The United States Department of Agriculture has slashed its estimates for the value of Australia’s wheat crop and exports for the next year by over $2 billion, or more than 7 million tonnes.

It’s the second time in two months the USDA downgraded in its forecasts for the 2007-08 Australian wheat harvest and exports.

The USDA is the only organisation in the world which gives month to month estimates of agricultural production in the US and around the world. Its monthly updates on agricultural commodities are the most important issued around the globe.

In its October survey of world grain markets, released in Washington last Friday night, our time, the USDA estimated Australia’s harvest at 13.5 million tonnes, compared to 21 million tonnes last month and 23 million tonnes in the first estimate in August.

It blamed the gathering impact of dry weather for the second cut in a row.

That 7.5 million tonne cut puts the USDA estimate 2 million tonnes under the one from the Australian Bureau of Agricultural and Resource Economics (ABARE) last month of 15.5 million tonnes.

Exports have also been slashed, down to 9.5 million tonnes in the latest estimate. ABARE had estimated exports at around 12.15 million tonnes.

ABARE estimated the value of wheat exports at $A305 a tonne for the 2007-2008 harvest.

The USDA’s forecast for our exports is 4.5 million tonnes down on its on September estimate and 6 million tonnes on the 15.5 million tonne estimate in August. Based on ABARE’s figures, the USDA’s lowered export estimate means around $800 million has been sliced from 2007-08 grower incomes, taking the total loss to around $A2 billion.

The latest USDA estimate is now only 500,000 tonnes above the low 9 million tonnes exported in 2006-07 crop year which ended May 31.

Due to lower carryover stocks, Australia now doesn’t have very much wheat in reserve (or other grains for that matter) so the continuing drought, which has now returned to NSW, Victoria, South Australia and parts of other grain states, could see exports fall below the drought-decimated low of 2007, if the big dry continues.

The drought has also seen the USDA cut its estimates of Australian coarse grain production as well.

Production is now forecast at 9.51 million tonnes, compared to the 11.81 million tonne estimate in September and around 12 million tonnes in August. That compares well to the 5.76 million tonnes produced in the big drought of 2006-07.

Exports are forecast to fall to just 2.54 million tonnes in the latest USDA estimates, compared to the September forecast of 4.94 million and over five million tonnes in the initial August outlook.

But because of low carryover stocks 2007-08 exports will be only some 400,000 tonnes higher than the drought-impacted low of 2.13 million tonnes in the 2006-07 year.

Again, any further cut in production because of the drought, will cause a much sharper fall in exports.

The USDA export forecast for coarse grains is now 2.5 million tonnes under the latest ABARE figure: that alone is worth hundreds of millions of dollars a year less to farmers.

And the rising value of the Australian dollar is not helping as it is tending to limit the benefit from the world record prices for the gain for most of the past four months or so.

The falling production and low stocks will mean exports will soon be rationed, and grain imports may have to be increased from the present 800,000 tonnes a year, especially for the feedlot and edible oil industries.

Meanwhile in its latest forecast, the USDA said that US wheat stockpiles may fall to their lowest level in 59 years because buyers around the world are scrambling to make up for lost output from Australia, Western Europe and parts of Asia..

This follows the realisation that for a second successive year world wheat production will be hit by drought, wet weather, causing lower than forecast production.

The USDA says that US wheat supplies for the 2007-2008 crop year will fall to 307 million bushels, down 55 million bushels from its estimate in September because of a sharp rise in export orders. The latest production estimate is down 47 million bushels as well, adding to the pressure on stocks.

Exports are running at record level, well ahead of previous years after poor weather damaged harvests around the world this year. The US is the only major world producer with anything approaching a normal sized wheat harvest this crop year.

Record high prices have done little to dampen demand. Chicago wheat prices settled 25.50 USc lower at $US8.77.50 a bushel Friday after yet another strong run up over $US9 a bushel last week ahead of the USDA report.

The USDA said America’s wheat stocks would be the lowest since 1949.

World wheat stocks at May 31 next year will be around 107.0 million tonnes, the lowest since 1975-76.