A "significant portion" of wheat in Australia's biggest grain-growing state is set for below-average yields, even if rains arrive as forecast, officials have warned, as prices set fresh highs in both domestic and foreign markets.

Farming officials in Western Australia, which typically produces about 40% of the national wheat crop, have cut yield hopes for this year's crop, warning that they could fall in some central areas to levels expected only once every two decades.

The downgrades follow the third driest start to the year since record began, in 1900, in some parts of the state, with "lack of subsoil moisture now a concern throughout".

Rains are expected to improve later in the year thanks to the onset of a La Nina weather pattern, which raises the chances of the southern part of the state receiving at least average rainfall.

However, damage already sustained meant that "a significant portion of the crop is unlikely to achieve average yields even with normal rainfall events through the remainder of the growing season", Western Australia's farm department said,

In fact, both Australian and foreign meteorologists were predicting drier-than-normal conditions in the south of the state until October.

Prices rise - again 

The caution came as wheat's rally continued on domestic and international markets, spurred by poor weather in a number of big producing countries, most notably Russia, where drought is threatening a 30% slump in the wheat harvest.

On Australia's ASX exchange, the price of Western Australia wheat for January delivery jumped Aus$26 to Aus$312 a tonne, a one-year high, and taking to 51% its rebound since a late-June low.

The rise also extended the grain's premium over New South Wales wheat for January, which added Aus$21.50 to Aus$300 a tonne.

Typically, eastern Australian wheat trades at a premium, being nearer to the country's main industrial and population centres.

The rally has been attributed in the main to the drought afflicting Russia, which threatens a big drop in shipments from the world's third-biggest wheat exporting country in 2009-10.

However, investors are also taking a keener interest in the fate of southern hemisphere crops – notably in Argentina and Australia – for a lead in how long wheat's price rally can be maintained.