Wednesday, September 06, 2006

Editor's Pick

SINGAPORE (Reuters) - Analysis - From Australia to Argentina, erratic weather is slashing wheat crops of the major producers, which is threatening to push up prices to multi-year highs and making it difficult for countries to replenish stocks.

The United States had one of the hottest summers since the Dust Bowl years of the 1930s. The U.S. Agriculture Department has forecast output will fall 14 percent to 1.80 billion bushels, the smallest crop in four years.

Meanwhile, Australia's production is expected fall up to 30 percent from last year's 25 million tonnes due to dry weather and Europe also expects a lower wheat crop following a sweltering summer. This, coupled with rain in the final harvest stages, has downgraded a substantial amount of wheat to feed quality. Canada, also plagued by hot weather, expects its wheat output to fall to 25.9 million tonnes from 26.8 million in 2005.

Argentina, which last year produced 12.5 million tonnes of wheat, has repeatedly lowered its forecast due to dry weather but has yet to issue a forecast. As a result, U.S. wheat exporters are not willing to lower their prices, anticipating tight world supplies.

"Exporters don't want to be selling any more wheat at lower prices if we see quality losses in Europe and if we incur potentially some significant production losses in South America and Australia," said Shawn McCambridge, an analyst with Prudential Financial in Chicago.

World wheat production is expected to fall 4 percent to 593 million tonnes in the year ending June, 2007 from 618 million tonnes, according to the International Grains Council. This includes a cut of 3 million tonnes from the forecast last month due to the shortfalls expected in Europe.

Industry officials said there was a possibility that more wheat crops in countries could get downgraded to feed quality because of the weather. Extreme weather can reduce the protein content in grain, making it unfit for human consumption.

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