Bloomberg News

Bumper Wheat Harvest in Australia May Cool World Food Costs

July 14, 2011

(Updates prices in fifth paragraph.)

July 14 (Bloomberg) -- Australia, the fourth-biggest wheat exporter, is set for its second straight bumper harvest as rains in the west boost crops, helping curb global food costs.

The crop may be 25 million metric tons in the coming year, according to the median estimate of six analysts and traders surveyed by Bloomberg. While that’s 5 percent below the record 26.3 million tons the previous year, it’s 15 percent above the drought-hit 21.8 million tons in 2009-2010, government data show.

Sustained supply from Australia may cap global prices that jumped 15 percent this month as the U.S., the biggest exporter, cut its estimate for domestic inventories next year. The crop may help constrain near record global food costs tracked by the United Nations that advanced in June for the 10th time in the past year, a trend that helped drive 44 million people into poverty since mid-2010, the World Bank says.

“Production has been responding,” said Michael Creed, an agribusiness economist at National Australia Bank Ltd. in Melbourne, who predicts a 15 percent decline to $6 a bushel by the yearend. “It certainly expands global supply.”

Wheat soared to $9.1675 a bushel on Feb. 14, the highest level since 2008, as drought in China threatened crops and unrest in the Middle East and North Africa spurred government stockpiling. The price plunged to $5.92 a bushel on July 1 after Russia eased its export ban and as rains eased concern over droughts in China and Europe. The grain traded at $7.055 today.

Stockpile Boost

A decline in costs may offset the increase in rice prices that resulted from a slump in U.S. acres and a planned increase in guaranteed farm prices in Thailand, the biggest shipper. Rice, the staple for half the world, has surged 14 percent this month to $17.07 per 100 pounds, the most expensive since 2008.

The bumper harvest in Australia may help replenish global stockpiles of wheat that the U.S. government predicts will drop to a three-year low of 182.2 million tons before the 2012 harvest as demand exceeds production for a second year.

Australia’s government forecaster increased its estimate for the coming crop by 7.8 percent to 26.2 million tons in June after rains in the west and good soil moisture in the east improved prospects and growers boosted plantings.

“It’s not out of the realms of possibility,” said Luke Mathews, a commodity strategist at Commonwealth Bank of Australia, who predicts a 24.3 million ton crop. The western growing areas may have a slightly above-average season and conditions in the southeast are mostly favorable, he said. Harvesting starts around October.

‘Much Better’

CBH Group, the top grain handler in Western Australia, lifted its estimate for the state grain crop by 1 million tons June 30 after rain. Total output may be 9 million tons to 11 million tons, said Max Johnson, manager of grain operations.

“They’ve had rain and conditions are looking much better,” said Neil Burgess, a senior commodity analyst at Westpac Banking Corp., who forecasts a 26 million ton harvest. “They still need some more rain but certainly for those export markets out of the west coast, there’s more optimism.”

Shipments may climb 8.5 percent to 19.8 million tons in 2011-2012 because of large stockpiles and production, the Australian Bureau of Agricultural & Resource Economics & Sciences said June 15. Exports from Western Australia may jump 13 percent to 6.2 million tons, it said.

Mice in eastern growing states and a dry spring may reduce the crop potential, said Creed from National Australia Bank.

Mice Plague

Winter crops in New South Wales, the biggest producer last season, were threatened by the worst plague of mice in nine years, the state’s Department of Primary Industries said in May. Poison was provided to farmers as about two-thirds of the state reported mouse activity, according to its website.

“The outbreak of mice has been highly variable by region, yet in the worst affected areas -- where bait has been ineffective or undersupplied -- some farmers have had to re-sow entire crops and many others are concerned about the degree of crop establishment,” Rabobank said this week.

New South Wales is likely to have an average to above- average harvest because of rain and subsoil moisture, said Rob Proud, general manager distributions and grower services at Emerald Group Australia Pty. He predicts a national crop of 23.7 million tons and as much as 7.5 million tons in New South Wales.

--Editors: James Poole, Ovais Subhani

To contact the reporter for this story: Phoebe Sedgman in Wellington at psedgman2@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net.


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