficult to predict the effect of an El Nino this early," Peter Collins, manager for agricultural commodities at Canberra-based Abares, said by phone. "The timing of rainfall is very significant. So, it is possible to have below-average rainfall, but if you get it at just the right time then the effect is lessened."

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Wheat traded near a two-month high on Wednesday after rains in the US, dry conditions in Canada and hot weather in Europe raised concern global supplies will decline. Grain for July delivery rose as much as 0.7 per cent to US$5.36 a bushel in Chicago after climbing to US$5.3725 on Tuesday, the highest for a most-active contract since April 6. The US Department of Agriculture will update supply estimates later on Wednesday.

The El Nino is strengthening and the event will probably continue until the Northern Hemisphere winter, Japan's weather agency said. That tallies with a FAO forecast that the pattern will probably persist right through 2015.

Australian wheat is of particular concern amid the pattern as its critical development stages still lie ahead, Morgan Stanley said on Tuesday. Should the country remain dry, the case for higher prices will grow, according to the bank.

Impacts from El Ninos are hard to forecast, clouding the outlook for grain output, National Australia Bank Ltd said June 5. Dryness is likely to continue through the country's growing season, and wheat yields typically fall well below trend during El Ninos, MDA Weather Services said.

Farmers in New South Wales, the second-biggest wheat grower, may harvest 6.2 million tons from 6.3 million tons a year ago, Abares said. The Bureau of Meteorology forecasts a drier winter for northern and eastern parts of the state as well as south Queensland and eastern Victoria as El Nino strengthens.

Western Australia's harvest, the country's biggest, may total 9.3 million tons from 8.9 million tons a year ago, Abares said. The state is set for a wetter-than-normal June to August, the bureau said May 28. The impact of El Ninos on the state is far less pronounced than in the east, according to Abares.

The El Nino continues to develop, Australia's weather bureau said on Tuesday. The extent of warm water across the Pacific hasn't been seen since the event of 1997-1998, it said. That pattern was the strongest on record, according to the National Oceanic and Atmospheric Administration.

World wheat production will drop to 718.9 million tons in 2015-2016 from 726.5 million tons a year earlier, according to the USDA. The agency has forecast Australia's wheat crop at 26 million tons, and may revise that figure on Wednesday.

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