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Wheat renews rally as Russia fears spread to 2011

Wheat prices renewed their upward path, reaching their highest for nearly two years in Paris, after SovEcon analysts cut their forecasts for Russia's harvest yet again, and warned over drought setbacks to next year's crop.

The Moscow-based analysis group revised to 70m-75m tonnes, from "below 75m tonnes", its central forecast for this year's grain crop, the fourth cut in less than a month.

However, it warned that the figure may turn out to be below 70m tonnes, once the degree of losses to the country's worst drought in 130 years becomes more apparent.

"A significant part of the sowings, mainly along the Volga river, has been lost," SovEcon said.

"The dimensions of losses may become clear after the harvesting ends there and in the central part of the country at the end of August."

Need for moisture

And it warned that the drought could affect next year's crop, given that sowings of winter grains in some regions along the Volga river is only some three weeks away.

Should drought delay plantings, seedlings may face a race to develop sufficiently to be in a condition to see off winter cold.

"In many regions only sustained rains may raise soil moisture content to normal levels," SovEcon analysts said.

It was their initial cut  to its Russia grain forecast, at the end of last month, that raised global alarm bells over the threat to the crop in a country which, in 2009-10, was the third-ranked wheat exporting country, and overtook the US in production.

Quality questions 

Separately, Russia's deputy economics minister, Andrei Klepach, hinted at a further downgrade to official forecast of an 80m-85m-tonne harvest, saying that "now, we believe the outcome of the year may be less than 80m [tonnes]".

And the Russian Grain Union also cut its harvest estimate, to 75m-78m tonnes from 81m-85m tonnes.

The union, a lobby group which shares the headquarters of Russia's farm ministry, has been amongst the most optimistic forecasters, earlier this year saying the harvest could top 100m tonnes, ahead of last year's 97m-tonne result.

In neighbouring Ukraine, Mykola Prysyazhnyuk, the agriculture minister, warned of a lower quality crop, estimating the weight of food wheat in this year's harvest at 9.0m tonnes.

"The quality of wheat will be much lower than we had expected," Mr Prysyazhnyuk said, according to the Zernoua news agency.

'Lit the fire' 

The revisions helped wheat overcome early weakness in Chicago to return above $6 a bushel at one point, before closing at $5.95 a bushel, up 0.9% on the day.

In Paris, November wheat hit E184.25 a tonne, the highest for a nearest-but-one contract since early September 2008, before losing some ground to closed at E180.75 a tonne, up 1.8% on the day. London's November contract ended 1.7% higher at �133.20 a tonne.

"It's the SovEcon revisions which have lit the fire under the wheat rally again today," Alex Bos at Macquarie told Agrimoney.com.

Yield progress

SovEcon said that its latest forecasts reflected expectations of a continued decline in yield results as harvest progresses.

Currently, yields were running 12.5% lower than last year, a figure which, combined with a drop of about 20% in sowings, pointed to a crop of some 77.4m tonnes.

However, early harvest results had been boosted by decent yields in the northern Caucasus region, which had enjoyed better rains.

Forthcoming results in Siberia and, in particular, the Urals are expected to accelerate the yield decline.

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