It's rather strange that Australia, the world's second driest continent, exports water. Or, more specifically, water-intensive crops and livestock. The recent drought in the land down under is testing the mettle of this rather unnatural industry. Now, Bloomberg notes that if this lack of rain continues, then it will put at jeopardy the fate of wheat growing Australian states which account for two-thirds of the nation's projected harvest. If you will recall, the political fallout from the ongoing drought has been are large. Longtime Australian PM John Howard is set to be turfed out of office for his perceived neglect of environmental issues despite a long record of delivering economic growth. (Like the US, Australia was another developed country that didn't sign on to the Kyoto Protocol.) It looks like wheat may be in short supply as government forecasts are unlikely to be met:Australia's biggest wheat-growing states, supplying two thirds of the country's projected harvest, need rain within weeks to avoid yield losses and potential crop failure, state government and industry officials said.``Parts of the wheat belt are in dire straits'' in New South Wales, said Frank McRae at the state's Department of Primary Industries. Without rain in three weeks, 30 percent of the state's crops could fail, McRae said in an interview today.
A recovery in wheat output in Australia, the world's third- biggest exporter, is being hampered by dry weather. Any losses to the crop, which the government projects will more than double from last year's drought-ravaged 9.8 million metric tons, may extend a 96 percent rally in Chicago prices in the past year.
``We're still on a knife's edge,'' said Michael Musgrave, operations manager for CBH Group, the biggest grain handler and marketer in Western Australia, which usually provides one third of the nation's wheat exports. Western Australia, which had beneficial rain in recent weeks, needs more, he added.
Wheat futures for December delivery, which reached a record $7.19 a bushel on Aug. 15, rose as much as 4.5 cents, or 0.6 percent, to $7.085 a bushel on the Chicago Board of Trade in after-hours electronic trading. The contract traded at $7.0575 a bushel at 5:47 p.m. Sydney time.
Global wheat inventories are expected to fall to 114.8 million tons by May 31, the lowest in 26 years, the U.S. Department of Agriculture said on Aug. 10. Drought cut Australia's last harvest to a 12-year low, while dry weather damaged crops in the U.S. and Ukraine.
``This will deepen concerns over global supplies following a production decline in Europe,'' Naoyuki Omoto, director of Andre Far East Inc. in Tokyo, said today, referring to the risk to crops from dry weather in Australia.
New South Wales was tipped to replace Western Australia as the nation's largest wheat grower, with an estimate of 8.1 million tons made by the federal government commodity forecaster in June. Yield potential will drop by half in western growing areas of New South Wales in the next week to 10 days without rain, said McRae, a technical specialist in charge of cereals.
``If we went three weeks without rain, a lot of the western wheat crop would be in trouble,'' he said. ``It's pretty desperate at the moment, everyone is on tenterhooks waiting for rain and the 10-day forecast doesn't look good at the moment.''
Australia's wheat production may miss a government forecast as dry weather threatens to cut yields, a Bloomberg survey this week showed. Output may be 20.75 million tons this harvest, according to the median estimate of eight analysts and traders. That compares with a government forecast of 22.5 million tons.
Still, output in Western Australia may not be as low as previously expected after recent rain, said CBH Group's Musgrave.
``The situation can still change,'' Musgrave said. ``We need a significant rainfall event to cross the state.''
Western Australia may produce between 6 million tons and 9 million tons of all grain, he said. That compares with an earlier forecast of 5 million tons to 9 million tons.
``We're more confident about the bottom end that we will get 6 million tons,'' Musgrave said. ``We're pessimistic about the top end.'' Australia was the third-largest exporter of wheat two years ago, after the U.S. and Canada.
