Australia slashes wheat crop forecast, prices rise

Australia slashed nearly a third off its official wheat crop forecast on Tuesday as a persistent drought ravaged crops, adding to a grim picture for world supply and pushing domestic wheat futures to a record high.
The country, normally the world's second largest wheat exporter after the United States, cut its outlook for the new wheat crop to 15.5 million tonnes, down 31 percent from its June prediction and in line with private forecasters.
"It is broadly in line with what people have been talking about. The worst case scenario is people suggesting if it doesn't rain at all between now and the end of harvest you'll get it down to about 12 million tonnes," said Justin Smirk, senior economist with Westvaco Banking Corp.
The new forecast, by the government's Australian Bureau of Agricultural and Resource Economics, sent Australian wheat futures prices on the Australian Stock Exchange soaring A$11 to a record A$450 a tonne. Garry Booth of commodities futures trader Man Financial said Australian and offshore traders had reacted to a realistic forecast.
"There was some surprise that ABARE came out with the number that it did," Booth said, adding that the market expected a more conservative forecast and a higher tonnage.
"But we think that it could be very close to the mark." Chicago Board of Trade Wheat Futures rose 2 percent in electronic trading in Asia to $8.93 a bushel, just off a $9.11-record high hit last week. Booth said Man Financial saw more upside in wheat prices, with "not much there" on weather maps for coming rain.
Early predictions in Australia were for a record 26 million tonne 2007/08 crop. The lower forecast, while comparing favourably with Australia's actual wheat production of 9.8 million tonnes in 2006/07, adds to a tight global supply picture.
Northern Hemisphere crops have also been weak, demand from emerging markets is rising and world stocks are likely to hit there lowest in 30 years this crop year.
Pakistan became the latest country to start shopping for wheat despite its soaring cost, saying on Saturday that it would import a million tonnes. Egypt, Morocco, Algeria, Iraq and India have all also been booking large quantities of wheat, while Indonesia's Bogasari Flour Mills, the biggest flour miller in the world, recently told Reuters it had no choice but to import at present high prices because of a shortage of stocks.