By Denny Kurien

  Of DOW JONES NEWSWIRES


  SINGAPORE (Dow Jones)--Asia is facing a drier-than-usual summer this year, a
cause of concern for producers and consumers of various food items, but a sharp
jump in food prices looks highly unlikely, analysts say.

  Sufficient buffer stocks in countries experiencing drought and expectations
of a bumper crop in the western hemisphere indicate most Asian countries will
be able to keep a lid on prices and ensure food price inflation doesn't nip a
fledgling economic recovery in the bud.

  "We don't see the short-term catalysts for food prices to become an issue in
headline CPI baskets," said Jonathan Anderson, an economist with UBS
Securities.

  That appears to be the emerging consensus.

  "About 28% of the wholesale price index - the most widely used measure of
inflation in India - is susceptible to monsoon failure, (so) an adverse impact
on inflation is inevitable, but ample food stocks should define a ceiling,"
analysts at Standard Chartered Bank said.

  India's summer-sown rice output is expected to fall as much as 10 million
metric tons this year, but the country produced 99.15 million tons of rice and
78.58 million tons of wheat in the last fiscal year ended March, compared with
an annual demand of around 85-86 million tons of rice and 70 million tons of
wheat. Domestic stockpiles are high after an export ban was put in place in
2008.

  In China, stockpiles of staples like soybeans have surged in recent weeks
amid high domestic prices. China now holds around 6 million tons of soybeans
and 30 million tons of corn.

  In Thailand, the world's largest rice exporter, milled rice stocks are at a
record high of around 7 million tons, following a recent government
intervention program aimed at supporting domestic prices to encourage farmers
to stay in the business.

  "That means Thailand's rice stocks alone are around 25% of world rice trade
in any given calendar month," said Darren Cooper, senior economist with the
London-based International Grains Council. "With India's stocks, that is a lot
of rice."

  Yet, the fear of rising prices is forcing governments to reassure consumers.

  The recent rise in prices in China won't last long or lead to high inflation
as the government has sufficient grain reserves, the National Development and
Reform Commission - China's top policy making body - said in a statement
Friday.

  India's government has moved swiftly - releasing stocks, encouraging imports,
punishing hoarders and extending a ban on exports - to prevent food prices from
spiralling out of control amid an early spike in some cases such as sugar.

  In what could be reassuring to policy makers, the National Bank of Australia
Friday held its domestic wheat production forecast at 23.2 million metric tons,
up 8.4% from the actual output of 21.4 million tons in the last crop year ended
March 31, 2009.

  Perth-based marketing advisory service Profarmer Australia noted that despite
concerns about dry conditions, wheat prices in Australia didn't push much
higher of their own accord this week, with stronger prices earlier in the week
being met with increased grower selling.

  The ASX January milling wheat futures contract has been in a sharp downtrend
from early June, when it traded above A$300/ton. Wheat, rice and corn futures
have also been falling steadily on the Chicago Board of Trade.

  But much still depends on how weather plays out in the coming months.

  Despite muted market reaction so far, producers such as Australia and New
Zealand and big consumers such as India and China are closely watching the
development of an El Nino weather phenomenon in the Pacific Basin, which if
prolonged, could have an impact on growth in many countries.

  "There's no doubt that the weak monsoon situation in Asia has damaged crops
but I don't think we are at a stage where we can say that alone is overly
bullish for the global market. An El Nino on the other hand could lead to a
different scenario," said Adel Yusopov, regional director of the U.S. Grains
Council for South East Asia. "If that were to happen, you are looking at likely
crop damage everywhere from Asia to the U.S.," he said.

  Earlier this week, Australia's Bureau of Meteorology said latest data
indicate a developing El Nino will reach peak intensity later this year. El
Ninos are usually associated with below-normal rainfall in the second half of
the year across large parts of southern and inland eastern Australia.

  The development also results in weather changes in much of the rest of Asia
with drier summers in some parts and flooding in others. India and China have
reported wide-spread droughts this year, with 252 of India's 625 administrative
districts officially declared drought-hit. Rainfall so far has been 26% below
normal in the June-September monsoon season, according to the state-run India
Meteorological Department.

  In China, the drought situation has worsened in the north while it is
developing fast in the south, the government's Office of State Flood Control
and Drought Relief Headquarters said late Thursday.

  China's major autumn grain producing areas are mostly in the north and the
autumn harvest accounts for more than 70% of the country's total grain output.

  Even countries that are less dependent on agriculture could be hit if the El
Nino becomes a broader concern.

  "We estimate an El Nino weather event could reduce (New Zealand's) GDP by
0.5% each quarter that it is present. With New Zealand's growth recovery still
fragile, a severe drought could push it back into recession," Barclays Capital
said in a report Friday.


  (Andrew Jones in Singapore and Ray Brindal in Canberra contributed to this
report)