Australia is well placed to ride a price surge under way in global grain and oil seed prices due to a combination of droughts in Brazil, Argentina, the US midwest and parts of Russia and central Asia, which have slashed estimates of wheat, corn, canola and soybean harvests in coming months.

Soybean, canola and corn prices have touched new highs in recent weeks, wheat prices are up by more than $US90 a tonne in the key Chicago market, and although there’s official concern, there’s no sign of the price surges, food riots, export bans and hysteria seen in 2008-09, yet.

That shortage came in a three-year period when strong demand, cheap credit, drought, low stocks, speculation and the weak US dollar combined to cut the production of all grains. That was when the drought was at its nastiest in the grain-growing areas of Australia. The US, Canada, Europe (France and Germany) and parts of eastern Europe, plus China and parts of south-east Asia suffered droughts or floods).

At the moment world stocks of wheat are high (though corn is lower, as are reserves of soybeans because of the draw down in the US and strong Chinese buying for the past year). But unlike 2007-08 when world rice supplies shrank and prices soared (and several producers stopped exports), world rice suppliers are plentiful at the moment, even if Thailand has seen a sharp drop in exports in recent months because of a politically contrived domestic price support scheme that has gone badly wrong. Thailand is the world’s biggest exporter and the badly designed scheme could see Thailand forced to dump millions of tonnes of stockpiled rice on global markets at cheap prices.

Unlike these other major producers, Australia is coming off the end of a La Nina wet period, which has boosted grain harvests for the just completed 2011-12 crop and the 2012-13 crop now being planted. And even though estimates for the 2012-13 crop have been cut because of renewed dry weather in parts of WA, the canola (rapeseed in Europe) harvest is expected to be a record in Australia. The Australian rice harvest, just completed, has been very good, and the outlook for the 2012-13 crop is also excellent. With prices for wheat and canola up more than 30% this year, farmers should enjoy strong returns because the price rises have been bigger than the small change in the value of the Australian dollar this year.

On Tuesday, Russia’s agriculture ministry cut its forecast for grain production from 85 million tonnes to 80-85 million. That’s still well above the drought-ravaged harvest of a couple of years when Russia stopped exports to conserve supplies, a move that pushed world prices above $US8 a bushel. Kazakhstan says a drought will cut this year’s crop by 48% compared to the record harvest in 2011. Kazakhstan is traditionally the world’s sixth-largest exporter of wheat, Russia is a top five exporter.

The Russian agriculture ministry also cut its grain exports forecast to 16 million tonnes of grain from an earlier forecast of 16 to 18 million. But some forecasters say Russia will end up only exporting to export around 7 million tonnes. The US Department of Agriculture has forecast Russian exporters at 12 million tonnes, and says the country shipped more than 21 million tonnes in 2011.

Wheat futures prices hit a four-year high of $US8.985 a bushel this week, a rise of 47% in the past month. But they still have a way to go before reaching the all-time high of $US13.495 a bushel set in the 2007 shortage. Soybean futures hit a record high last week for above $U16 a bushel, and overnight on Wednesday were trading at a near record $16.200 a bushel, while corn prices were also trading within 20 cents the record high of $8 a bushel. US forecasters say the corn crop is beyond help from rains, if they fall within the next few weeks, while stress levels for wheat and soybeans are rising as the heatwave continues.

The condition of the huge corn crop, the world’s biggest, is at levels last seen during the big dry in 1988.

Soybeans are in a similar position. The weakened US ethanol industry will be hit at a time when it is seeing facilities close because of weak demand for petrol. Ethanol consumes 40% of the US corn crop, but this year, there may have to be rationing to allow human consumption needs to be met first.

European rapeseed futures (canola) for August delivery rose as much as 1.8% to a peak of  526.25 euros a tonne on Monday, topping the previous peaks touched in early 2011 and during the 2007-08 food crisis. Canola crops in Europe and Ukraine are set to fall sharply this year after cold winter weather there damaged seedlings and the US Department of Agriculture sees European Union production (the EU is the world’s top producer), falling to 18 million tonnes this year from 19.1 million in 2011, while Ukrainian output is expected to fall by more than half to just 700,000 tonnes from 1.5 million in 2011.

In contrast, Australian production is forecast (by Abares, the federal government’s rural economics adviser) to rise by 4% to a record 2.9 million tonnes and the record prices are forecast to drive a 23% increase in area planted in 2012-13 to a record 2.1 million hectares.

Abares also says the area sown to wheat and barley is forecast to fall by 5% and 4% to around 13.4 and 3.9 million hectares for the 2012-13 crop, respectively, with total wheat and barley production forecast to decline by 18% and 15% to 24.1 and 7.3 million tonnes, respectively. The USDA says the 2011-12 Australian crop is estimated to be a record 29.5 million tonnes, with exports of 23 million tonnes (which would make us No.2 in the world behind the US). the 2012-13 crop is forecast to fall to 26 million tonnes with exports of 20.5 million tonnes, still more than the 18.66 million shopped in 2010-11.