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Prolonged Australian dry spell threatens agricultural output

A bout of hot, dry weather in Australia over the next three months is likely to exacerbate an expected downturn in agricultural output, with wheat and milk production most affected, analysts said on Wednesday.

Nearly all of Australia’s east coast is likely to record below average rainfall until the end of the year, the Australian Bureau of Meteorology (BOM) said, while much of country faces higher than average temperatures.

The adverse outlook comes at a critical growing time for crops and follows recent hotter than average temperatures in the country’s south and southeast, which have already curbed wheat yields for some farmers.

“Having that heat so early is putting crops under stress and it is bad for yields. There is some production risk on the (official) wheat estimates,” said Phin Ziebell, agribusiness economist, National Australia Bank.

“Looking forward, the BOM is talking about pretty much no rain for southeast Australia … it is bad news not just for grain growers but also graziers.”

Hotter, drier weather over the next three months could mean Australia’s production of wheat, canola and milk in particular miss official estimates, analysts said.

“There is little rainfall in prospect that will restore moisture across areas where that is still relevant,” said Tobin Gorey, director of agricultural strategy, Commonwealth Bank of Australia.

Production of beef, however, could exceed forecasts as farmers are forced to slaughter animals as pasture wilts and dams run dry.

Lower wheat production in the world’s fourth-largest exporter could support prices, which hit a near two-month peak on Tuesday on concerns over unfavorable weather in the Black Sea and Australia.

Australia’s chief commodity forecaster last month raised its forecast for wheat production to in excess of 25 million tonnes.

However, much of the country has recently recorded unseasonably warm temperatures for the Spring season.

South Australia, a large wheat exporting state, recorded its hottest early-October day in 70 years, putting stress on wheat crops in their yield-determining phase.

Glencore dominates bulk grain handling in South Australia, while domestic bulk grain handler GrainCorp Ltd is the dominant handler in New South Wales and Queensland states.

Lower Australian milk production could also undermine expansion plans by the country’s largest milk processor, Murray Goulburn, which recently raised A$500 million ($360 million) to boost production of dairy beverages and cheese products for export to Asia.