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Australia Faces Wheat Export Challenge as Rain Hurts Crop

Nov. 23 (Bloomberg) -- Australia, the third-biggest wheat exporter, may struggle to sell its near-record harvest as forecasts of wetter weather than normal boost concern that crop quality may be cut for a second year, according to CBH Group.

“It’s going to be a challenging year to market it,” said Tom Puddy, head of grain marketing at CBH, Western Australia’s largest grain handler. “We’re going to have a larger percentage of lower-grade wheat because of the weather damage to it.”

Rain delayed harvesting after wet weather in September and October boosted optimism the nation may produce a second straight bumper crop. Harvest delays in Australia and shrinking U.S. supplies have sent the premium for spring wheat traded in Minneapolis to a three-year high over winter crops in Kansas City. Supplies from Australia compete with the high-protein variety traded in Minneapolis, according to Louise Gartner at Spectrum Commodities.

Western Australia’s harvest is one month behind schedule and 20 percent to 30 percent of the crop may be downgraded, according to CBH. “The worst case scenario is it continues to rain,” Puddy said by phone from Perth. “Ultimately, an even bigger percentage of the crop not harvested is further downgraded -- that 30 percent becomes 50 percent or it goes to 60 percent of the crop that is damaged.”

Enough Rain

Australia produced a record 26.3 million metric tons last season, according to a government estimate, as La Nina-linked rains that boosted yields on the east coast cut the quality from milling standard to feed grade. This year’s harvest may total 26.2 million tons, the Australian Bureau of Agricultural and Resource Economics and Sciences forecast Sept. 13. Exports may reach a record 20.4 million tons, it said.

Western Australia’s main grain-growing region, known as the Wheatbelt, has a 60 percent to 75 percent chance of receiving above-median rainfall from December to February, the Bureau of Meteorology said yesterday. Regions in the country’s east and south have a 35 percent to 75 percent chance, it said.

“The crop’s ready to come off, the farmers have seen enough rain, they just want to get into the harvest now,” Puddy said yesterday. “As the weeks go by, if we see more rain then there’ll be more reports of quality concerns coming out.”

Storms that are disrupting harvest activities in New South Wales and Victoria are not affecting grain quality, GrainCorp Ltd., eastern Australia’s largest grain handler, said yesterday. Minor rainfall in South Australia is not likely to have affected crop quality, Viterra Inc.’s Adelaide-based unit said yesterday.

Spring Wheat

Spring wheat for March delivery on the Minneapolis Grain Exchange fetched $1.71 more per bushel today than the hard, red winter variety on the Kansas City Board of Trade. The gap may widen to $2.50 this year, the biggest for March contracts since prices reached a record in 2008, according to Gartner. Futures in Minneapolis dropped 0.2 percent to $8.36 a bushel today.

While prospects for U.S. winter-wheat crops improved, production of the spring crop dropped this year to 455.2 million bushels, the lowest since 2002, government data show.

“It’s really the markets that require the higher-protein profile, like 10 percent and above, they’re the markets that we’ll struggle to supply large volumes to,” Puddy said in a separate interview on Nov. 21. Countries including Iraq, South Africa, Sudan and Indonesia may look to replace Australian wheat with supplies from Canada, the U.S. or Argentina, he said.

Quality Shortage

Global stockpiles will be 202 million tons at the end of the 2011-2012 marketing year, the highest level in a decade, the International Grains Council said Oct. 27. World harvests will increase 5 percent to 684 million tons as consumption drops to 677 million tons, it said.

“There’s a shortage of high quality wheat available globally but there’s an abundance of low-protein wheat,” said Puddy. “It may just take a bit longer to sell it in the market. It could be a 12-month to a 16-month program of trading out this season’s stock, compared to a 12-month program.”

Russia is emerging as the second-largest wheat shipper, with exports forecast at 20 million tons, exceeding Australia’s shipments of 18.5 million tons, according to data from the International Grains Council.

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