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Russia, grappling with its worst drought on record, warned on Monday that its ban on grain exports could extend into 2011 and that the intense heat threatened to stall seeding for next year's harvest.
Effects of the drought that has decimated supply from the world's No. 3 wheat exporter have reverberated across the globe, sending prices of wheat to their highest level in about two years despite comfortable global supply levels.

Major suppliers canceled deals to ship as much as 200,000 tons of Black Sea wheat to Bangladesh after Russia said last week it would ban grain exports from August 15 to December 31. Dealers expect more such cancellations to follow, forcing importers to seek supplies from other countries.

On Monday, Russian Prime Minister Vladimir Putin said the ban could extend beyond 2010 and noted that grain production could drop to 60 million tons, below the latest forecast from the country's agriculture ministry of 65 million.

"If someone is waiting for December 31, he is waiting in vain. A decision may be taken only after the harvesting campaign results are clear," he told a government meeting.

He also said key grain growing regions in Russia were unable, and will not be able, to begin winter seeding. The winter wheat crop is usually harvested the following summer.

The news from Putin helped to lift wheat prices in Europe, which fell sharply at the open as did prices at the Chicago Board of Trade on follow-through selling from Friday.

Benchmark November milling wheat on Euronext rose 3.75 euro, or 1.8 percent, to close at 213.25 euros a ton. In Chicago, September wheat fell 13-1/4 cents, or 1.8 percent, to $7.12-1/2 a bushel. But July, the first month to reflect prices for next year's crop, rose 11-1/2 cents, or 1.6 percent, to $7.14-1/2.

Firefighters battled wildfires covering 1,740 square km (672 sq miles) in what the state weather forecaster said was Russia's worst heat wave for a millennium.

The intense heat and smoke have nearly doubled death rates in Moscow, a city official said on Monday, as a shroud of smog from the raging forest and peat fires beset Russia's capital for a third week.

Analysts SovEcon estimated on Monday that Russia's wheat crop could fall by nearly a third to 43.5 million tons and that the export ban was likely to be extended into 2011.

The crop estimate was well below the consensus in a Reuters snap poll on August 5 of 46.5 million tons.

SovEcon forecast Russia's wheat exports in 2010/11 may be around 3 million tons, plunging from the 18 million tons the International Grains Council estimated were shipped in 2009/10 when it was the world's number three exporter.

"The ban (on grain exports) will most likely be extended into the new year," SovEcon said, adding an expected decline in barley production would increase the demand for wheat to produce animal feed in the regions hit by drought.

In neighboring Ukraine, the world's sixth-largest wheat exporter in the 2009/10 season, analysts and officials cut crop and export forecasts.
"Wheat yields are lower than we expected before because of the very hot weather," Elizaveta Malysh from UkrAgroConsult told Reuters.

A senior Ukrainian Farm Ministry official said this year's wheat harvest could fall to about 17 million tons, below the consensus in a Reuters poll last week of 18.1 million and down from 20.9 million in 2009.

Trade and shipping sources said an informal system of customs controls in Ukraine is causing serious delays to Ukrainian wheat exports.
"There is widespread belief in the market that Ukraine is undertaking some deniable form of export slowdown," a trader said

CONTRACTS CANCELED
Nomani Nomani, vice chairman of the General Authority for Supply Commodities, Egypt's main state wheat buyer, said Russia had agreed to review and reschedule previously contracted wheat supplies to Egypt in October in view of the export ban.

Egypt, the world's largest wheat importer, had signed contracts for 540,000 tons of wheat from Russia for delivery between August 1 and September 10.

GASC, in its tender set on Friday, did not seek offers of wheat from Russia, Ukraine and Kazakhstan as it has in the past. On Saturday, it bought 240,000 tons of French wheat.

The drought could also force Russia to cut beet sugar output to 3.2 million-3.5 million tons from an earlier expected record 4 million, Andrei Bodin, chairman of lobby group the Russian Sugar Producers' Union, told Reuters Insider in an interview.

Russia is a net importer of sugar, although it has bought less in recent years as increased domestic production and variable import tariffs pushed it down to the world's number three sugar buyer from the top spot.
Russia set its previous beet sugar refining record in 2008, when it refined 3.5 million tons from that year's harvest. The crop declined to 3.2 million tons in 2009 as farmers cut the area sown to sugar beets.