Australia Floods Damage Crops, Force Evacuations; Coal Shipments Disrupted

Flooding and heavy rainfall in Australia damaged wheat crops, disrupted coal production and caused communities to be evacuated as eastern states prepared for further wet weather this week.

The rain may cut the quality of more than 40 percent of the country’s wheat crop, according to estimates by National Australia Bank Ltd. Rio Tinto Group, the world’s third-largest mining company, said today coal mines in central Queensland state had partially resumed operation after rains.

Wheat futures in Chicago rallied to the highest level in four months on concern that the weather in Australia, the fourth-largest shipper, may reduce global supply of high-quality milling grain. The rain had wiped as much as A$500 million ($496 million) off the expected A$3.2 billion value of New South Wales winter crops, state Premier Kristina Keneally said today.

“The weather we have been getting over the past couple of weeks has been terrible,” Michael Creed, an agribusiness economist at National Australia Bank Ltd. in Melbourne, said by phone. “Harvest conditions are shocking.”

Rainfall of between 25 millimeters (1 inch) and 100 millimeters may extend from eastern South Australia to southern Queensland in the four days ending Dec. 9, the Bureau of Meteorology forecast. Flood warnings are current for rivers in New South Wales, its northern neighboring state Queensland and Victoria to its south.

La Nina

The deluge in Australia, caused by a La Nina event that cools the Pacific Ocean and increases rainfall, helped drive wheat futures 13 percent higher in Chicago last week. The March- delivery contract gained 1.8 percent to $7.93 a bushel at 3:56 p.m. Melbourne time.

Australia had its wettest September-to-November spring on record, according to the Bureau of Meteorology. Thirty-four shires in New South Wales have been declared natural-disaster areas since flooding in October, Keneally said.

New South Wales is forecast to be Australia’s largest wheat producing state this year. Other crops affected by the weather include barley, canola, chickpeas and lupins, Emergency Services Minister Steve Whan said at the weekend.

More than 10 million metric tons of the Australian crop may be downgraded to lower-quality classes and most of that could become feed grade, Creed said. National Australia Bank estimates total production at 23.8 million tons.

Coal Supply

Macarthur Coal Ltd., Aquila Resources Ltd. and Vale SA said last week they had declared force majeure, while Xstrata Plc shut part of its rail system and said it would use stockpiles to supply customers. Force majeure is a legal clause invoked by companies when they can’t meet obligations because of circumstances beyond their control.

The State Emergency Sevice in New South Wales evacuated 1,800 people and said up to 3,900 had been isolated in rural areas. More wet weather this week may also swell rivers, SES spokesman Phil Campbell said by phone.

“The indication is that we will have a decent band of rain, particularly through Thursday and that rain has the potential to raise river levels further,” he said.

Commonwealth Bank of Australia cut its estimate of wheat exports to 14 million tons in 2010-2011, from an earlier 16 million tons. “Many in the industry suggest the disruptions to the harvest this year and the implications for grain quality are the worst in a lifetime,” Luke Mathews, a commodity strategist at the bank, said in a report yesterday.

Wheat Forecast

The Australian Bureau of Agricultural and Resource Economics may lower its estimate of the nation’s harvest in a report due tomorrow from 25 million tons and pare its forecast on exports from 18 million tons, Commonwealth’s Mathews said.

“Australia is traditionally a producer of quality milling wheat,” he said, referring to the grade used in bread, pasta and noodles. The rains may lower the quality of 6 million tons of milling wheat produced in the east coast, with as much as 35 percent of the harvest, or 5 million tons, at risk of being classified as feed-quality, he said.

Queensland Sugar Ltd., which ships more than 90 percent of the country’s sugar, also today cut its export forecast to 2.2 million tons because of weather, compared with an outlook earlier in the year of as much as 3 million tons.

Australia’s agricultural industry expanded 18.5 percent last quarter, driven by “strong crop forecasts,” the Bureau of Statistics said last week in a report that showed the economy expanded 0.2 percent from three months earlier. That was the worst performance since a contraction at the end of 2008.

Mick Keogh, executive director of the Australian Farm Institute, said that if the data “for agriculture were corrected for the loss of value in the crop sector due to the rain, it is highly likely Australia would have experienced negative change in GDP for the quarter,” The Australian newspaper reported on Dec. 4.

To contact the reporters on this story: Wendy Pugh at wpugh@bloomberg.net

To contact the editor responsible for this story: James Poole at Jpoole4@bloomberg.net

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