WRAPUP 2-Wheat prices soar as Russia curbs exports

* Russia bans grain exports until Dec. 31

* U.S. benchmark wheat futures hits 23-month high Wc1

* Dealers fear bubble, foresee sharp sell-off

By Aleksandras Budrys

MOSCOW, Aug 5 (Reuters) - Russia's worst drought in a century prompted one of the world's biggest wheat growers to ban grain exports for the first time in 11 years, sending already red-hot benchmark U.S. wheat prices to a fresh 23-month high.

Prime Minister Vladimir Putin on Thursday announced a temporary ban on grain exports to keep inflation in check, pledging billions of roubles to the farm sector. [ID:nLDE67413C]

"I think it is advisable to introduce a temporary ban on the export from Russia of grain and other agriculture products made from grain," Putin told a government meeting.

Putin signed an order banning exports of wheat, barley, rye and maize, as well as wheat and rye flour from Aug. 15 to Dec. 31, the government press office said, adding it planned to ask for a similar ban from customs union partners Belarus and Kazakhstan.

Trading in September wheat WU0 on the Chicago Board of Trade went into overdrive, rising by a limit-up 60 cents to $7.85-3/4 by the close of the electronic session, a high for the contract and a 23-month peak for front-month prices. <GRA/>

Benchmark wheat prices in Chicago and Paris have now added 69 percent and 58 percent respectively since the start of July.

AT DROUGHT'S MERCY

With Russia at the mercy of its worst drought since records began 130 years ago Putin pledged 10 billion roubles ($335 million) in subsidies and another 25 billion roubles in loans to the agricultural sector, adding that grain from the government intervention fund will be distributed to regions. [ID:nWLA0253]

Last year, buoyed up by bumper harvests in 2008 and 2009, Russia exported 18.3 million tonnes of wheat, a total only exceeded by the United States and the European Union, according to International Grains Council figures.

But Russia's ambitions to take more market share have taken a dent from the drought.

"An export stop by Russia means the cards are reshuffled in the international wheat market. It would open up huge new opportunities for west European and U.S. sales. The implications would be huge," a Europe-based trader said.

GASC, the main state wheat buyer for Egypt, the world's biggest wheat importer and a major buyer of grain from the Black Sea region, said it hoped Russia would honour existing wheat contracts after Putin's export ban announcement. [ID:nWEA3242]

GASC has signed contracts for the purchase of 540,000 tonnes of wheat from Russia and some in the markets fear contracts may unravel as players scramble for grain.

The sharpest monthly gains in front-month wheat futures since at least 1959 are affecting the physical market, causing delays to Black Sea wheat shipments as dealers eye prices well above the levels at which contracts were signed. [ID:nSGE6720CW]

"There's always defaults in a market that goes up this far this quickly," James Dunsterville, head analyst with Geneva-based AgriNews, said earlier this week.

FOOD CRISIS OVERPLAYED

Fear about a repeat of the 2007/08 food crisis when wheat prices topped $13 a bushel has been a major driver in the wheat rally, but the United Nations Food and Agriculture Organisation said on Wednesday that such concerns were not justified.

The FAO said world stocks, especially those held by major exporters, were enough to cover expected production shortfalls after two consecutive years of record crops. [ID:nLDE6731R7]

"External factors, including the macroeconomic environment and developments in other food markets, which were major drivers behind the surge in international prices in 2007/08, are not posing a threat so far," the FAO said.

Some market players agreed, taking on board the role of speculators in the current spike.

"A (Chicago) market that gains $1 in four days is not a fundamental one," a trader said. "The pullback if it happens will be all the more severe.

"It's a financial players' market, they'll take it where they want," he added.

The Russian government imposed a ban on grain exports from January to May 1999 during a period in which it received food aid after its disastrous 1998 harvest.

Russia obtained a $1.5 billion package of food aid from the United States and the European Union in 1999 to offset the impact of the worst grain harvest in decades of 48 million tonnes and a rouble currency devaluation.

Russia restricted exports by high export tariffs in 2004 and 2007, simultaneously selling grain from government stocks to domestic consumers.

(Writing by Veronica Brown; editing by Keiron Henderson)