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Record Australian grain exports flood market, but Black Sea challenge ahead

* Australia selling record volumes of wheat, barley, canola

* Bumper crops have pushed down prices

* Strong demand from buyers in Asia, Middle East

* Western Australia seen selling more than it produces this year

* But rival Black Sea exports could dent Aus volumes later in year

SINGAPORE/SYDNEY, May 26 (Reuters) - Australia's grain exports have shot to record volumes this year as bumper crops push down prices, but levels may fade towards year-end as rival shipments step up from the Black Sea region.

Wheat, canola and barley exports have been over 60 percent higher than normal over the first five months of 2017, at 17.2 million tonnes, according to Thomson Reuters Eikon data.

That flood of grain from Australia, the world's fourth largest wheat exporter, and other suppliers is dragging on global prices that are trading close to last September's 10-year low.

"There are two key reasons for strong flows of grain shipments from Australia," said a Singapore-based trader with an international trading company, declining to be identified as he was not authorized to speak with media.

"They had massive crops and they were cheaper than any other origin."

Australian Standard White wheat has been selling for $185-$195 a tonne, free on board since January, well below the price from other origins, traders said.

The country's 2016/17 wheat production, at 35.13 million tonnes, was around 17 percent more than the previous record of 29.6 million tonnes set in 2011/12. Barley output was 25 percent above the prior record at 13 million tonnes, while canola production of 4.1 million tonnes was 1 percent shy of an all-time high, according to official data.

But industry sources estimate the country will be left with just 5-6 million tonnes of wheat by the end of Australia's grain marketing year in September, similar to last year's levels, due to the scale and pace of exports.

"India has taken more wheat, China is taking lots of barley and we have got back into the Iraqi market," said Ole Houe, an analyst with brokerage IKON Commodities in Sydney.

"Demand is strong everywhere."

India has been buying aggressively this year to fill a supply shortfall left by two years of drought, although purchases have eased in recent months.

China is taking higher quality Australian wheat and other feed grains such as barley and sorghum.

"We have been seeing some strong demand from traditional markets, but also from markets that we haven't done much business with for the past few years," said James Foulsham, wheat trading manager at Australia's largest grain exporter CBH Group.

DIPPING IN

The nation's main wheat exporting state, Western Australia, is expected to sell close to 17 million tonnes of wheat, barley and canola, this year, against total production of 16 million tonnes, industry sources said.

"Western Australia will be dipping into reserves to fulfill export commitments," said a Sydney-based trader.

But in the second half of 2017, Australian wheat will likely face stiff competition from the Black Sea region as Russia and Ukraine also look to offload bumper harvests.

Last week, a miller in Indonesian bought around 60,000 tonnes of Black Sea wheat at $190 a tonne, including cost and freight, for August arrival, traders said. A similar variety of Australian wheat was priced at $215 a tonne.

(Reporting by Naveen Thukral; Editing by Joseph Radford)