Business

Fri Jul 18 02:28:57 PDT 2008

By Michael Byrnes

SYDNEY, July 18 (Reuters) – Uncertainty about Australia’s wheat crop is keeping the country’s growers from hedging their production, despite good prices, brokers say.

"There’s a lack of grower selling," said Pat Cogswell of major commodities futures broker MF Global. "They’re unwilling to hedge it until the crops are much more certain."

Australia’s 2008/09 wheat crop has been planted on a record area of 13.97 million hectares, and current forecasts are for a big crop of around 23 million tonnes, up from a drought-affected 13 million tonnes last season.

Rainfall has so far produced reasonable crop growth, but it has been patchy, especially in Western Australia, South Australia, Victoria and southern New South Wales.

The crop will be one of Australia’s biggest if average rains are received through to harvest, beginning in October.

But analysts say the crop faces considerable downside, with a risk that last year’s 30 percent downgrade of crop estimates in September could happen again this year.

"There’s still a fair bit of risk at this point in the season," Cogswell said.

The lack of forward selling by growers comes despite Australian wheat futures holding up well after reaching record highs earlier this year as world grain prices soared on tight supplies and strong demand.

At A$330 a tonne, Australian Stock Exchange January 2009 <AWMF9:AX> wheat futures are down 13 percent from a peak of A$380 last month and 27 percent off an all-time high of A$450 struck in February this year.

Cogswell said lack of forward selling was being compounded by some farmers having to roll forward old positions from the last two seasons, which were badly hit by drought.

A doubling in prices of fertilisers and chemicals, together with the rocketing price of diesel fuel, has also left farmers reluctant to pay hedging fees.

Although the number of growers hedging had fallen from last year, the total tonnage hedged was greater, because of bigger trades by some players, Australian Stock Exchange official Dougal Hunter said.

The volume of grain futures contracts traded in May was about 13,000 tonnes, up from around 10,000 tonnes a year earlier, but well down from about 40,000 tonnes last September, exchange data shows.

The average daily volume of grain futures traded since June 30 this year was 645 contracts, down from 826 contracts in the full year to that date.

Open interests in ASX grain futures, covering all contracts that have not expired, been exercised or physically delivered, stood at around 30,000 contracts in May, versus around 15,000 a year before.

Each contract is for 20 tonnes, with milling wheat accounting for 61 percent of volume traded.

(Editing by Clarence Fernandez)

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