Australian Wheat Update SYDNEY, Aug 28 (Reuters) - Uncertainty over Australia's grain harvest in the face of another prolonged dry spell has triggered a surge in grain futures prices and record trading volumes, as traders price in the risk the country will need to import. Australian milling wheat futures prices have risen to a premium of A$35-A$40 a tonne over Chicago wheat futures. That translates to about 70 US cents a bushel, or 18 percent, above Chicago wheat futures prices of around $4 a bushel, traders said. "The Australian crop is on a knife-edge as far as the season goes," Dougal Hunter, market development executive for Australian Stock Exchange (ASX) grain futures, said on Monday, while announcing record trading volumes on Friday. Around 4,700 futures and options contracts were traded, with the equivalent of 94,340 tonnes of business transacted, including around 1,300 feed barley futures and 1,800 milling wheat futures. Milling wheat futures prices rose by A$6 ($5) a tonne to up to A$231 during Friday trade, before closing at A$228, while feed barley futures prices rose by A$11 to A$214. The possibility of grains imports is looming once again, in what would be a major blow for an industry which is normally the second-biggest wheat exporter in the world after the United States. Australia's first significant grain imports since colonial times took place in 2003 when the country's worst drought in 100 years sent feed wheat prices rocketing by A$180 a tonne in six months to as high as A$370 a tonne. They subsequently took a tumble when almost 500,000 tonnes of imported feed grain finally began to arrive, from Britain, Canada and the United States. Australian grains futures markets have again entered an extremely volatile zone as the country battles with a five-year on-again-off-again drought which has produced erratic wheat crops between a decimated 10 million tonnes in 2002/03 and a record 26 million tonnes in 2003/04. This has pushed Australian milling wheat futures prices up by by about 6 percent, orby A$13 a tonne, since the beginning of August, while feed barley prices have risen by about 16 percent, or by about A$29 a tonne. Brett Cooper, senior broker with Man Financial Australia, said Australian wheat futures had risen by the equivalent of about 55 US cents a bushel in the last three to four weeks relative to Chicago December futures because of crop uncertainty. There was further "definite" upside on Australian grain futures prices, Cooper said. "It's a moving target," he said.
