AUSTRALIA: February 14, 2008


SYDNEY - It is finally raining in eastern Australia, turning outback dustbowls into inland seas and beginning to end the country's worst drought in 100 years.


Dams are filling, farmers are hoping for their best crops in years and food prices are stabilising as a La Nina weather pattern washes away drought which has persisted since 2002.

A senior weather official told Reuters that recent rains had already ended the drought in some areas -- the closest the bureau has come to declaring an end to the drought.

"Short-term droughts are becoming confined to increasingly restricted areas," senior weatherman Blair Trewin said.

Many areas are still in drought, including Australia's main foodbowl the Murray-Darling Basin.

But 650 kilometres northwest of Sydney, outback farming families near Burke are wading knee-deep in water as floodwaters move south through swollen Warrego and Paroo Rivers which run through remote areas of Queensland state into New South Wales.

A few months ago they were choking with dust.

"There's a high risk of further inland flooding," Trewin said.

Large parts of western New South Wales, where drought last year completely destroyed the winter wheat crop, had moved out of drought for the first time in seven years, state Premier Morris Iemma announced this week.

Only 46 percent of the state, the hardest-hit by lack of rain in recent years, is now in drought. In 2002, 99 percent of the state was in drought.

"Hopefully this will translate into cheaper food at the supermarket cash register, especially for staples like fruit, vegetables and meat," Iemma said.


HIGH BREAD PRICES

Some prices have already begun to fall.

Fruit prices fell by 13.5 percent and vegetable prices fell by 6.9 percent in the December quarter as a first reaction to early rain, consumer price index figures showed two weeks ago.

Summer crops as a whole are doing well, Iemma said this week.

These are important for horticulture and animal feed, but are dwarfed on a global scale by winter wheat, with Australia normally the second wheat exporter in the world, putting bread on tables throughout Asia and the Middle East.

The loss of large parts of Australia's last wheat crop has already had a powerful impact on world markets, contributing to a doubling of world wheat prices to record highs since last June.

Record high wheat prices in Australia triggered a 2.7 percent rise in Australian bread prices in the December quarter, bringing up an 8.8 percent rise over the full year.

Poultry prices, which reflect prices of feed grain, have also risen by 8.6 percent over the year, while dairy prices are up by around 10 percent because of a shortage of feed.

Wheat prices are much slower to respond to rain than fruit and vegetable prices because of a much longer growing period.

But recent rain is beginning to set the stage for a bumper Australian wheat crop, to be planted in April and May for harvest toward the end of 2008.

Big Australian tonnages would help ease global supply concerns, commodities broker Brett Cooper of MF Global said.

Meanwhile Sydneysiders, in Australia's biggest city, have become used to daily downpours after years of bright blue skies. Sunday was the only day this month when Sydney had no rain.

Sydney's dams, down to one-third of capacity last year, despite water restrictions, are back to 64 percent full. The main dam in the nearby country city of Goulburn is full after drying up last year, requiring water to be trucked in.

In 2005, Australian farmers danced in the rain when skies opened in prime wheat planting time. Since then many farmers have been driven to the brink of bankruptcy by the return of drought.

"They're cautiously optimistic," Ron Storey of Australian Crop Forecasters said of wheat growers' mood this time around.

(Editing by Sanjeev Miglani)


Story by Michael Byrnes


REUTERS NEWS SERVICE