Rabobank downgraded its forecasts for Russia's wheat harvest, and exports, in one of the first attempts by brokers to put numbers onto damage from dryness which continued to send prices higher on Monday.

The bank cut its forecast for Russia's wheat production this year by 2m tonnes to 53m tonnes, below the US Department of Agriculture's forecast of a 56.0m-tonne harvest.

"Overwhelmingly dry conditions across the southern Russian wheat growing region leaves the crop at risk of a substantial downgrade and, importantly, threatens to tighten the world's exportable wheat surplus," the bank said.

"While it is getting late in the crop's agronomic development to see major yield downgrades, the forecast continues to look dry, and further crop damage is a risk."

Small upgrade

The comments, which follow a caution earlier on Monday from Black Earth Farming over Russian dryness, came as Rabobank edged higher – a little – its forecasts for wheat prices.

The estimate for average Chicago wheat prices in the current, April-to-June quarter was nudged up $0.10 a bushel to $6.40 a bushel.

Wheat's firm downward trend until the last few days "suggests it may be difficult to sustain upward momentum, with any rallies being followed by a strong sell-off and we expect further bullish fundamental news will be needed to break this bearish range".

And, indeed, Chicago's July wheat contract, having soared 3.8% to $7.22 a bushel in early deals, briefly retreated into negative territory as weather forecasts added rain into the Russian outlook.

"A wetter outlook for the former Soviet Union in the overnight weather models inspired profit-taking, with the Chicago wheat market some 30-cents a bushel off the highs of the session," US broker Benson Quinn Commodities said.

'Stealing yield potential'

However, prices revived amid talk, that Agrimoney.com has been unable to verify, of fires in wheat-growing areas of Russia.

"Forest fires now being reported as being widespread in the dry areas of the Russian wheat country, this is the similar to the pattern that was established in 2007-08. and why the trade is so nervous about wheat production now," Mike O'Dea at FCStone said.

Furthermore, traders logged continued concerns about dryness in China and the US,

In the US, "the weather has turned warm and dry and is now stealing yield potential", US Commodities said.

"The central and western plains will be very hot this week.  Kansas, South Dakota and Nebraska will all have temperatures that approaches or moves over 100 degrees Fahrenheit."