Record US yields have limited the damage to world wheat production caused by weather damage to crops in Canada, Europe and Russia, a benchmark report has said, cutting crop estimates by less than investors had expected.

The US Department of Agriculture, in its benchmark monthly global crop report, made cuts of totalling 12.6m tonnes to its forecasts for wheat production in Canada, where crops have sustained heavy flooding damage, and the EU, Kazakhstan and Russia, where weather has been unusually dry.

However, the revision was in part made up by higher hopes for the harvest in America, where the USDA saw yields reaching a record 45.9 bushels per acre � 2 bushels per acre higher than its previous estimate.

Higher yields for hard red winter wheat, the type traded in Kansas, "more than offset lower yields for soft red winter wheat", the variety traded in Chicago, the report said.

The USDA also raised its forecast for the Chinese crop, after "favourable June weather boosted harvested areas and yields", leaving its overall estimate for world production at 661.1m tonnes, 7.5m tonnes below its previous forecast.

Price impact

The revisions fell short of the cut of up to 20m tonnes that investors had expected, prompting a 2.6% fall, to $5.20 � a bushel, in the price of Chicago's July contract in midday deals, local time.

Paris's November contract, the best traded lot, plunged to E152.25 a tonne, down 6% on the day, in the immediate aftermath of the report, before recovering to close down 0.9% at E161.00 a tonne.

London's November lot finished 0.1% higher at �119.00 a tonne.

'Significant revisions'

Indeed, Rabobank analysts found some reason for investors with long positions to cheer, noting the concentration of crop downgrades in Canada, Kazakhstan and Russia � three major exporting countries.

"These are significant revisions, and will tighten the available exportable surpluses and erode some stock levels from major exporting countries outside the US significantly in the 2010-11 season," the bank said.

China, for which crop hopes were raised by 2.5m tonnes, keeps its wheat for domestic consumption.

The USDA reflected America's improving export hopes with a 100m-bushel increase to 1.0bn bushels in its estimate for the 2010-11 crop year, which started this month.

It also lifted by $0.20 to $4.20-5.00 a bushel its expectations for farmgate prices, "as tighter world supplies and higher corn prices support wheat values".