Analyst tips prices to stay high

Melissa Williams and AAPCountryman
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A leading Australian agricultural analyst has predicted record high wheat and oilseed prices will persist for at least the next six to 12 months on the back of low global stocks and drought in the United States.

ANZ Bank senior agricultural economist Paul Deane said very tight world stocks of most grains was having a major impact on prices and this was unlikely to change in the near term, unless there were two or three years without weather shocks across the globe or South America produced a big crop in 2012-13.

Speaking at the Curtin University-convened Global Agribusiness Conference held in Perth this week, he said global corn stocks were at their lowest level for 10 to 15 years and wheat stocks were down for the first time in six years, which augured well for maintenance of current prices.

His prediction coincided with this week's official forecast of a 24 per cent fall in Australian wheat production for 2012 to 22.5 million tonnes, driven primarily by a 39 per cent contraction in WA wheat production to 7.1 million tonnes.

The latest WA wheat harvest estimates from the Australian Bureau of Agricultural and Resource Economics and Science (ABARES) are down from its June estimates of 8.7 million tonnes and well down from 2011 levels of just over 11 million tonnes.

ABARES also forecasted there would be a 27 per cent year-on-year fall in WA barley production to 1.9 million tonnes, 15 per cent fall in canola production to 990,000t and 58 per cent reduction in lupin production to 295,000t.

The Grain Industry Association of WA also released its crop forecasts this week, which pointed to a slightly lower WA wheat harvest than the ABARES estimate at 6.5 million tonnes, barley harvest of almost two million tonnes, canola of 882,000t, oats of 435,00t and lupins of 276,000t.

ABARES executive director Paul Morris said the lower national wheat production forecasts reflected relatively dry seasonal conditions in WA and some parts of south eastern Australia.

"In contrast, conditions have been more positive in northern New South Wales and Queensland, where crops are forecast to achieve above average yields," he said.

Mr Morris said despite lower production, the amount of wheat available for export would remain high on the back of significantly higher production in the past two seasons.

Wheat stocks held by bulk handlers at the beginning of August were about 11.5 million tonnes. This is about double the level the level at the same time in 2009.

Mr Deane said global grain stock levels were insufficient to insulate the market for many agricultural commodities.

He said the drought in the US was a major factor in high grain prices and without that, there would not have been the 60 per cent spike in wheat prices seen during the past few months. "Major funds are supportive of grain and oilseed prices staying where they are now and we expect this will be maintained for the next 12 months," he said.

Mr Deane said rebuilding of cotton stocks was underway and the global cotton pipeline was now estimated to hold about 34 weeks of supply, its highest level for 15 to 20 years. This made it the best stocked agricultural commodity in the world.

He said this could put downward pressure on cotton prices, which could result in farmers switching plantings to other commodities.

"We could see an extra six to eight million hectares worldwide substituted out of cotton in the next two years to grains and oilseeds, which would represent about 2.5 per cent of global production of about 20 million tonnes for corn and six million tonnes for soybean," he said.

"Then if cotton stocks run down and grain stocks don't build up too rapidly, we could then see another cotton price rise."

Mr Deane said in a market of tight grain supplies, the industry was very exposed to future supply shocks.

He said some recent weather predictions pointed to an increased likelihood of cooler conditions for the Australian east coast and South America for the next 20 to 30 years, potentially providing higher than average rainfall to prop-up wheat production and re-build supplies.

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