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Australia is heading for a record wheat crop and exports in 2011/12, the government's chief commodities forecaster said on Tuesday, although a deluge of rain affecting some areas as the harvest unfolds is set to reduce the quality of the crop.

More shipments from Australia, typically among the world's top four wheat exporters, will put pressure on international grains prices as farmers buy the cheap feed wheat to substitute for more expensive corn.

Plentiful international supply led to a 7 per cent fall in global grain benchmark U.S. corn futures in November, and analysts see further pressure in the new year.

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Helped by favourable winter and spring growing conditions, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) forecast wheat production at a record 28.286 million tonnes, up 8 per cent from its September forecast.

"An extraordinarily large crop, confirming the abundance of grain available in Australia this year, that's going to continue to pressure Australian grain prices particularly for lower quality grain," said Luke Mathews, a commodity strategist at Commonwealth Bank of Australia (CBA).

Australia is on track to export a record 21.6 million tonnes in the marketing year to Sept. 30, 2012, revised up nearly 6 per cent from ABARES' September forecast.

But the wheat crop has suffered from wet weather going into the current harvest, raising questions about a lower protein content that would downgrade a large portion to feed grade for the second year running.

"The quality remains the key question mark," added Mathews.

The east-coast wheat belt, which produces high-protein prime hard wheat, has been the worst hit, and signs of more damage could dampen prices of lower quality wheat.

"Rainfall in South Australia, Victoria and southern New South Wales during late winter and spring was generally favourable and is forecast to result in above average yields," ABARES said in a statement

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"However, northern New South Wales and southern Queensland have recently experienced untimely heavy rain, which has delayed harvest and affected grain quality in some regions," it added.

ABARES revised up its estimate for the 2010/11 harvest to 27.89 million tonnes.

Significant quality downgrades likely "It's probably too early to quantify the volume of grain that is going to be downgraded, but it is safe to say that we will be seeing significant downgrades," added CBA's Mathews.

CBOT December wheat was trading down 0.79 per cent at $5.94 per bushel in electronic trading in Asia, while December corn slipped 0.13 per cent to $5.79-1/2. Corn has declined or four straight days, its longest losing streak since November.

Australian wheat futures prices this year have also dropped by around a third.

Globally, wheat's fundamentals reflect a bearish price outlook, according to Rabobank.

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"Although high-protein and high-quality supplies are less abundant, there will be ample supplies to meet global demand needs in the season ahead," Rabobank said in a report on world agriculture.

East vs. west Australia's wheat production in New South Wales is forecast in 2011-12 to be 8.3 million tonnes, down 22 per cent from a year ago, due to late November rain damaging unharvested crops, according to ABARES.

The key driver of the weather outlook was the persistence of above average temperatures across the central and southeastern Indian Ocean, the weather bureau has said.

It added that the outlook was consistent with a developing La Nina in the Pacific Ocean, which brings wet weather to the western Pacific. The heavy rain that hit Eastern Australia last summer was attributed to the weather event, though a much weaker La Nina is seen this year.

Australia's weather bureau has forecast up to 100 mm of rain on the east coast of Australia in the week ahead, which could further delay harvesting and damage crops still in the ground.

Wheat production in Western Australia, the country's largest wheat growing state, is forecast to more than double in 2011/12 to around 10.1 million tonnes.

In contrast to the drought-hit 2010 winter cropping season, Western Australia saw above-average to extremely high rainfall across most grains belt over the 2011 spring.

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