Weather, policy dent south hemisphere wheat hopes

Hopes for wheat output in the top southern hemisphere producers has taken a knock thanks to weather setbacks in the region’s biggest grower, Australia, and an unpopular export policy in Argentina.

Commonwealth Bank of Australia cut by 700,000 tonnes to 23.5m tonnes its forecast for Australia’s 2011-12 wheat crop, citing the dry conditions which mean "yield penalties are already likely to have occurred in many" eastern regions.

"Widespread rainfall is required over the next few weeks to allay fears for further yield losses," CBA agri commodities analyst Luke Mathews said.

The state of New South Wales bore the brunt of the downgrade, with lower expectations for Victoria and Queensland too, partly offset by raised hopes for Western Australia, where increased rainfall has improved "markedly" prospects for winter crops.

The CBA revision implies a decline of 2.8m tonnes, or more than 10%, in the country’s wheat production this year, and is considerably more pessimistic than forecasts from many other analysts.

Abares estimates the 2011-12 harvest at 26.2m tonnes, with the US Department of Agriculture pegging the crop at 25.0m tonnes.

‘World prices not reflected’

Separately, USDA attaches in Buenos Aires aired a lower-than-official forecast for Argentina’s 2011-12 wheat crop, highlighting the disincentive presented by strict government controls over exports of the grain.

"Farmers continue to indicate that planted area could be significantly higher if the domestic wheat market was not dependent on export quotas authorised by the government," the attaches said.

Growers believe that this policy means that "world wheat prices are not reflected in the local market", prompting a local discount estimated at $40-50 per tonne.

Many farmers have opted for plant corn rather than plan a double crop of wheat and soybeans, the attaches said, estimating the Argentine crop at 13.0m tonnes.

The official USDA estimate, which is up for revision in the monthly Wasde crop report due next week, is for a harvest of 15.0m tonnes.

The attaches forecast Argentina’s 2011-12 wheat exports at 7.2m tonnes, 1.8m tonnes less than the USDA is factoring in.

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