Sydney/Reuters – Heavy rain falling along Australia’s east coast could put up to half of wheat production from the country’s second largest grain producing state at risk of quality downgrades, traders said on Wednesday.
As much as 100 millimetres (3.9 inches) of rain is expected to fall across New South Wales on Wednesday and Thursday, forecasts from the Australian Bureau of Meteorology show, placing large amounts of the state’s grain production at risk, traders said.
“Rain at this time of year can push milling wheat into feed wheat. There is at least a third of the crop, maybe even up to 50 percent of the crop in New South Wales that could be affected by this rain event,” said one Melbourne-based grain trader who declined to be named as he is not authorised to talk to media.
Australia’s chief commodity forecaster in September estimated New South Wales wheat production at 7.2 million tonnes, out of total forecast Australian production of 25.3 million tonnes.
But recent dry weather in the aftermath of that report means most traders and analysts expect New South Wales production to fall well below 6 million tonnes.
Large scale quality downgrades would reduce the amount of milling wheat available for shipment from the world’s fourth largest exporter, providing support for global prices that hit a five-year low in September due to ample supplies.
Top importers of Australian wheat, including the world’s second-largest buyer Indonesia, could be forced to ship more grain from the United States or Canada if Australia’s grain belt takes a hit.
The outlook for rains has revived memories of 2011 when harvest-ready wheat was hit by storms, reducing about half of the crop on the country’s east coast to feed-quality grain.
A fall in grain quality could also create a further headwind bulk grain handlers, which earn revenues from exporting grain.
GrainCorp Ltd, which said on Tuesday its 2015 earnings will hit a seven-year low, warned that the country’s east coast grain production may miss official estimates.
Australia’s official commodity forecaster said in September east coast winter grain output would reach 16.1 million tonnes, but GrainCorp Chief Executive Mark Palmquist said that estimate would be “tempered” by dry weather in recent months, while wet weather this week could also hit production.