Tight European wheat supplies mean that any fallback in world prices is likely to prove short-lived, besides wreaking a "dramatic impact" on spreads between Paris and Chicago values, Societe Generale said.

The bank said that wheat prices could come under some pressure as alarm subsides at the decision by drought-struck Russia, the world's third-ranked wheat exporting country last year, to ban shipments.

"Prices could decrease further in the weeks ahead as the sense of panic recedes," Societe Generale analyst Emmanual Jayet said.

However, markets may then resume "an upward trend", particularly in the European Union, which will pick up trade from Russia at a time when its own crop has been reduced by weather extremes.

"The availability of European wheat exports could soon be tested," Mr Jayet said, in comments ahead of a further victory by French grain in an Egyptian milling wheat tender.

'Dramatic impact'

The US Department of Agriculture, whose estimates set global benchmarks, has forecast that Europe's extra wheat exports will erode the region's stocks to a 15-year low of 10.1m tonnes at the close of the 2010-11 season.

"And this forecast is based on additional exports of only 4m tonnes, compared with the 15m tonnes needed to replace banned Russian exports," Mr Jayet said.

Such estimates would have a "dramatic impact" on the spread between Chicago's wheat prices and those in Paris, which had lost their discount of the last two years to become about $20 a tonne more expensive.

"It is worth noting that the spread traded as low as -$60 a tonne during the two previous crises in 2003 and 2007-08."

He added that "the foreseen tightness in European wheat should support US prices in the coming months, even though US stocks are likely to remain at a comfortable level."

Crop downgrades

Paris wheat prices have recovered from the early-August collapse in grain prices to post gains of 5.0% over the past two weeks. Chicago wheat has fallen by 2.3% in the same period.

In London, which trades feed wheat, prices are flat, losing ground over Paris thanks to expectations that a rain-plagued harvest in northern and eastern parts of Europe will demote some crops planted as milling grain to feed quality, besides denting yields.

DBV, the farmers' co-operative, on Wednesday pegged the crop in Germany, the second-ranked EU wheat producer, at 43.9m tonnes, down 12% year on year, and marginally below the 44m-tonne estimate from Toepfer analysts earlier in the week.

In Kiev, UkrAgroConsult analysts cut by 800,000 tonnes, to 40.4m tonnes, their forecast for Ukraine;s grain crop.

Chicago wheat for September finished 4.0% lower at $6.47 ¾ a bushel.

Paris wheat for November ended 0.1% higher at E214.00 a tonne, with its London peer up 0.4% at £147.30 a tonne.