"People are very, very nervous. We're going into the fifth year of drought," cattleman and New South Wales Farmers Association President Jock Laurie said.

"It's absolutely right on a knife-edge," said Laurie.

Saleyard prices have already begun to fall, shedding around 5 percent last week.

A sudden sell-off of cattle in recent weeks had been "sizeable", especially in the southern states of Victoria and South Australia, said Peter Weeks, chief market analyst of industry body Meat & Livestock Australia.

Farm water supplies are also running out as dust-dry land immediately soaks up what little rain does fall.

"For this time of year to not have water for the stock to drink is amazing," said Weeks.

Sparked by an El Nino weather condition which brewed in the Pacific in 2002, Australia suffered the worst drought in 100 years, triggering a massive liquidation of the nation's 28 million cattle and 100 million sheep.

It also decimated crops and cut one percent from national GDP growth at a cost of around A$7 billion (US$5 billion).

The drought appeared to break in 2003 when rains brought relief for graziers and a bumper wheat crop in the year to March 2004. Farmers danced in wet paddocks in July 2005 when rains in the winter crop planting season arrived three months late but just in time to get crops into the ground.

Then the dry weather returned for 2006, with a little rain in June and deepening drought across the entire agricultural belt ever since.

Australia's weather bureau is now predicting a drier and hotter than average spring (September-November), with a possible drought-inducing El Nino now seen in an incipient phase.

ON THE ROAD

It has been a busy time for Australia's iconic drovers who herd a farmer's stock, sometimes for months, looking for feed along the "long paddock" of country roads.

Battling drought and high trucking costs because of soaring petrol prices, farmers began sending cattle out to graze the roadsides around three months ago -- a sure sign of trouble.

Living out of caravans, and riding horses to move the mobs of cattle by day, drovers charge A$1,000-A$2,000 a week.

In the main eastern state of New South Wales, around 100,000 head of cattle had been sent out with drovers, say rangers from Rural Lands Protection Boards, which regulate grazing.

But the number fell to about 25,000 as feed ran out, said Simon Oliver, a senior government agricultural official.

"Stock routes have very patchy feed. In most places it's quite low and not sustainable. Water is also low," he said. "Most boards are not encouraging stock to come out on the routes."

Conditions vary from place to place.

In the far west at Hay, almost 600 km (375 miles) west of Sydney, the number of stock foraging the roadsides was still the most seen in five years, a local official said.

The farmers association's Laurie, who runs cattle at Walcha, 325 km (200 miles) north of Sydney, said some graziers were selling while others waited, hoping for rain.

"People are having to look at all the options they possibly can at the moment. There's a lot of nervous people out there."

But nature will not wait. Cattle have begun to calve. Ewes will lamb in the spring, starting in September.

"If we lamb on no feed we run into problems with survival rates. It's really delicately balanced," Laurie said.