UPDATE 3-Australia cuts wheat output forecast, supports prices

Wed Jun 13, 2012 2:04am EDT

* Australian 2012/13 wheat output f'cast cut to 24.1 mln T

* Western Australia likely to drive smaller production

* Drier weather in coming months to impact production

* El Nino weather pattern a risk for crops

* U.S. wheat prices rise on concern over global output (Recasts, adds quote)

By Colin Packham

SYDNEY, June 13 (Reuters) - Australia slashed its winter wheat production forecast by more than 7 percent, heightening g l obal supply worries and boosting U.S. futures, a day after projections of harsh weather hitting output in top exporters Russia, Europe and the United States.

Australia, typically the world's fourth-biggest exporter, estimated its crop would be almost one-fifth smaller than last year's record harvest, also citing dry conditions.

The slide in Australia's wheat estimates came after the U.S. Department of Agriculture forecast harsh weather would shrivel global production, providing a lift to flagging wheat prices.

Benchmark U.S. wheat futures, which had fallen just over 5 percent this year on worries about global economic troubles hitting demand, rose half a percent on Wednesday.

"A reduction is Australia's production estimate is slightly supportive for the market even though there are still ample global supplies," said Lynette Tan, an analyst with Phillip Futures in Singapore.

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) forecast a crop of 24.1 million tonnes, citing average-to-dry growing conditions so far this year.

The forecast compares with an estimate of 26 million tonnes in March and comes after last year's record 29.5 million tonnes.

Australia is seen climbing the ranks to emerge as the No. 2 exporter in the current crop year ending in September, thanks to two straight years of all-time high output.

"The start of the 2012/13 winter cropping season has been characterised by average to dry conditions, which has led to generally dry upper layer soil moisture profiles," ABARES said in its latest quarterly crop report.

Australia's barley production was forecast to fall by 15 percent to around 7.3 million tonnes, while canola output was seen up 4 percent to around 2.9 million tonnes, ABARES said.

The lower forecast for wheat production had been widely expected by the market, although it was a bigger reduction than the consensus forecast of a Reuters poll last week indicating a 4 percent cut in the government's March estimate.

LOWER GLOBAL OUTPUT

Australia's wheat output forecast came almost 2 million tonnes below the USDA's estimate in its June demand and supply report on Tuesday, which cited harsh weather curbing supplies in Russia, Europe and the United States.

"It is two million tonnes of wheat you are losing in Australia when all areas in the world that produce milling wheat will be down year-on-year other than North America," said an analyst who was not willing to be named due to his company policy.

"The availability of higher quality of wheat in the world will be lower relative to last year."

Global wheat output is projected to decline to 672.1 million tonnes in 2012/13, from 694.2 million tonnes a year earlier but still higher than 651.1 million tonnes in 2010/11, according to the USDA.

Wintertime frost and dry spring weather reduced Russia's wheat crop by 5 percent, said USDA, which listed losses in European Union nations, Turkey and the United States.

BIGGEST DROP IN WESTERN AUSTRALIA

The biggest decline in Australian wheat production was forecast for Western Australia, where moisture stress is expected to cut output by just over a quarter to 6.9 million tonnes in 2012/13, according to the crop report.

ABARES noted recent rains in Western Australia, Australia's biggest producing and exporting state, but said the unseasonably dry weather between March and May meant upper level soil moisture was dry and much of the crop was dry sown.

The country's Bureau of Meteorology estimates the chances of exceeding median rainfall from June to August 2012 in the Western Australian grains belt at between 20 and 40 percent.

In New South Wales and Queensland, where Australia's premier quality wheat is grown, ABARES said it expected 12.2 million tonnes of wheat to be produced. It forecast a 13 percent decline in yields in New South Wales and a 9 percent slip in production in Queensland on the back of lower plantings and a fall in yields from the record high last year.

ABARES noted crop-friendly weather conditions were forecast in coming months.

The weather bureau outlook for June to August 2012 indicated wetter than average conditions across Queensland and northern New South Wales cropping regions and generally average conditions for much of southern New South Wales, the report said.

Wheat production in South Australia is forecast to hit 3.9 million tonnes, 5 percent down from last year, ABARES said. Lower production is being driven by a decline in planting, with more farmers planting canola in response to lower wheat prices.

Even though wetter than average weather is expected between June and August 2012 in the east coast, all seven of the models the Australian Bureau of Meteorology tracks from global compatriots indicate an increased likelihood of the El Nino weather pattern returning later in the year.

"An El Nino essentially implies a fair bit of dryness in the east coast as a general rule, and if it hits around August when rains are important for crop development, it implies a fair bit of downside risk to the crop outlook," said Michael Creed, economist, agribusiness, at National Australia Bank. (Additional reporting by James Regan in SYDNEY and Naveen Thukral in SINGAPORE; Editing by Ed Davies)

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