Drought Shrinks Australian Wheat Exports

FOR more than 40 years, Australia has been a great wheat grower, exporting its high-quality grain around the world.Now faced with its worst harvest in 20 years, Australia will be buying wheat from other countries to supply its own bakeries. "It is questionable whether Australia will be self-sufficient in all grades of milling wheat," says John Lawrenson, managing director of the Australian Wheat Board, which markets the grain. It is also likely Australia will now have to buy wheat from foreign sources to satisfy its export contracts. The Wheat Board said yesterday it would use all wheat produced in New South Wales this year for the domestic market. Wheat from NSW and Queensland usually goes to Japan and other markets that require high-quality hard wheat. A drought and lower plantings are expected to reduce the harvest by more than 30 percent. As a result, officials at the Wheat Board are now deciding which customers won't get grain and which will get a reduced amount. The poor harvest takes some of the sting out of the most contentious issue between the United States and Australia. In past years Australia has complained about US and European wheat subsidies. This year the Australians will be less significant competitors in the export market. The harvest is officially estimated at 10.6 million tons compared to a normal 15 million tons. But even Wheat Board officials expect the crop to be lower after a revision in two weeks. Exports will be at least 4 million tons less than last year's 11 million tons. With the lower production, the Wheat Board is now trying to figure out how to supply grain to traditional long-term customers while not alienating new customers, such as South Korea, which trebled its purchase of Australian wheat last year. The Wheat Board, says Mr. Lawrenson, will cut off customers who "buy from us when it suits them.... Those markets, without exception, we won't be selling to." Regular customers will also get reduced deliveries. Australia's top customers last year were Iran, Egypt, China, Japan, South Korea, and Indonesia. Normally Australia also supplies Iraq with 1.25 million tons of wheat, but since last year's United Nations embargo, shipments have been curtailed. US officials are trying to convince Australia to buy US wheat. Australia bought US wheat last year to supply to New Zealand. So far, however, Australia has not placed any US orders. Lawrenson says any offer to sell subsidized grain here would be the "ultimate insult to Australia." The reduced harvest affects Australians as well. Feedlot operators in Queensland anticipate cuts in their supplies and are now considering importing barley and sorghum from the US to feed their livestock through the summer. Greg Baxter, a spokesman for Goodman Wattie Limited, Australia's largest baker, says the price of bread will likely go up. "More than likely our flour mills will pass on any price hike to our bakeries which will pass on the higher cost to the consumer." Although US farmers are not taking orders away from Australians because of the drought, Lawrenson claims the subsidies are reducing the price Australian farmers will get for their crop. The US recently sold 1 million tons of wheat to China for $93 per ton, a subsidy of $55 per ton. Despite subsidies, the price of wheat is rising on the world markets. The asking price for Australian Standard White, a medium grade grain, was $152.50 (Australian; US$122) in October compared to A$125 in July. At these prices, Lawrenson estimates the average Australian farmer will break even. Farmers in South Australia and Victoria will do better than other farmers since they have had ideal conditions. But farmers in those states also reduced their plantings after the Wheat Board predicted lower prices. Farmers in Western Australia will have a good year. Normal rains will help the state produce 4.4 million tons of wheat, down from 5.4 million tons last year. Farmers say they planted wheat because the state government guaranteed the price. Now, that guarantee won't be necessary since the price is higher. The drought has mainly impacted farmers in northern New South Wales and Queensland, which produces prime hard, the best quality wheat. Queensland is now expected to produce less than 200,000 tons of grain, while New South Wales will produce around 1 million tons. The Darling Downs in Queensland, some of the best farmland in Australia, have been dry for almost two years. Some farmers are letting livestock graze in their grain paddocks.