AWB warns drought may hit profits

By Catherine Boal

- Last updated on GMT

Related tags: Prediction

Wheat and grain exporter AWB has reduced its profit forecasts in
the face of drought and rising commodity costs.

The Australia-based company, which supplies grains to bakery firms in more than 40 countries worldwide, has warned shareholders that profits could fall by as much as 25 per cent this year.

Despite having forecast profits similar to last year of €110.65m for the year ending September 30, the group has been struggling to meet the target after unfavourable weather conditions.

The company now predict a drop of 20 to 25 per cent and blame "difficult trading conditions and volatile world wheat markets which have squeezed commodity margins."

Below average rainfall across Australian grain-growing areas, combined with droughts throughout May and June, means that the 2006 to 2007 wheat crop is expected to fall from 23-25 million tonnes to 18-20 million tonnes.

However AWB were quick to reassure customers, they said: "management is committed to reducing costs and is initiating programmes to address business performance issues."

Earlier this month, the Food and Agriculture Organisation (FAO) released their report into cereals worldwide and warned of a 1 per cent drop in output from last year's figures.

In addition, they predicted that rising demand, coupled with the dip in production, could mean rising and volatile wheat prices.

And last week saw the International Grains Council also lowering its 2006 to 2007 forecasts.

Despite predicting world wheat output of 605 tonnes, they have now changed that figure to 596 tonnes - a drop of 21 metric tonnes from last year.

Related topics: Markets

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