US officials are poised to cut their world wheat crop forecast by up to 18m tonnes to reflect the drought ravaging the former Soviet Union, which has sent wheat prices soaring more than 40%.

Analysts, on average, believe that the US Department of Agriculture will cut its estimate for the harvest by 11m tonnes to 650m tonnes.

However, North America Risk Management (Narm) forecast a cut to 643m tonnes to reflect the degree of the challenges facing crops in the former Soviet Union, for which the broker sees the USDA cutting its estimate by 11m-12m tonnes alone.

Narm also expects further cuts to harvests in the European Union, which has also suffered dry weather, and Canada, where poor weather has set back the maturity of the crop, which could present difficulties getting the crop in before frosts strike.

While hopes for the US harvest have risen, further setbacks to crops in areas such as the Middle East account for the balance of the downgrade, Narm analyst Jerry Gidel told Agrimoney.com.

'The bold move'

Much of the debate about the level of the USDA downgrade surrounds the level to which the department will prove comfortable in making a large one-off change, rather than staggering its downgrade as extra evidence comes in and avoiding the embarrassment of reversing a revision.

"They are likely to come in with a conservative estimate [for crop losses] for now."

However, Mr Gidel said that his analysis showed that USDA statisticians had become more willing over the last decade "to make the bold move" on revisions.

"They have been more willing to let what they are hearing, what their information is, come to the forefront," he said.

"They have been making more bold steps than in the past."

Trade impact 

He added that, even if his 18m-tonne forecast – equivalent to output from a mid-ranking producing country – comes true, the downgrade would not all be reflected in the USDA's estimate for stocks at the close of 2010-11.

Attention will also focus on the degree to which the USDA sees Russia's export ban benefitting trade in other shippers.

Strategie Grains, the Paris-based analysis group, on Thursday lifted its estimate for European Union wheat exports by 3m tonnes, and for US shipments by 6m tonnes, putting them on course to beat last year's by 10m tonnes.

However, At FC Stone, Jaime Miralles noted the incentive given by Chicago's new variable storage rates, aimed at ironing out differences between futures and cash prices, to farmers to keep grain on farm.

"The US market enjoys variable storage rates that leave many producers more than happy to simply store and receive an assured profit than move storks out onto the export market," Mr Miralles said.