Intense competition among exporters has depleted Russia wheat stocks held by farmers to their lowest in nine years, SovEcon said, fuelling a rebound in futures from early lows.

Russia's on-farm stocks of all grains fell 18% in the year to August 1 to 15.73m tonnes, their lowest since 2006, Moscow-based SovEcon said.

The decline was led by wheat, for which inventories held by growers slumped by 30% to 10.61m tonnes.

The drop in supplies, in sharpening ideas of limitations to Russia's supplies, with a drought-hit harvest this year, was credited with helping wheat prices recover losses to stand 1.5% higher in Chicago in morning deals and notch up similar gains in Europe.

London wheat for November hit a contract high of £199.50 per tonne at one point.

With further talk too of dryness in Western Australia, Australia's top grain producing state, "that is two supportive bits of news in a matter of minutes", Jonathan Lane at UK grain merchant Gleadell said.

Furthermore, Strategie Grains cut 3.9m tonnes from its forecast for the European Union grains harvest.

'Pretty low margins'

The decline in Russia's on-farm stocks, which comes against a backdrop of concerns of the government imposing grain export restrictions later in the season to preserve supplies, reflects heightened competition between shippers, Andrey Sizov, SovEcon managing director, said.

The early sales, ahead of the market rally, likely left some shippers with loss-making deals, and while margins appear to have returned to positive they remain "pretty low", and reliant on Russia's VAT rebate, worth 10% of orders.

Without the rebate, wheat export prices of $310-315 per tonne, compared with costs at port of $300-303 per tonne and costs of $30 per tonne implied a loss.

"Usually they manage to make the VAT rebate and a couple of bucks," Mr Sizov told Agrimoney.com.

Russian vs foreign merchants

The extent of competition reflects an interest from both domestic and foreign groups in Russia's export market, which hit a record 21.6m tonnes for wheat in 2011-12, up from 4.4m tonnes a decade before and levels of 1m tonnes or less a year through the 1990s.

Oleg Deripaska, the Russian aluminium billionaire with substantial agricultural interests in Krasnodar, has said his farm operations will export directly, while port investor Summa Capital is attempting to grow in the sector, buying a 50%-minus-one-share stake in state-controlled trader United Grain Co.

However, "foreign groups have been increasing their share", Mr Sizov said, noting the rise of Swiss-based Glencore, US-based Bunge and France's Louis Dreyfus.

Singapore's Olam International "has been aggressive" in winning business.

Of the three high-profile orders of 60,000 tonnes of Russian wheat made by Egypt in the last week, one has gone to Egyptian grain trader Venus, one to Glencore and one to Soyuz, which is based in Switerzland but owned by Summa Capital.