Drought shrivels Aussie wheat crop

SYDNEY - Drought may cut Australia's wheat harvest by as much as 28 per cent, says grain exporter AWB.

It said full-year profit would be reduced by up to a quarter as sales of fertiliser and merchandise also slowed.

Wheat production in 2006-2007 may be between 18 million and 20 million tonnes, down from an estimate of 23 million to 25 million. Profit before tax and amortisation might fall as much as 25 per cent from last year's A$184.5 million.

Reduced shipments from Australia, the world's second-largest wheat exporter, may extend a rally that drove prices to a 10-year high on July 11. They surged as dry weather cut crop predictions in the US, the biggest exporter, by 14 per cent.

"The crop downgrade is not unexpected," said Belinda Moore, equities analyst at ABN Amro. "What's disappointing is the 2006 guidance and the quantum of the downgrade."

The Australian Government's commodity forecaster last month cut its wheat harvest forecast by 9 per cent to 22.8 million tonnes because of dry weather across the country. Its next forecast is due in September.

Australian farmers, who usually start sowing crops in May, delayed plantings by as much six weeks because of dry weather, cutting demand for fertilisers and merchandise sold by AWB's Landmark stores.

Below-average rain fell across most grain-growing regions in the first half of this year; 94 per cent of New South Wales, the nation's second-largest wheat-growing state, is in drought.

- BLOOMBERG