Australia heat wave scorches wheat belt, stokes supply fears

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Australia's worst heatwave on record is scorching the grain belt, potentially hurting wheat sowing prospects in the world's second biggest exporter this year and deepening concerns over global supplies amid a relentless U.S. drought.

Wheat planting in Australia is at least two months away, but temperatures exceeding 40 degrees Celsius (104 degrees Fahrenheit) have already sapped the soil of much-needed moisture, analysts and traders say.

A decline in Australia's wheat production for a second consecutive year could fuel a rally in benchmark Chicago futures , which jumped to a one-month high on Tuesday on expectations that drought will lower yields of the winter wheat crop from the United States, the world's top exporter.

"A lot of areas may go into planting with not much soil moisture, where as last year we had good summer rains so the crop was planted with full moisture profile," said a Melbourne-based analyst. "Supplies are going to tighten and we could see wheat lead a rally in the grains complex."

Australia's grain belt includes most states, excluding the Northern Territory. Western Australia and New South Wales are the largest wheat producers.

The U.S. Department of Agriculture, in its January report on farm product supplies, reduced global wheat inventories by almost 10 percent to 176.64 million tonnes at the end of the 2012/13 marketing year in June.

Wheat ended 2012 as the best performing commodity on the Thomson Reuters-Jefferies CRB index as the market was buoyed by lower production in some of the world's top exporting countries, including Australia and Russia.

Australia's wheat production last year fell by almost a quarter from an all-time high of nearly 30 million tonnes in 2011. Russia's wheat exports this year are estimated at 10.5 million tonnes by the USDA, half of what it shipped a year ago.


Australian new-crop milling wheat futures for January 2014 delivery have climbed almost 6 percent since the beginning of last week on concerns over hot weather.

"Australian basis are firming which reflects the market is nervous," said Stefan Meyer, a manager for cash markets at brokerage INTL FCStone in Sydney. "Growers are not selling grains."

Spot basis for Australian prime wheat are trading at a premium of 65 cents a bushel over March CBOT contract, which according to traders is a huge spread as most of last year the basis were 40 to 60 cents under CBOT futures.

The record-breaking heat wave has so far melted road tar and set off hundreds of wildfires. The hot conditions are set to last until end-March, the weather bureau said, forecasting a 60 percent chance that temperatures will exceed the average across the New South Wales and Queensland wheat belt.

The average maximum temperature earlier this month exceeded 39 degrees Celsius for seven consecutive days, breaking the previous record of four consecutive days in 1973.

Much of New South Wales, where most of the premier hard wheat is grown, received less than 40 percent of its average rainfall in the last three months, and rain is likely to be within average limits across both the east coast and Western Australia, the weather bureau has said.

Rains following a tropical storm have, however, eased some heat stress in parts of Queensland this week.

The storm crossed the Queensland coast with heavy rain and wind gusts of up to 100 kph (60 mph) on Tuesday. It is forecast to move further inland before tracking south on Wednesday.

"We have had excellent rains in some parts of Queensland," said Meyer. "It was up to six inches in some areas." (Editing by Miral Fahmy)

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