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New Delhi — The arrival of La Nina remains a concern to the wheat harvest in the eastern states of Australia, with fears of harvest progress getting delayed by a few weeks and raising worries about grain quality, said James Maxwell, manager at Australian Crop Forecasters, in an interview to S&P Global Platts.

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Australia is coming off from three consequent disastrous seasons after dry conditions wreaked havoc on prospects of the country's wheat crop, which fell from a historic high of 31.8 million mt in 2016-17 to 15.2 million mt in 2019-20, according to data from the Australian Bureau of Agricultural and Resource Economics, or ABARES. The Australian wheat marketing year runs from October through September.

The dry conditions in the past were triggered by El Nino -- the opposite weather phenomenon to La Nina -- which occurred in 2015-16.

The agency estimates Australia to produce 28.9 million mt of wheat in 2020-21, up 90% from the previous season, on the back of favorable weather.

However, with La Nina's arrival, forecast for above-average rainfall has risen in the southeastern states of Australia that could put a dampener on the production estimates.

"Current climate outlooks indicate rainfall during November 2020 to January 2021 is likely to be above average for most of the country," Australia's Bureau of Meteorology said.

The La Nina event is of critical concern at the moment in Queensland and northern New South Wales, where crops are ready to be harvested, Maxwell said.

"Some hail has been reported and there is the risk of flooding, but at this stage there isn't any widespread crop loss, but the danger is around quality. Wet conditions just prior to or during harvest can cause wheat to germinate, which reduces starch and protein in grains rendering them useless for milling and automatically downgrading them to feed," Maxwell said.

"After recent rain we are expecting some downgrading of quality, but more rainfall has potential to cause widespread downgrades," he added.

New South Wales in spotlight

More than 3 million mt of wheat in Queensland and New South Wales is expected to make high quality Australian Prime Hard and Australian Hard milling grades, Maxwell said.

"At current prices, if 25% of that was downgraded to feed quality, that would represent a loss of around A$64m [$45 million] in return to growers, not to mention the loss in sales to places like Japan and South Korea who are keen for Australian high quality wheat following a couple of years of drought," the analyst added.

Wheat production in both New South Wales and Queensland has leapt from the last year's levels, with the sharpest rise seen in New South Wales.

New South Wales' wheat output is expected to jump 390% on the year in 2020-21 at 10.3 million mt, 1.4 million mt higher than Western Australia, which has been traditionally the largest wheat-producing state in the country, according to ABARES' latest estimates.

Rains are expected to remain active in parts of New South Wales for the next few days, which is expected to hamper early dry down and harvesting of wheat in these areas.

Delays in harvest

Unfavorable weather would mean some delay in how the harvest progresses in the southeastern Australian states.

Wheat harvest in Queensland has been going for close to a month now, and rainfall in mid-October as well as in the last few days have paused activity, according to Maxwell.

Unfortunately, more wet weather is forecast in coming days, and above-average rainfall expected in eastern states through November and December is likely to see a "drawn-out, stop/start harvest" for much of Queensland, New South Wales and Victoria, Maxwell said.

"We're expecting harvest to continue at very least in to February of next year in southern states, where it was mostly complete by mid-January last season."

Australian exports to shine

As Australian wheat production rebounds, outbound shipments are set to increase while absence of competition from Russia, Ukraine and Argentina are set to make prospects brighter for the export industry.

Australian values remain competitive into Asian destinations as European demand is supporting Russian prices.

Indicating a busy line-up, bulk grain export terminal shipping stems are showing very little, if any, export capacity available through to the end of March 2021, Maxwell said.

"In December, bookings are fully sold out, with over 1 million mt expected to head to Asian destinations -- Chinese wheat buying has been strong early, along with [the] Philippines and Vietnam."

China's interest in Australian wheat remains strong despite concerns about hefty duties on Australian barley, and some incidents around other Australian agricultural products.

Tapping Indonesia again

Australia lost its spot as the top seller of wheat into Indonesia due to the drought, with buyers now used to the quality of wheat provided by Black Sea exporters.

To regain some market share in the country, Australia entered into an agreement with Indonesia to ship 500,000 mt of wheat on duty-free basis in the first year.

However, despite the agreement, Indonesian buyers have said price still remains the determining factor, and that they will source the lowest priced ingredients that will fit their ration requirements.

"Regardless, we still estimate at least 2.5 million-3 million mt of Australian wheat will make its way to Indonesia given the large quantity of feed wheat available and Australia's competitiveness against Black Sea region wheat, with potential for over 4 million mt, should pricing remain favorable," Maxwell said.