Australia forecast on Tuesday its wheat output in the year to March 2008 would more than double to 22.5 million tonnes as rains relieved the nation's worst drought in 100 years, sending US prices down on emerging competition.
With prices on the Chicago Board of Trade hovering close to 11-year highs, an expected rise of almost 130 percent in Australia wheat output, from last year's 9.8 million tonnes, is likely to give some breathing space to a market struggling to secure supplies at competitive prices.
"Widespread autumn rainfall across the majority of New South Wales, Victoria and South Australia has provided an ideal start to the 2007/08 winter cropping season," said Phillip Glyde, executive director of the government unit at the Australian Bureau of Agricultural and Resource Economics.
Immediately after the forecast, CBOT wheat futures fell 1.5 percent in electronic trading in Asia, with July down 8 cents at $5.93 per bushel, after hitting a low of $5.91-1/4. The wheat market has been on the edge in recent weeks, with fears of global stocks falling to 30-year lows, erratic weather disrupting the US harvest, and drought in Ukraine and Russia.
Industry officials said the bigger crop should lead to intense competition between Australia and the United States to grab Asian markets. "With a crop like that, they will be quite aggressive in the international markets," said Mark Samson, vice president for South Asia at the US Wheat Associates.
"News like that in a tight market will put some downward pressure on prices." A Seoul-based trader added: "The news from Australia brings relief to a grim situation in that drought-hit country. This is definitely a bearish factor in the market."
Australia harvested a record 26.1 million tonne of wheat in 2003/04. The bureau forecast a jump in Australia's total winter crop production to 37 million tonnes for the crop year to March 31, 2008, from 15.7 million tonnes a year ago.
Australia was expecting its winter agricultural output to bounce back after last year's sharp falls. Barley production was forecast to rise 142 percent to about 9 million tonnes, up from 3.72 million tonnes in 2006/07.
Canola output is also seen more than doubling to 1.4 million tonnes, from a drought-affected 513,000 tonnes in 2006/07. The bureau's first in-season wheat crop forecast was down from pre-season forecast in March of 24.98 million tonnes, and was near the bottom end of estimates by traders and private forecasters for a crop of 22-to-26 million tonnes.
"It's conservative but probably closer to the mark," said grains broker Andrew Walker of Fox Commodities, who pointed to continuing scattered dry parts of Australia. A 26 million tonne wheat crop forecast by private group Australian Crop Forecasters is at the upper end of expectations.
The bureau's Glyde sounded a note of caution, saying that continued dry conditions throughout Queensland and parts of Western Australia meant that winter crop prospects in those states were presently below average.
Nevertheless, forecasts of larger crops were seen further buoying Australia's overall economy. Farm commodity exports of around A$30 billion in an average year make up almost 20 percent of Australia's total commodity exports.
Agricultural output accounts for around 3 percent of Australia's annual A$944 billion ($792 billion) of output, with wheat seen as the bellwether of the farm sector. With drought conditions continuing through summer, the bureau estimated that total summer crop production fell 57 percent to 1.89 million tonnes.