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Australian drought hits wheat estimates: lowest crop in a decade

Tuesday, December 4th 2018 - 08:48 UTC
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Lower wheat production will reduce Australia’s wheat export capacity, supporting global benchmark prices that rose to their highest in more than two months Lower wheat production will reduce Australia’s wheat export capacity, supporting global benchmark prices that rose to their highest in more than two months

Australia on Tuesday lowered its wheat production forecast by 11% to the smallest in a decade amid a crippling drought across the country’s east coast that may cut exports from the world’s fourth biggest supplier.

 Wheat production during the 2018/19 season will total 16.95 million tons, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES). That was below ABARES’ September estimate of 19.1 million tons, which was on course to be the lowest since 2008 when output hit just 13.6 million tons.

Lower wheat production will reduce Australia’s wheat export capacity, supporting global benchmark prices that rose to their highest in more than two months on Monday.

Australia typically exports two-thirds of its wheat but, with dry weather hampering local production, demand from domestic millers will supplant major customers such as Indonesia.

The outlook also casts a shadow over Australia’s economy and its largest listed bulk grain handler, GrainCorp Ltd, which earns most of its revenues from trading wheat.

GrainCorp on Monday said it received an unsolicited A$2.38 billion (US$ 1.75 billion) takeover approach from a little-known asset manager.

Analysts say the timing of the offer was opportunistic as the unfavorable weather limits the bulk grain handler’s ability to earn revenue.

Production in Australia’s east coast has been particularly hampered with the entire state of New South Wales, the second largest producing region, hit by drought earlier this year. ABARES said production from New Wales will reach 1.98 million tons, the lowest since 1995.

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