A drought has hit the country's southeast regions, significantly reducing yields as well as the area sown to winter crops.
Australia is currently behind the United States as the world's second largest wheat exporter with a 16 per cent global market share. A reduced crop this year would considerably cut export supplies and lower market competition.
Assuming the current drought conditions persist in southeast Australia, the ABARE estimates that the country's total winter grains production will decline by around 17 per cent to 26.1 million tonnes.
The nation's wheat sown area is forecast to be down 8 per cent to 11 million hectares, with an estimated 20 per cent decline in production to 16 million tonnes, compared to last year's wheat production of 20.4 million tonnes.
However, this would be a worst-case scenario, said Alistair Dickie, director of crop marketing at the UK's Home Grown Cereals Authority, especially in light of the fact that this year was expected to be a recovery year for Australian wheat, with an anticipated production of up to 25 million tonnes.
"Europe would probably not be greatly affected if the drought were to continue as European crop is in good shape, and users do not anticipate a shortage in supply," he told BakeryAndSnacks.com.
"Supplies to Asia and the Middle East would probably be most affected, as these are the countries that import a lot of Australian wheat. If Australian supply were to fall, these countries would probably look to the USA and Canada to import their wheat," he added.
The largest decline in area and production is expected to occur in New South Wales, where many growers are facing a third or fourth dry season and where little or no subsoil moisture would contribute to a massive 55 per cent reduction in winter crop production.
In contrast, good rainfall in Western Australia should increase winter crop production in the region by 16 per cent to more than 13 million tonnes.
Australian Barley and canola are also forecast to have reduced areas and yields, with production down 13 per cent and 29 per cent respectively.
Some farmers in southern Australia are still optimistic that a break will occur in the drought in time to save this winter's crop, however the Australian Bureau of Meteorology only estimates a 35-45 per cent chance of this occurring.
"As barley can generally be planted later than other winter cereals, if a late break does occur then farmers may change their planting intentions to include more barley," says the report. One consequence of this would be a decrease in the area sown to wheat.
AWB is Australia's monopoly wheat exporter, marketing wheat and other grains to over 40 countries, contributing around 3 per cent to the total value of Australia's exports. The company's shares fell yesterday by 3.4 per cent to A$4.29.
ABARE forecasts total wheat exports for 2005-6 to amount to just 14,585 million tonnes compared with 17,867 million in 2003-4. It estimates this year's wheat prices at A$229 per tonne, compared with A$244 last year.