Australia Struggles With Weak Wheat Harvests

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Hi, I'm Saijal Patel from CNBC and you're watching "Asia Market Daily".

Wheat farmers on Australia's east coast are preparing for a very bleak Christmas.

After years waiting for drought breaking rains, they're now watching floods wash away millions of dollars in value from their crops.

The disaster has proved to be the final straw for the price of wheat.

The commodity has soared to levels not seen in more than two years. And many analysts expect it could head even higher.

CNBC's Darren Connell reports.


Flood waters in Australia continue to rise and as they do the hopes of nation's wheat farmers just keep on sinking.

After struggling with a decade long drought, this year's expectations for a once in a generation wheat yield are now being washed away by flood waters spreading right across the east of Australia.

The Australian government's forecasting agent ABARE is still predicting a record crop for grain growers, but for many, the evidence on the ground paints a different picture.

(SOT) Luke Matthews, Agri Commodity Strategist, Commonwealth Bank

"What we've seen is the harvest on the ground being delayed by one month. We've seen production also decline with recent flooding and most importantly we're seeing quality being impacted severely."

Rains started falling weeks ago and the forecasts are they will continue through December. The full extent of the damage still remains to be seen, but at the very least many of these crops will be downgraded to feed quality. In the west of Australia — its very different story.

The ongoing drought there is expected to slash up to 3 billion dollars from farm incomes, while the state's wheat harvest could be fall by as much as 70 percent from previous years.

And in Victoria, they have to put up with this. The worst plague of locusts in 75 years, wreaking havoc across the southern wheat belt.

It's a bitter irony for Australia's farmers. After years waiting for drought breaking rains, many are now watching the floods wipe out their harvests and their hopes.

(SOT) Luke Matthews, Agri Commodity Strategist, Commonwealth Bank

"It really does come at a cruel time for the farmer. They were looking at record volumes as we spoke about earlier, but the value impact is very significant. We're looking at roughly a 30 percent haircut to the value of wheat production across east coast."

And its a familiar tale right across the globe. Drought cut Russia's grain crop by nearly 40% this year and the U.S. winter wheat crop is also looking bleak. Collectively the extreme conditions have pushed the price of wheat back to pre-financial crisis levels. With issues around land degradation, global warming and a rapidly emerging middle class in Asia, many analysts don't expect this to change any time soon.

(SOT) Andrew Kaleel, Director, HC Global Advisors

"We expect demand to continue out of China, but also out of other emerging markets including Indonesia, as a lot of these emerging economies develop and mature in terms of their diets we think that will continue underpinning demand, not just for things like wheat but also things like soy complexes and other protein related foods."

Meantime the farmers in Australia can only watch and wait. For many it's been the most brutal of storms, but for the price of wheat it could turn out to be the perfect storm. Darren Connell, CNBC, Australia.


That's the latest Asia Market Daily.

I'm Saijal Patel from CNBC.

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