Hopes for southern hemisphere wheat output took a knock when Rabobank, citing dryness, lowered the bar on estimates for Australia's harvest, while crops in parts of Argentina were lost to floods.
Rabobank downgraded by 1.7m tonnes to 22.8m tonnes its forecast for Australian wheat output, signalling a decline of 20% from last season's record harvest.
The estimate was also below a market consensus figure of 23.2m tonnes, as reported by Bloomberg, and estimates from Abares, the Australian commodities bureau, of a 24.1m-tonne crop, and a US Department of Agriculture forecast of 26.0m tonnes.
And it comes amid an increased world focus on southern hemisphere harvests, as a potential source of grain to replace that lost in the northern hemisphere to droughts in the former Soviet Union.
"The trade will be increasingly sensitive to September rainfall prospects across Australia," Richard Feltes at US broker RJ O'Brien warned.
In the UK, grain merchant Frontier said: "To get anywhere near the USDA estimate of 26m tonnes, rain is needed soon. Can this key wheat exporter really escape the weather issues that have plagued every other world producer?"
'Total or partial loss'
Rabobank's downgrade came hours after the Buenos Aires grain exchange said that rains which were initially viewed as increasing wheat output prospects in Argnentina - the southern hemisphere's other major wheat exporter - had proved too much for some crops.
"Rains recorded in the last few days have exacerbated the excess of water in extensive areas" of Buenos Aires province, which accounts for nearly half national wheat production, the exchange said.
While saying it was too early to estimate total damage, "large parts of the west of Buenos Aires reported total or partial loss of crops due to soil saturation".
Hopes for Argentine wheat have already been dented by a drop of more than 20% in sowings to historically low levels, as farmers switch to other crops, notably barley, in which laxer export restrictions have offered greater hope for tapping elevated global prices.
Rabobank said its downgrade reflected lower hopes for output in Western Australia, the country's top grains-producing state, where crop "deterioration continues" thanks to dry weather.
Parts of Western Australia received record low rains in July, "putting significant stress on crops throughout the state".
Graydon Chong, senior grains and oilseeds analyst at the bank, said that a field trip to Western Australia has revealed "short and inconsistent" wheat, leading him to expect "some abandonment" of crops, and lower yields of what was harvested.
Over Australia as a whole, with the prospect of an El Nino weather event, "the 2012 winter crop harvest may be the first normal-to-dry harvest in three seasons", he said.
However, the silver lining to drier weather would be higher wheat protein levels, which would boost further price prospects already supported by the poor former Soviet Union harvest, and a disease-hit Chinese crop Rabobank pegged at 105m tonnes – 13m tonnes below the USDA forecast.
Indeed, prospects looked bright for Australian wheat exports despite the expected drop in production, with "upside potential for high protein Australian wheat" shipments, and "high demand" for feed supplies, given the expense of alternative grains.
"China is expected to demand up to 4m tonnes of feed wheat this season, with the majority of anticipated to come from Australia," Mr Chong said.