Drought ruins Russia wheat, U.S. says no world crisis

KIEV/TAGANROG, Russia Thu Aug 12, 2010 1:18pm EDT

1 of 10. A firefighter attempts to extinguish fire outside the town of Shatura, some 68 miles southeast of Moscow, August 12, 2010.

Credit: Reuters/Sergei Karpukhin

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KIEV/TAGANROG, Russia (Reuters) - As Russia faced drought losses on a quarter of its grain area and Pakistan feared floods had ruined half a million tons of wheat, the U.S. government slashed world wheat crop estimates but said there was no global crisis.

The U.S. Agriculture Department (USDA) reduced its forecast for the world wheat harvest by 2.3 percent on Thursday to 645.73 million tons in its August report, below the 650.02 million tons traders expected.

But its authoritative monthly report said the world stocks-to-use ratio, the amount of wheat available in proportion to consumption, was estimated at 26 percent, well above the 20.3 percent seen in 2007/08 when food shortages sent prices soaring and led to riots.

The lowered estimate prompted a surge in Chicago wheat futures prices, which had fallen 10 percent from two-year highs touched last week. At 9:33 a.m. CDT (1433 GMT), CBOT September wheat futures were up 19 cents at $7.13-3/4 a bushel.

In Russia President Dmitry Medvedev, visiting southern agricultural areas of what has been the world's third biggest wheat exporter, said many farmers were close to bankruptcy.

"Grain has been lost on one quarter of the sown area," he said.

In response to its worst drought in a century, Russia has imposed a grain export ban which is due to come into force from August 15 to restrain domestic food prices.

Medvedev said the ban could be lifted before its planned December 31 expiry, depending on the harvest, although Prime Minister Vladimir Putin has said it could last into 2011.

Meanwhile, Russian Agriculture Ministry data showed the country may export no more than 4.5 million tons of grain in the 2010/11 crop marketing year and may have none to export after the ban expires on December 31.

"With a crop of 60-65 million tons exports may be 2.0-4.5 million tons," it said in a presentation.

Russia's farming anxieties were now focused increasingly on possible problems in planting of winter wheat, due soon for harvest next year, and even for next spring's planting campaign. A government commission on the drought was due to discuss this on Friday.

"(Winter) sowing is unlikely at least until September," Roman Vilfand, director of the Hydrometcentre, the Russian government weather forecasting service, told a news briefing.

"The will not be sufficient rains for the sowing until the last 10 days of August. There will be rains in the last 10 days but not very intensive."

Winter grains, mainly wheat, account roughly for 40 percent of Russia's total grain output.

UKRAINE CUSTOMS

Meanwhile in neighboring Ukraine, also hit by heat, the government was considering limiting exports of wheat and barley in the 2010/11 season, while traders said the Customs Service was already blocking shipments.

Ukraine, the world's largest exporter of barley and sixth-largest of wheat, is due to make a final decision on export quotas on August 18.

"According to the information we have, the government plans to introduce a quota on wheat and barley," Volodymyr Klymenko, the head of UZA union, told a news conference. "We have heard about the figure of 5 million tons for wheat plus barley."

In the 2009/10 season, which runs from July to June, Ukraine exported 9.2 million tons of wheat and 6.2 million of barley.

Traders said customs had virtually halted exports from Ukraine after a surge in domestic grain prices risked triggering rises in bread price. Klymenko said at least 15 grain vessels were in Black Sea ports awaiting permission to leave.

The Customs Service itself said it had prevented export of 28,500 tons of wheat because of incorrect paperwork.

US WHEAT PROSPECTS BRIGHT

The USDA data showed unexpectedly strong production forecast for the United States, which will be expected to fill any global deficit.

It pegged the 2010/11 U.S. all wheat crop at 2.265 billion bushels, helping maintain world wheat stocks about 40 percent above the crisis levels seen in 2007/08.

Washington was already preparing to grab the chance offered by Russia's export curb to meet demand in markets such as Egypt, the world's largest wheat importer and major Russian customer.

"There is no question this is an opportunity for us and we're going to take advantage of it," Agriculture Secretary Tom Vilsack said on Wednesday.

French analyst Strategie Grains on Thursday sharply raised its forecasts for European Union and U.S. soft wheat exports.

"Projected exports from several suppliers have increased to fill the gap left by Russia's export ban," it said.

EU soft wheat exports in 2010/11 were seen at 18.7 million tons, up almost 3 million tons from last month's estimate and now nearly in line with 18.8 million tons in 2009/10.

U.S. soft wheat exports were revised up almost 6 million tons to 33.6 million and now up 9.7 million on last season.

It put Russia's wheat exports at 2.1 million tons, down from 16.4 million seen last month.

While there was no global crisis was far away, the wheat situation in Pakistan was grim due to deadly floods.

Ibrahim Mughal, president of a national farmers' association, estimated up to 500,000 tons of wheat stocked with farmers has been washed away in Asia's third-largest wheat producer. A Food Ministry official said up to 600,000 tons of wheat stocks had been damaged or destroyed in the flood.

"The devastation to crops is immense. I think it's safe to say it will take some billions of dollars to recover, "U.N. humanitarian operations spokesman Maurizio Giuliano said.

(Additional reporting by Augustine Anthony and Michael Georgy in Pakistan, Charles Abbott and Roberta Rampton in Washington, Aleksandras Budrys in Moscow, Gus Trompiz in Paris. Writing by Anthony Barker, editing by Nigel Hunt)

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