OVERSEAS financial market jitters are spreading uncertainty to more than just the Australian banking sector, with farm commodity demand likely to dampen this year.
Rabobank is warning that despite plenty of potential demand for food and fibre there will be "considerable uncertainty" in agricultural markets because of elevated levels of uncertainty spilling from the general global economic outlook.
The only farm commodities likely to see modest to reasonable price growth in these uncertain times are beef and milk, with sugar poised for firm prices and tighter wine supplies looking promising.
Rabobank tips sheepmeat prices will stay strong but be in decline in 2012, wool will be above its five year average but exposed to "downside risk" because of the macroeconomic uncertainty, and grain markets are uncertain to flat.
Rabo's food and agribusiness research and advisory division general manager Luke Chandler said the world's financial, industrial and agricultural markets were exhibiting greater risk aversion.
Price volatility was growing and demand was slipping as rural commodity trends fell victim to uneasy economic conditions and financial markets which were increasingly influencing global agricultural trade.
Yet despite our export markets also being hobbled by an uncompetitively high dollar, the outlook for Australian farmers was far from gloomy.
World grain stocks were relatively tight and growth in emerging Asian economies provided a lot of positive momentum.
"World wheat prices at $US6 to $6.50 a bushel and cotton at US90c a pound are historically high - its just unfortunate our high dollar is preventing those values filtering through to Australian producers," Mr Chandler said.
"And despite the second biggest production year for grains and oilseed crops in 2011, world stocks are quite tight.
"It wouldn't take much, like a repeat event such as the 2010 Russian drought, to drive a price rally."
Mr Chandler believed 2012 prices would mostly remain above their average levels set in the past decade, but would be more volatile due to delicately poised world inventories and uncertain global economic growth.
Rabobank expected the Eurozone sovereign debt crisis and uncertainty about how it would be resolved to dictate a slow year for the world economy.
Global agricultural markets were also being politicised by food security concerns an other factors, which in turn impacted international agricultural trade and added further to uncertainty and price volatility.
Meanwhile, international agricultural traders and processors were growing more global in their operations, partly to help protect themselves from climatic and political restrictions on their supplies and to gain better market intelligence.
But Mr Chandler said as these downstream giants amalgamated and gained more power, flexibility and knowledge in global markets, including established stronger positions in Australia, their strength could put greater pressure on local producer returns by reducing marketing options.
Rabobank also anticipated that while commodity demand might be off the boil in many regions, farm inputs would still be in demand, with China likely to be the big factor in determining the strength of fertiliser and farm chemical prices.
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