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Rabobank Says "Sky's the Limit" for Grain Prices

03 May 2011

AUSTRALIA - Grain prices are expected to remain high into next year, regardless if the northern hemisphere produces big crops.

Rabobank's latest Australian Crops Quarterly report suggests the "sky is the limit" for the global grain industry, with geopolitical risks, weather and low stocks combining to keep prices high, reports Weekly Times Now.

It said that despite a frustrating 2010-11 harvest, Australian grain growers had the chance to to capitalise on a "once in-a-lifetime opportunity of high prices and bin-busting crops".

Rabobank predicts the relatively high structural prices will remain until into next year.

"This view is supported by the critically low stocks: use ratios for most major crops, which will require at least two good harvests to ease the significant risk premiums that have been built into prices," it said.

The company said global market fundamentals and weather factors were finely balanced, with world prices potentially rising to above historically high levels.

"If this season falters in any one major production region, prices would likely take the next step up - perhaps even breaking established nominal records."

It also said a drought in the US, extremely dry conditions in parts of Europe and better growing conditions in Russia and the Ukraine would impact on the market.

It forecast the Black Sea countries would re-enter the market this year but this was unlikely to result in world prices falling. Last August, the Russian and Ukrainian governments banned exports of grain due to domestic shortages, prompting global prices to skyrocket.

"Even when the bans are lifted, we do not anticipate a flood of Black Sea grain on to global markets, as domestic stocks will be the first to be replenished," the bank said.

"In the US, dry mid-west weather conditions have resulted in winter wheat conditions being the worst in nearly a decade."

Rabobank said Australian growers were likely to produce a 25.2-million tonne wheat crop - just short of the 26.1 million tonnes grown last harvest.

Wheat production in Victoria, NSW, Queensland and South Australia was likely to be lower than last season, but this was largely compensated by a 3.2 million tonne increase in the West Australian crop to 7.7 million tonnes.

Weather was a big factor, with the Bureau of Meteorology forecasting above-average rain at least until June.

TheCropSite News Desk

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