09/10/2007 (Bloomberg) - Australia, the world's third-largest canola exporter, may produce 15 percent less of the oilseed than earlier forecast after dry weather hurt crops in New South Wales state, eroding the benefit of higher export prices.

The nation may harvest 1.05 million metric tons of canola, used to make vegetable oil, down from 1.23 million tons estimated last month, the Sydney-based Australian Oilseeds Federation said in an e-mailed report. Output last year was 512,000 tons.

Harvest expectations in Australia are being scaled back as the nation's worst drought on record cuts yields of all grains including wheat and barley. Forecast canola output has been cut the past two months, limiting growers' ability to benefit from canola's 36 percent price gain in the past year.

``There has been little good news in New South Wales, with the last reasonable rainfall occurring in the third week of August and then only in the north east,'' the federation said in an e-mail sent yesterday.

New South Wales may produce 40,000 tons of canola, 75 percent less than forecast last month. That estimate may be further cut, the federation said. Canola seeds are crushed to produce a vegetable oil that competes with soy and palm oil in food preparation.

Canola futures for November delivery fell C$4.30, or 1 percent, to C$420.50 ($425.84) a ton on the Winnipeg Commodities Exchange at 2:59 p.m. in Sydney.

Victorian Harvest

Victoria state may harvest 348,000 tons of the oilseed, down from the 430,000 estimated last month. The federation cut its forecast for South Australia state by 5 percent to 190,000 tons and left its estimate for Western Australia state unchanged at 475,000 tons.

The federation's forecast compares with the 1.1 million ton production estimate made by the government's commodity forecaster. The nation may export 672,000 tons of the oilseed the government forecaster said in its latest quarterly commodity report on Sept. 24.

Canada is the world's largest canola exporter, followed by Ukraine.