Australia has lowered its wheat production forecast by 11% to the smallest in a decade amid a crippling drought across the country’s east coast that may cut exports from the world’s fourth biggest supplier.
Wheat production during the 2018/19 season will total 16.95-million tons, the Australian Bureau of Agricultural and Resource Economics and Sciences (Abares) said. That was below its September estimate of 19.1-million tons, which was on course to be the lowest since 2008 when output hit just 13.6-million tons.
Lower wheat production will reduce Australia’s wheat export capacity, supporting global benchmark prices that rose to their highest in more than two months on Monday.
Australia typically exports two-thirds of its wheat, but with dry weather hampering local production demand from domestic millers will supplant major customers such as Indonesia.
The outlook also casts a shadow over Australia’s economy and its largest listed bulk grain handler, GrainCorp, which earns most of its revenues from trading wheat.
GrainCorp on Monday said it received an unsolicited A$2.38bn ($1.75bn) takeover approach from a little-known asset manager.
Analysts say the timing of the offer was opportunistic as the unfavourable weather limits the bulk grain handler’s ability to earn revenue.
Production in Australia’s east coast has been particularly hampered with the entire state of New South Wales, the second largest producing region, hit by drought earlier in 2018.
Abares said production from New South Wales will reach 1.98-million tons, the lowest since 1995.
“I’ve just finished harvesting a bit of seed, but that is about it, certainly no wheat this year,” said Dan Cooper, a farmer in Caragabal, New South Wales, located 400km west of Sydney.
While the dry weather is unlikely to wilt Australia’s wheat crop any further just weeks before harvest begins, the country’s weather bureau said the drought is expected to continue until early 2019.
Australia’s Bureau of Meteorology sees an 80% chance of warmer-than-average temperatures between December 1 and February 28.