Australia cuts wheat forecast by nearly 13 percent as drought wilts rural economy

SYDNEY (Reuters) - Australia lowered its wheat forecast by nearly 13 percent on Tuesday as a crippling drought across the country’s east coast has cut output from the world’s fourth-largest exporter to a 10-year low.

FILE PHOTO: A lone tree stands near a water trough in a drought-effected paddock on Jimmie and May McKeown's property located on the outskirts of town of Walgett, in New South Wales, Australia, July 20, 2018. REUTERS/David Gray/File Photo

Wheat production during the 2018/19 season will total 19.1 million tonnes, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) said.

ABARES in June previously pegged Australian wheat production as 21.9 million tonnes but the country’s chief commodity forecaster cut its outlook because the country’s east coast has recorded less than 20 percent of its typical rainfall over the last three months.

The east coast is Australia’s second-biggest wheat producing region after Western Australia.

Lower wheat production will reduce Australia’s wheat export capacity, supporting benchmark prices which last month rose to their highest in more than a three years amid concerns over a shortfall in global supplies.

Australia typically exports two-thirds of its wheat but, with dry weather crimping east coast output, 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 Ltd, which earns most of its revenues from trading wheat.

The Reserve Bank of Australia in August warned that the severe drought that has dried out grazing and crop land in the east would cause a potential headwind to the economy.

ABARES said production across Australia’s east coast will total 5.74 million tonnes, the second consecutive season of below average output, and down from its June estimate of 9.3 million tonnes.

In 2015/16, production from Australia’s east coast totaled 17 million tonnes.

“It is terribly sad, without rain over the next couple of weeks, I don’t think we will get a crop at all,” said Dan Cooper, a farmer in Caragabal, New South Wales, located 400 km (250 miles) west of Sydney.

While Australia’s east coast production is suffering, ABARES said production from the west has been aided by timely rains.

ABARES said production from Western Australia will hit 9.6 million tonnes, up from its previous estimate of 8.1 million tonnes.

Reporting by Colin Packham; Editing by Christian Schmollinger