Australia wheat crop threatened by rain, quality issues

SYDNEY, Nov 26 - Rain across southeastern Australia is preventing growers from harvesting their best wheat crop in nearly a decade and fuelling worries about quality as production recovers from years of drought.

The rain-soaked crops in the world's fourth-largest exporter of the grain are in danger of sprouting, leading to wheat being downgraded to feed grade, analysts and traders said on Thursday.

"The quality end of the market is bit like diamonds, as finding good quality millable wheat is going to be pretty hard," said Brett Stevenson, who heads Sydney-based independent commodity specialist firm Market Check.

"Quality is the issue and certainly prices for higher quality milling wheat have moved up strongly in the last two days."

The worst affected states, South Australia and Victoria, were expected to produce about one third of Australia's 2009/10 wheat crop between them, says farm consultancy firm Profarmer, which expects the national harvest to yield 20.9 million tonnes.

Barley crops in the two states also look likely to have quality issues, threatening to reduce Australia's supply of malting barley.

Australia was expected to have about 23 million tonnes of wheat in 2009/10, boosting world supplies of the higher quality milling grain the country produces.

But recent estimates have trimmed that to as low as 20.9 million because of a poor start to the harvest after rain disrupted early harvesting in Western Australia and hot weather lowered yields in north-eastern Australia.

"It will be too wet for meaningful harvest progress in southeast Australian wheat regions over the next few days," said Luke Mathews, a commodity strategist at Commonwealth Bank of Australia.

The world has a lot of lower protein, lower quality wheat this year because the northern hemisphere harvest ended on a soft note.

"The hope was Australia would have a good supply of good quality wheat, but that's not really turning out to be the case," said Stevenson.

Harvesting of the 2009/10 wheat crop is about 40 percent complete with good progress being made this week in Western Australia, the top grain harvesting state, after persistent rain this month delayed the start.

However, rain is forecast through to Sunday across the southeast, threatening to reverse the fortunes of growers who had been set to reap bumper crops.

"It has been stolen from them just near the gate," said Stevenson.

Prices in Australian dollars have fallen by a third from a year ago, reflecting a stronger currency as well as weaker world prices.

Growers who had already harvested crops were opting to store grain on farms in a bigger way than previous years because of low prices, said Colin Lethbridge, trading desk manager at FCStone.

Growers were counting on better prices as supply pressure from northern hemisphere harvests eased, but their unwillingness to sell was creating headaches for exporters who had committed to sales but lacked the grain to fill orders, Lethbridge said.

"Growers are just refusing to sell wheat, but the merchants have got grain ships slotted into ports, so it's a real headache for them." (Editing by Clarence Fernandez) ((bruce.hextall@thomsonreuters.com; +612 93731236; Reuters Messaging bruce.hextall.reuters.com@reuters.net)) (