The US Department of Agriculture slashed its 2010-11 supply forecasts by around 2.5 percent from last month's estimates, on lower production from Russia, and the former Soviet Union.

Worldwide wheat supplies are expected to drop by more than 15 million tons, with more than half of the reduction coming from Russia.

Russia has seen 10 million hectares (25 million acres), or a quarter of arable land destroyed in its worst drought on record.

Prime Minister Vladimir Putin earlier this month shocked markets by announcing that from August 15 Russia would ban grain exports to keep prices down at home and ensure there was enough feed grain for its cattle herd.

He has also slashed the grain harvest forecast for Russia, one of the world's top wheat producers, saying it would produce 10 million tons less than planned at 60-65 million tons.

The Agriculture Department said Russia would likely supply eight million tons less than expected "as continued extreme drought and record heat during July and early August have further reduced summer crop prospects."

Crop production in Ukraine and Kazakhstan would also fall by three million and 2.5 million tons respectively. In Ukraine crops have also been damaged by heavy summer rains.

But heat was also taking its toll in the European Union, with the 27-member-bloc expected to lower wheat production by 4.3 million tons.

The losses were expected to be partially offset by rising crops in India, the United States, Australia and Uzbekistan.

Analysts expect other countries to step in to fill the gap.

"We would expect to see a shift in the composition of wheat exports, with higher US wheat export numbers offsetting a lowering in Black Sea exports,"said analysts at Barclays Capital.

Wheat prices rose in US trade after the report was published.

earlier related report
Russia loses quarter of crops in drought: Medvedev
Moscow (AFP) Aug 12, 2010 - One quarter of Russia's crops have been lost in a record heatwave and drought, President Dmitry Medvedev said on Thursday, warning that many farms were now on the verge on bankruptcy.

"We have a very complicated situation because, as a whole in the country, around a quarter of the grain crops have been burned," Medvedev said. "The situation is hard. In some regions it is an emergency."

Russia has seen 10 million hectares (25 million acres) of arable land destroyed in its worst drought on record, dealing a body blow to hopes of boosting its status as a major grain exporter.

"Unfortunately many farms are on the verge of bankruptcy on account of the death of the harvest," Medvedev said in the southern town of Taganrog, in an address published on the Kremlin website.

Prime Minister Vladimir Putin earlier this month shocked markets by announcing that from August 15 Russia would ban grain exports to keep prices down at home and ensure there was enough feed grain for its cattle herd.

He has also slashed the grain harvest forecast for Russia, one of the world's top wheat producers, saying it would produce 10 million tonnes less than planned at 60-65 million tonnes.

The agriculture ministry said in a statement on Thursday that in light of the export ban, Russia would export only 2.0-4.5 million tonnes of grain in 2010, compared to 21.4 million tonnes last year.

Responding to public concerns about inflation, Medvedev said the authorities would not allow grain prices to rise and would keep a close eye on costs for food products such as flour, bread, meat and milk.

He said both market participants and ordinary people were worried about "how this extraordinarily hard summer would affect the prices of the most basic foodstuffs."

He ordered both the government and prosecutors to monitor the situation. According to the state statistics office, inflation for August 3-9 was 0.2 percent compared with 0.1 percent in the previous weeks.

Analysts have warned that the export ban risks seriously hurting Russian producers at a time when the country had been moving to dramatically increase its international market share.

Medvedev acknowledged the difficulties and said producers should be helped so they can prove they had no option but to comply with ban, allowing them to claim 'force majeure' when they fail to meet contracts.

"We have put producers involved in exports into a difficult position. Having done this, we must help them have the legal proof that (there) was a force majeure and it was not possible to fulfill deliveries.

"I want the government to give this the clearest attention."

Force majeure is an international legal concept which can protect parties to a contract from legal action and claims if they have been unable to fulfill the terms because of exceptional forces beyond their control.

Putin's shock export ban announcement last week catapulted global wheat prices to two-year high points and sparked worries that consumers could see price rises in the most basic food items such as bread.

The prime minister has said that despite the drought, Russia would be able to fulfill its own needs this year.

Russia requires 78 million tonnes of grain domestically and can cover the shortfall with 9.5 million tonnes from a state fund and 21 million tonnes left over from last year's harvest, the government has said.

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