The rally in European crop prices gained fresh legs, with the "crazy" rapeseed market hitting its highest for nearly two years, as German farmers cut harvest hopes and fears mounted over Black Sea production.

Paris wheat jumped 2.9% on Wednesday to close its highest since September 2008, with London wheat adding the same to a one year high.

Paris rapeseed gained 1.7% to close also at its highest since September 2008.

The rises followed continued concerns over the worst drought in a century in Russia, a big competitor to the European Union on grain export markets, where the government has declared a state of emergency in 16 growing regions.

Late in the day, Informa Economics cut its estimate for the Russian harvest by 2m tonnes to 51m tonnes, with its forecast for the crop in Kazakhstan slashed by 3m tonnes, and in Ukraine, the other Black Sea producer, by 1m tonnes. Reports said that Ukraine's government was also considering a downgrade. 

"The crop downgrades just keep coming, and that is maintaining investors' interest [in wheat]," a City analyst told Agrimoney.com.

Estimate cuts 

Indeed, Deutscher Raiffeisenverband (DRV), the German farm co-operative, cut to its crop forecasts following dry weather.  Germany is the European Union's second-ranked grain producer and biggest rapeseed grower, responsible for more than one quarter of the region's output of the oilseed.

"The continuing heat has caused over-proportional damage, especially to wheat and maize plantings and late sowings of summer grains," the DRV said, adding that it could not rule out further estimate cuts if hot weather continued.

The DRV cut its grains crop forecast by nearly 3m tonnes to 44.2m tonnes, pegging the rapeseed harvest at 5.62m tonnes, nearly 300,000 tonnes below its last estimate.

France vs Germany 

Alex Bos, commodity analyst at Macquarie in London, said that Germany's crop situation now looked a "bit more of a problem than that in France", the EU's top-ranked grain grower, which has also suffered hot weather.

The comments come amid some debate over which of the grain giants has been worst hit by dry weather, with FO Licht analysts earlier this week focusing on France its downward revisions to Europe's crop hopes, while Strategie Grains last week lowered estimates in the main for Germany.

However, Mr Bos urged caution over expectations of further price gains for now, ahead of evidence of actual yields due from core French wheat-growing areas.

"We need to see some yield reports coming from France in the next week or two to see which way these will take market," he said.

'Very dangerous'

His comments were echoed by Jonathan Lane, trading manager at UK grain merchant Gleadell, who said that initial reports, from the south west of France, had provided evidence for both bearish and bullish investors, with yields showing wide variations.

However, the market was placed in a "very dangerous" situation until expectations of weak crops were realised, adding that the rapeseed market had "gone crazy".

Wheat for November, the best-traded lot, finished up E4.75 at E165.50 a tonne in Paris, and up £3.60 at £122.00 a tonne in London.

Paris rapeseed for August delivery ended E5.75 higher at E359.00 a tonne.