UPDATE 2-Australia warns on wheat yields after crop forecast cut

Mon Sep 10, 2012 11:38pm EDT

* Australia 2012/13 wheat harvest seen at 22.5 mln tonnes

* Forecast down 7 pct from June estimate on dry weather

* Wheat crop could fall another 10 pct without rains soon - analyst

* Cotton to fall on lower plantings, canola hit by dry weather (Adds detail, quotes)

By Colin Packham

SYDNEY, Sept 11 (Reuters) - Australia cut its forecast for wheat production in the current crop year by about 7 percent from its previous forecast to 22.5 million tonnes due to dry weather, warning that there was a risk of yields falling further if rains did not arrive soon.

The downgrade was expected but lower output in Australia, the world's No.2 wheat exporter after the United States, could further boost global prices that have surged almost 40 percent since early June as the worst drought in half a century gripped large swaths of U.S. farmland.

The forecast was trimmed from a previous estimate of 24.1 million tonnes in June, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) said.

Australia had a record 29.5 million tonne wheat harvest last year, but weather conditions have been less favourable this time.

Australian wheat production is expected to fall in all states with the exception of Queensland, ABARES said, with Western Australia facing the largest fall in production.

"In Western Australia, conditions for crop planting and establishment were generally poor and winter rainfall was below average, which hindered crop development and reduced prospective yields to below average," ABARES said.

"Sufficient and timely rainfall will be required over the spring to achieve currently forecast yields," ABARES said.

Chicago Board Of Trade wheat prices were buoyed last week by expectation of lower yields in Australia and worries Russia, the No.4 wheat supplier, would limit exports.

The December contract was trading down around 0.5 percent on Tuesday at $8.85 a bushel.

RAINS NEEDED BEFORE END OF MONTH

Analysts said there was also a need for rain in some areas of the east coast.

"There's potential for further downgrades to the wheat forecast in the next three weeks if we don't get rain," said Graydon Chong, senior analyst, grains and oilseeds, Rabobank Australia.

The crop could fall a further 10 percent if rains do not arrive before the end of September, Chong said.

Australia's weather bureau has said there is a better than average chance of rainfall exceeding the median level in Western Australian over the next three months, but analysts warned the rains must arrive before the end of September to save yields.

The east coast is set to remain dry during the southern hemisphere spring with the return of an El Nino weather pattern likely, the weather bureau said.

An El Nino, associated with hot, dry conditions, could threaten the yields of Australian premier wheat, grown in New South Wales and Queensland, while South Australian wheat production could also be hurt.

Canola production is set to fall 4.8 percent from the forecast three months ago to 2.76 million tonnes in the current crop year, ABARES said, due to unfavourable conditions in central and southern regions of New South Wales state.

The forecast for cotton lint production was also trimmed to 991,000 tonnes, a drop of nearly 10 percent from a previous estimate of 1.1 million tonnes. (Editing by Ed Davies)

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