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NAB downgrades Australia's drought-hit wheat crop to 12-year low

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Damage to Australia’s wheat crop from drought and frost means it is now expected to fall below last year’s harvest, to a 12-year low, National Australia Bank said, seeing eastern states as facing “another season of imports”.

 

The bank slashed from 20m tonnes to 15.5m tonnes its forecast for Australia’s 2019-20 wheat production, a result which would be the lowest since 2007-08.

 

Indeed, the downgrade took the estimate below last year’s result - itself viewed as disappointing, at 17.30m tonnes - and would demote Australia further down the league of world producers, from the elevated position gained with the bumper 31.82m-tonne harvest in 2016-17.

 

Unusually, the Australian crop, on an area of some 10.8m hectares according to the latest estimate by official crop bureau Abares, would fall below the UK’s, seeded on 1.82m hectares, but which reached 16.28m tonnes.

 

‘Very challenging winter cropping season’

NAB said that “2019 has presented a very challenging winter cropping season thus far”, with setbacks this time even in Western Australia, which bucked the national trend last season, producing its second-best-ever harvest.

 

The bank lowered its forecast for the state’s wheat crop by 500,000 tonnes to 6.3m tonnes, taking it well below a 2018-19 result pegged by Abares at 2.05m tonnes.

 

“After a late break, June delivered good rain but spring has seen below average rainfall, frost and heat events, all downgrading yields.”

 

Although expectations for production in Victoria and South Australia were held at 3.5m tonnes, the New South Wales crop was downgraded to 1.75m tonnes – a result which would be the lowest in 25 years, according to Abares, which pegs last year’s harvest at 3.19m tonnes.

 

‘Really severe drought’

NAB said that “we see a tough winter crop season overall, with the worst conditions in New South Wales”, where it said that there were “really severe drought issues”, and Queensland.

 

Indeed, Australia’s eastern states - where the country’s population, as well as livestock industry, is centred - “will face another season of imports from the west and overseas”, with the bank signalling particular reliance on purchases of foreign supplies.

 

“With the west on track for a smaller crop this season, west-east shipments may be down somewhat.”

 

Australia’s agriculture department has issued eight permits for bulk imports of Canadian wheat, and is considering a further eight applications for buy-ins of North American canola, corn and sorghum, as well as further wheat.

 

‘Keep prices high’

The country’s poor hopes for domestic production “will keep prices high compared to international benchmarks,” the bank said.

 

“That said, Australian wheat futures have been a little more subdued than we expected and well below the mid-Aus$400s per tonne range peak seen in late 2018 and early 2019.”

 

Sydney’s spot January east coast Australian wheat lot closed on Thursday down 1.1% at Aus%351.00 a tonne, its lowest finish in six weeks.

 

NAB noted, for livestock producers, the extent of “with a good deal of the winter crop now being cut for hay, it is likely that domestic hay supply will be fairly strong coming into summer”.

 

In New South Wales, for instance, “hay cutting will be in full swing in areas that previously looked good”.

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