Flooding in Australia May Propel Wheat Crop to Record, Rabobank Predicts

Rain that caused billions of dollars of destruction in Australia could propel wheat output in the fourth-largest exporter to a record next harvest and boost irrigated crops after floods swept formerly parched land.

Heavy rains that damaged crops this season have also saturated soils, providing moisture for the next wheat-growing season and raising dam levels for irrigated crops such as cotton, commodities analyst Wayne Gordon and sustainability analyst Tracey Allen at Rabobank Groep NV said in an interview yesterday.

Rising milling wheat and cotton supplies from Australia may help curb global prices that soared last year on concerns that demand may outpace supply. Floods this month followed the country’s wettest July-to-December on record, ending a drought that lasted a decade in some areas and filling dams in the Murray-Darling Basin, which produces more than a third of the nation’s food supply.

“It’s plausible to see that we could plant and perhaps grow a record wheat crop in the coming year,” Gordon said by phone. Still, that depends on improved production in Western Australia, where drought persists, and “top-up” rains in the east, he said. The grain is mostly planted from April to June.

Wheat futures on the Chicago Board of Trade gained 47 percent last year after Russia’s worst drought in at least 50 years prompted the country to ban exports and amid concern that rains would cut milling-quality supplies from Australia. The contract reached a five-month high of $8.25 a bushel on Jan. 3. Cotton on ICE Futures U.S. in New York reached a record $1.5912 a pound on Dec. 21.

Crop Forecast

Australia may produce 25 million metric tons of wheat from the current harvest, the U.S. Department of Agriculture said Jan. 12. Output may reach a record 26.8 million tons, the Australian Bureau of Agricultural and Resource Economics and Sciences, known as Abares, estimated Dec. 7, as output in the east offset drought in Western Australia. The country produced 26.1 million tons in 2003-2004, according to Australian government data.

The bureau will update its estimate for the current harvest on Feb. 15 and release its 2011-2012 forecast on March 1.

Rainfall levels suggest eastern Australia will produce another big crop this year, and history indicated it’s unlikely Western Australia’s crop will slump by the same amount for a second year, Peter Rowe, Perth-based manager of agribusiness projects and strategy at Bankwest, a unit of Commonwealth Bank of Australia, said by phone.

Weather Outlook

“I could see us exceeding the 26.1 million tons of 2003,” he said. “We could easily give that a nudge.”

Western Australia is likely to have wetter than normal weather for February to April, the Bureau of Meteorology said on its website today, after the state’s southwest cropping region had its driest season on record in 2010.

This season’s national harvest of 25 million tons likely included 10 million tons of the lower grade feed-quality grain as rain over eastern Australia damaged crops, Bankwest said this week. Further rain and flooding in Victoria was compounding problems, Luke Mathews, an agricultural commodities strategist at Commonwealth Bank of Australia, said Jan. 17.

The flooding in Victoria, Queensland and New South Wales was Australia’s biggest natural disaster in economic terms, Prime Minister Julia Gillard said. Rebuilding may cost as much as A$20 billion ($20 billion), or about 1.5 percent of gross domestic product, economists from Australia & New Zealand Banking Group Ltd. wrote in a research reported dated Jan. 18.

Deaths, Damage

Queensland Premier Anna Bligh has said the state’s death toll could be as high as 32 and that 2.1 million people had been affected. The floods disrupted coal exports, damaged roads and rail networks and inundated farms.

The short and medium-term effect would be severe for “directly impacted” cropping businesses, while relatively high commodity prices and favorable conditions for livestock production in many areas would help offset the impact on average farm incomes, Abares said in a statement this week.

“Prospects for future seasons remain bright, with significant increases in water storages and soil moisture profiles,” the bureau said.

The Murray-Darling Basin, which produces more than 90 percent of Australia’s cotton, had its wettest 12 months in 2010 after a record series of below-average rainfall years going back to 2001, according to the Bureau of Meteorology. Water storages were 81 percent full as of Jan. 12, compared with 26 percent at the start of 2010, while dam levels outside the region have also increased.

Storage Levels

“In terms of the longer-term benefits, we haven’t seen storages at these sort of levels for probably more than a decade,” Rabobank’s Allen said. “Across the basin it is security for irrigators moving into the next few seasons.”

The current cotton crop will be mostly harvested from March to May, with forecasts for output to top 4 million bales for the first time now in doubt after the floods. The record was 3.6 million bales, government data show. An Australian bale weighs 227 kilograms (500 pounds).

Flood losses may cut output this season by about 400,000 bales to 3.4 million bales, National Australia Bank Ltd. said last week. The next crop will be planted from around October.

“The good subsoil moisture and increased allocations bode well for next season, especially when considering that storage levels for dams in the cotton-producing regions stood at just 20 percent this time last year,” wrote Michael Creed, a Melbourne- based agribusiness economist at the bank.

‘Large Plant’

Rising prices and the availability of irrigation water is likely to ensure “another large cotton plant” for 2011-2012, Mathews, at the Commonwealth Bank, said earlier this month.

Still, for grain producers the wet weather is hampering access to fields and helping weeds flourish, which could create problems for farmers as they prepare for their next crops.

“The soil profiles across the eastern states augur well for a potentially above-average crop production year, barring the catastrophic events we have seen this year,” Pete Mailler, Grain Producers Australia Chairman and a New South Wales farmer, said from near flood-affected Goondiwindi this week. “More water doesn’t necessarily equal more grain and more profit.”

To contact the reporter on this story: Wendy Pugh in Melbourne wpugh@bloomberg.net.

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

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