CANBERRA (Dow Jones)--Wheat production in Western Australia, which typically accounts for around 40% of national production, will fall by one third to 5.5 million metric tons this crop year due to dry weather in key growing areas, the state's Grains Industry Association forecast in a monthly Crop Report issued Wednesday.

Actual wheat output last crop year was 8.25 million tons. The association also forecast new crop barley output at 2.00 million tons, down from 2.19 million tons last crop year, and canola output at 975,000 tons, unchanged from last crop year.

The production estimates assume average rainfall for the next two months, but given current dry soil conditions, if the current pattern of irregular rain with lengthy fine spells continues, it is likely that production estimates will be revised down further in September, the association reported.

"Soil moisture assessment shows that most areas have little, if any, available moisture to sustain plant growth," despite rainfall Aug. 12 and Aug. 13, it said.

Despite the poor season in Western Australia, industry forecasters believe favorable conditions leading to expected bumper crops in eastern Australia will go a long way to offsetting poor conditions in the west.

Thursday, the U.S. Department of Agriculture lifted its Australian wheat production forecast for this crop year to 23 million tons, up 1.0 million tons from a month ago and also up from an actual 21.7 million tons last crop year ended March 31.

After domestic demand of about 7.0 million tons is met, the balance is available for export, usually making Australia a major supplier to the global wheat trade.

-By Ray Brindal, Dow Jones Newswires; 612 62080902; ray.brindal@dowjones.com

(END) Dow Jones Newswires

August 18, 2010 03:24 ET (07:24 GMT)