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Drought causes massive drop in predicted grain harvest

Published on 18 September, 2007, Last updated at 21:54 GMT

Continuing drought has forced the national commodity forecaster to slash its grain harvest predictions by nearly a third, from 37 million to 25 million tonnes.

The Australian Bureau of Agriculture and Resource Economics says New South Wales has been hardest hit, where the crop forecast has been halved.

Other states will also lose yields, with only the grain crop in Queensland slightly bigger than expected.

ABARE's chief commodity analyst Terry Sheales says the wheat crop in particular will be a lot smaller than first thought.

"We're forecasting wheat production to be around 15 and a half million tonnes, that compares with around 22 and a half million tonnes back in June," he said.


"So a very substantial reduction but I would emphasise it is a lot better than last year's crop of just under 10 million tonnes."

AWB has again raised estimated returns for wheat delivered to the national pool this harvest, as competition for that smaller crop intensifies.

Farmers will be paid 340 dollars a tonne for the benchmark, Australian Premium White variety, up 26 dollars as a result of high world prices and strong demand.

AWB is also offering an additional 10 dollar a tonne incentive to growers who commit to the pool by the end of October.

But agribusiness analyst Paul Jenz says with other players offering higher prices, it will be a tough job for AWB to secure wheat for the pool.

"Farmers are now getting a lot more comfortable with choice in the market because they can see overseas prices and they are seeing the start of a deregulated market with the ability to sell through containers and bags," he said.

"Also post the election there may be some changes afoot and AWB has to be fairly smart with how they offer alternatives."

AWB admits it is unlikely there will be much wheat delivered to the pools from the eastern states.

The domestic cash market for crops is offering higher prices, as end users scramble to cover their needs.

AWB's Mitch Morrison says while all pools will operate, farmers are likely to go for the best price.

"We certainly expect to get grain on the pool ... the way the market is behaving at the moment the cash market is certainly going to be the first port of call for most growers," he said.

"But there will be grain and certainly there will be fierce competition for that grain in various parts given the size of the domestic market and that's really what the majority of the pricing direction is going to be driven by ultimately the domestic market."


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