No wonder the Federal Government extended its drought aid package for another 12 months at a cost of an extra $430 million yesterday. There’s been a multi-million tonne cut in the size and the value of our important winter grain harvest.

World wheat prices jumped after the Australian Bureau of Agricultural and Resource Economics slashed its winter crop harvest by 27%, including a near one third fall in the estimate for the vital wheat crop.

And unless there’s good rains in NSW, South Australia and parts of Victoria in the next month, another downgrade in the size of the crops, especially wheat, seems inevitable from what ABARE said in its outlook commentary.

After hours trading of wheat on the Chicago Board of Trade in Asia saw the December contract price rise by up to 10 USc a bushell after ABARE published its report this morning. The price is currently around $US8.84 a bushell, still well down on last week’s record prices of more than $US9.11 a bushell.

ABARE said that 2007-08 winter grain production was now “forecast to total 25.6 million tonnes”:

Even though this amount is well above last year’s drought affected crop, it will be around 27% below the five year average. The forecast is a downward revision of 11 million tonnes from ABARE’s June estimate.

The cuts are concentrated in wheat, barley and canola: Australia is a major exporter of all three to world markets.

ABARE said that it was now looking at a 31% drop in the wheat harvest estimate to “be around 15.5 million tonnes in 2007-08, around 7 million tonnes below the June estimate but well above the 9.8 million tonnes harvested last year.”