SINGAPORE/SYDNEY (Reuters) - Australian farmers are planting wheat in some of the driest soils in years, following on from a severe drought that cut 2017/18 output in the world’s fourth-largest wheat exporter to the lowest in a decade.
The difficult conditions for a second successive season threaten another disappointing crop, cutting the country’s export earnings and hitting profits of companies such as bulk grain handler GrainCorp Ltd.
Growers in the second-biggest wheat supplier to Asia have until the end of May to complete planting, but are counting on good rains across both east and west coast crop regions, farmers, traders and analysts said.
John Nicoletti, one of Australia’s biggest wheat farmers, said he had had no choice but to plant into dry soil and hope for rain.
“Sure, prices are looking good, but we do need rain,” said Nicoletti, who began planting last week on properties stretching over 87,000 hectares (215,000 acres) in export-focused Western Australia.
“If we get some cyclones tracking inland bringing rain, I won’t need to call you back to tell you, you’ll hear me yelling with joy.”
(For a graphic on 'Australian wheat farmers struggling with dry conditions during planting' click reut.rs/2JEfzsy)
Australia’s latest winter, which runs from June to August, was the warmest since records began more than a century ago and also one of the 10 driest ever, sapping moisture ahead of this year’s planting.
Wheat production slid to 21.2 million tonnes in 2017/18 from an all-time high of 35.13 million tonnes the year before, according to the Australian Bureau of Agriculture, Resource Economics and Rural Sciences (ABARES).
Based on farmers’ anticipated crop plans, the bureau’s March quarter forecast put wheat output this year at 23.7 million tonnes, but that was made before hopes of good April rainfall were dashed.
Western Australia, which accounts for more than 40 percent of the national wheat crop, received just 27 percent of its average rainfall over March and April, while soil moisture in eastern growing regions is already at five-year lows.
“We have had near record dry weather across some parts of the country and as a result many will dry plant,” said Phin Ziebell, an agribusiness economist at National Australia Bank.
“If we get a good break, there will be nothing to worry about. If we don’t, we will worry about yields.”
Weather forecasts, however, point to drier and hotter conditions for many growing regions over May to July, which could damage crop development.
(For a graphic on 'Western Australia rains well below normal so far in 2018' click reut.rs/2JzSruY)
A bad season will hit both individual companies and the wider economy.
Poor farming conditions could typically wipe up to 0.7 percentage points from the country’s gross domestic product, said AMP Capital chief economist Shane Oliver, although the country is enjoying strong livestock and wool prices.
“There has been a greater corporate ownership of farms, but by and large they are still individually held and when the rural sector does well, farmers spend that money locally,” Oliver said.
Even if this year’s crop rebounds slightly, Australia’s exports are still expected to ease as last year’s drought cut carry-over stocks.
The country’s largest listed bulk grain handler GrainCorp expects its underlying profit to halve this financial year, and grain exports to drop dramatically.
Australian Premium White wheat, which is grown in eastern as well as western farmbelts, is suited for noodles and flat breads. The east coast is known for high-protein Australian Prime Hard wheat, popular for making Chinese style yellow noodles and Japanese ramen, among other products.
While wheat prices have risen this year due to some U.S. weather worries, the global market remains amply supplied.
A sharp drop in exports raises the risk that Australia could lose further share in traditional markets such as Indonesia, the world’s second biggest importer, and Japan, the No. 5 buyer, where Black Sea growers have already been making inroads.
“Wheat from Russia and Ukraine is not only cheaper, but their quality is improving year after year,” said one purchasing manager at a milling company in Southeast Asia.
(For a graphic on 'Australia wheat production, area & exports' click reut.rs/2JCTjPv)
Reporting by Naveen Thukral and Jonathan Barrett; additional reporting by Colin Packham in SYDNEY; editing by Richard Pullin