Investors may prove premature in ringing alarm bells over Russia's grains crop, but that doesn't mean the boost they have given to wheat prices, up 10% so far this week in Chicago, is unwarranted.

There is still time to avoid anything like a repeat of 2010, when the country's wheat production tumbled by one-third to 41.5m tonnes, sapped by the parching Sukhovey winds, which one farmer memorably commented baked potatoes in the ground.

I was not until late June that year that the threat to crops became really apparent.

Rains in the next few weeks could yet lift much of the threat to yields in southern Russia, which has suffered a dearth of rain and where temperatures have topped 85 degrees Fahrenheit and averaged some 8-15 degrees above average, according to Martell Crop Projections.

Changing expectations

After all, early summer rains did the trick in Europe a year ago.

A dry spring raised alarm in particular for crops in major producers such as France and the UK, only for timely precipitation to repair much of the damage.

Strategie Grains in mid-June last year cut by 5m tonnes, to 125.6m tonnes, its forecast for the European Union soft grains harvest, as production fears ramped up.

In mid-July, it upgraded the estimate back to 130.2m tonnes, as concerns for drought damage subsided again.

Geography factor 

But investors are right to act quickly in adding quite a risk premium into wheat prices – if worst fears for Russia are realised, the impact on global supplies could be more severe than in 2010.

Sure, the inventories of 197m tonnes with which the world is expected to head into 2012-13, while some 5m tonnes smaller than two years ago, appear ample.

Even excluding Russia and its neighbours - reflecting that they might do in terms of world trade if their crops struggle - the total remains above 170m tonnes, a comfortable 25% of forecast demand.

But that disguises the undue amount essentially unavailable for global buyers - stored in countries with little history of exports. China and India alone account for nearly 80m tonnes between them.

Export squeeze?

The stocks with which the US and other major exporters, such as Australia, Canada and the EU, will enter 2012-13 are estimated by US officials at less than 50m tonnes – 8.8m tonnes less than these countries had in store ahead of Russia's 2010 crop disaster.

And these stocks are expected to fall further over 2012-13, to 46.4m tonnes, even assuming Russia has a decent harvest, enough to support its own exports of 18.0m tonnes.

The wheat market can afford a Russian crisis this year even less than it could in 2010. A little price rationing now hardly looks like overkill.