AWB said its discussions with ABB Grain were ongoing and that any deal still was subject to regulatory approval and due diligence.

In midday trade, ABB shares were up 23.3pc at $8.01, while AWB had risen 10.3pc to $3.52.

The two groups have long been the subject of rumour as being potential partners, especially since AWB lost its monopoly export powers in July.

While discussions remain at an early stage, any deal could set off a renewed round of consolidation within the nation's listed agricultural sector, perhaps extending as far as fertiliser interests Incitec and Nufarm revisiting merger talks.

However, any deal could leave eastern Australia's biggest grain handler, GrainCorp, under pressure to bulk up.

GrainCorp a target

"With deregulation Australian grain companies need to reach scale to compete with the international trading giants," said Ross Macmillan, an analyst at stockbroking firm E.L. & C Baillieu.

"The tie-up will be highly considered by the market as they need to get to that sort of scale to compete on the global market."

He said third-ranked GrainCorp had been considered a likely target for its larger rivals ABB and AWB though there was logic in a combined ABB/AWB group.

"It is possible that GrainCorp might be taken over later by the merged group," Mr Macmillan said.

GrainCorp shares rose 3.8pc to $5.49 while Futuris Corp, which owns the Elders agribusiness, climbed 5.6pc to 84.5 cents.

AWB managing director Gordon Davis last week said industry consolidation was inevitable and the wheat exporter's recent shareholder restructure had meant it was better placed to participate.

AWB shareholders this year finally approved a plan allowing the grains giant to abolish its A class shares, available only to wheat growers.

Those shares, which gave growers the power to appoint directors but could not be traded, were widely seen as a providing an obstacle to any widespread corporate activity.