Australia cuts wheat forecast by 11% as drought threatens for third year

[SYDNEY] Australia on Wednesday cut its wheat production forecast for the 2019/20 harvest by more than 11 per cent as an unrelenting drought across the country's east coast threatens crops for a third year in a row.

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) pegged production of the country's largest rural export at 21.2 million tonnes, down from its previous estimate in March of 23.9 million tonnes.

That would be 14 per cent below the 10-year average of 24.7 tonnes, and mean a third straight year of lower-than-average production - crippling growers and exporting companies, and providing a hurdle to an economy that is already threatening to stall. The bureau said growing regions have received enough rain to establish crops, but many areas have very little moisture left in the soil, making them reliant of rains in September and October to avoid further crop downgrades.

"Crop prospects in regions with low to very low levels of soil moisture will likely deteriorate," it said.

Australia exports the bulk of its wheat crop but with increased domestic demand from the country's livestock sector due to the drought, exports from the world's fourth-largest supplier are expected to fall.

As a result, traditional buyers of Australian wheat such as Indonesian and Japanese millers will be forced to look to alternative markets such as Russia at a time when prices are rallying.

Supported by Australia's outlook, global benchmark wheat prices have risen about 15 per cent since May.

Dwindling wheat exports will also damage Australia's stuttering economy.

Wheat is the country's most lucrative rural export from an agricultural sector worth about A$50 billion(S$47.4 billion).

Australia's central bank last week cut interest rates to an historic low, in a bid to support employment growth and lift inflation.

With some farmers across Australia's east coast unable to sow because of the dry weather, the bureau said production from New South Wales, Queensland and Victoria, will total 8.6 million tonnes.

However, national output will be cushioned by output from Western Australia, the country's largest grain growing region, which will total 8.2 million tonnes, it said.

Lower production may force some millers into rare imports.

Australia in May approved the first import shipment of wheat into the country in more than decade.

REUTERS