THERE is plenty of upside in wheat prices yet according to an American agricultural analyst.
AgResource Company president Dan Basse, who spoke at the Rabobank breakfast in Perth earlier this week, believes worldwide supply issues will cause Australian wheat prices to top at somewhere between US$330 and US$360 during the next few months.
Focussing on the grain and oilseed market outlook for 2013, Mr Basse said Australian farmers were very well positioned on the global market and could be set to profit from the catastrophes in the US and Russia.
He said farmers should sit and wait before locking in any more grain.
"The prices aren't going anywhere," he said.
"This is a very unusual situation for Australian farmers as normally I would encourage them to lock their grain away at these prices.
"But there is nothing for them to do at the moment except sit back, pray for rain and let the good times roll."
The market was currently driven by a severe lack of supply on a global scale and Mr Basse said world markets had lost about 80 million tonnes of grain compared to last year.
And from the May global predictions, the world has lost almost 200mt of grain made up of 115mt corn, 40mt of wheat and 35mt of soy beans.
"The US has lost 100mt of corn production this year, which is the largest ever recorded loss," Mr Basse said.
"We also have a massive drought going on in the Black Sea.
"Last year the Black Sea exported nearly 62mt of grain and that will drop to about 34mt this year.
"The prices at the moment are higher in the Black Sea than they were in 2010 when the region had the disastrous drought which led them to ban exports.
"So the question is what will (Russian president Vladimir) Putin do?"
Mr Basse said the Russian population was screaming about the high prices and the low wheat production and he expected that by October or November, Putin would restrict trade.
"Whether that is through export taxes or tariffs or a complete ban I am uncertain, but he cannot allow exports to ramp up," he said.
"At some point in October or November, Australian farmers should enjoy a bump in the market because of Mr Putin's decision.
"It will move the market up right in time for your wheat harvest, which is very good stuff."
Mr Basse went on to say Russian wheat production and supply was no longer reliable.
He said Russian weather was now twice as variable as Australian weather and Russia's export policy had been directing its grain trade, leading buyers to look to other sources.
"So if you want wheat, you have three places to go, the US, Canada or Australia," Mr Basse said.
"But the market is seriously concerned for the US wheat crop."
Mr Basse said the dire drought in the centre of the US goes much further than the decimated corn crop and estimated that 17 per cent of the Illinois corn crop would yield nothing.
"During the June and July period the Illinois region had received 3.5 inches of rain," he said.
"It takes 17 inches to make a bushel of corn and the combination of heat and dryness had a devastating impact on the crops."
But Mr Basse went on to say since the Civil War, in 1866, the US had never had back-to-back droughts, even in the 1930s, or the 'dustbowl days'.
"There is no way, even if it started raining tomorrow, that the normal winter wheat crop could be put in, we are just going to be too short of moisture," he said.
"The AgResource climate prediction saw a drier than normal September which means the US drought will not be resolved in the next couple of months.
"The market is concerned for the new-crop wheat which will be planted in September."
All these factors point to Australian wheat prices remaining strong throughout the year.
In addition to the predicted poorer wheat production in the US, Mr Basse also said US wheat stocks would drop as more wheat than corn would be fed to livestock.
This meant there would be strong export demand for whatever was remaining.
"There is also not a lot of export wheat coming out of the EU, and China won't be exporting anything, so again the world needs Australia to have a good growing season," he said.
In summary Mr Basse said Australian wheat had an important role to play on the world level.
He encouraged Australian growers to sit tight for this year's grain and look to lock away some of next year's grain at the elevated prices.
"As I said the US has never had back-to-back droughts and I am willing to bet next year will be more normal, which would significantly change the price structure we are looking at," he said.
"The best thing to do as an Aussie farmer is nothing at this point, but I would definitely start to think about pricing 2013 production.
"The top in the world market will not occur until this autumn in the US (Australian spring) so I would be bullish for the next few months and bearish thereafter when normal weather returns."