Drought has returned to Australia, bringing the spectre of withered crops, hungry livestock, grain imports and another surge in the global price of wheat.

Spring rains forecast for last weekend failed to arrive in the wheatbelt, which stretches across the south of the country. Only a few millimetres fell in scattered locations, not enough to rescue the growing season. Australia’s Grain Council is forecasting another terrible harvest.

Australia, one of the world’s top wheat exporters alongside the United States and Canada, was expected to produce more than 26 million tonnes in the 2007-08 crop year, but forecasts have been slashed to almost half.

Murray Jones, president of the Grains Council of Australia, said that he was expecting 15 million tonnes. “The Australia crop is at a critical position,” he said. “The chances of getting good rains are not high.”

A decade of weak rainfall has cast doubt on Australia’s future as a global bread basket and has helped to push up wheat prices to record levels. Drought in the southern hemisphere, floods in Europe and critically low stock levels have provoked panic buying by state grain importers in India, Egypt and Iraq.

The surging wheat price is dragging with it the cost of bread. Two leading bakers, Premier Foods and Associated British Foods, have added 8p to the price of a loaf in Britain over the past week.

Wheat prices remained high yesterday at $8.72, close to last week’s record levels, as the market anticipated the September crop report from the US Department of Agriculture (USDA), which is out today.

Analysts are expecting the USDA to cut its estimate of worldwide wheat production and at the same time cut its estimate of global stocks. According to the USDA, these are at 114 million tonnes, their lowest levels since 1981, but a further fall is likely to provoke more market anxiety.

Another weak harvest is prompting speculation among grain traders that Australia could be on the brink of importing grain for animal feed. Were it to do so, it would be only the second time in its history that the country, the second-biggest wheat exporter, was forced to import grain to feed its livestock.

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