Australia, the world's second-largest wheat exporter, raised its production estimate for the current marketing year by a fraction from its December estimate, as the crop largely escaped damage from a heat wave and floods this summer.
The Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES) forecast wheat production of 22.077 million tonnes for the marketing year ending in August, up 0.2 per cent from its December estimate of 22.035 million tonnes.
The broadly unchanged forecast will be welcomed after the U.S. Department of Agriculture surprised the market by cutting it forecast for U.S. wheat stocks, adding to worries about a global shortage.
The stockpile of U.S. wheat at the end of the marketing year on May 31 will shrink to 691 million bushels, the smallest in four years and down from its previous forecast for 716 million bushels, USDA said.
Australia's wheat crop enjoyed favourable weather toward the end of the growing cycle, but the government's commodity forecaster said protein levels across the country's east coast were lower than average.
"We weren't expecting them to change the wheat number too much," said Luke Mathews, commodities strategist at the Commonwealth Bank of Australia.
Wheat in Australia is planted from late April and harvested by the end of December.
Australia's winter crops were helped by rains in the spring, ABARES said.
The commodities forecaster raised its 2012-13 canola estimate by 17 per cent on better-than-expected yields and a larger planted area.
Canola production was put at 3.089 million tonnes, up from a December estimate of 2.636 million tonnes.
"We always know canola acreage was very strong, and we had been hearing anecdotal reports of better-than-expected yields," Mathews said.
More canola was planted in New South Wales and Western Australia than was previously expected, while favourable crop weather across Australia's west coast boosted yields, ABARES said.
The forecaster also noted the impact of the heat wave which scorched Australia in January.
While maintaining its forecast for cotton production at 945,000 tonnes, ABARES said summer crop production would fall 13 per cent to approximately 4.8 million tonnes as a result of the record heat in January. The heat has sapped soil moisture vital for the germination and establishing newly sown crops.
Sorghum is the most significantly affected summer crop, ABARES said, forecasting 2012-13 production would fall 23 per cent to 1.7 million tonnes.
The drop in sorghum output would impact livestock farmers.
Mark Hoskinson, an arable and livestock farmer in New South Wales, said producers would have to increasingly feed animals using stored oats or buy low protein wheat grades as a substitute.
-- Colin Packham is a commodities correspondent for Reuters based in Sydney, Australia.