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WASHINGTON (Reuters) - The U.S. government is set to forecast a bigger decline in world wheat stocks and a modest drop in global production as Russia's worst drought in over a century halts exports and threatens to whither the next crop.
After weeks of unrelenting heat forced Moscow to halt wheat exports for the rest of this year and sent prices surging more than 90 percent since June to a two-year high, traders are now looking to the U.S. Agriculture Department's monthly report as the most authoritative gauge of market fundamentals.
It is expected to cut its forecast of the world wheat crop by 11 million tonnes or 1.6 percent from last month's report, according to a Reuters poll of traders. It would be the third downgrade in three months by USDA, which often is cautious about sweeping revisions.
Since May, USDA has trimmed its forecast by 11 million tonnes, to 661 million tonnes for 2010/11. For the first time in three years, the world would eat more wheat than it grows. As a result, reserves would fall to 187 million tonnes, down 3 percent, by the end of 2010/11, USDA estimated in July.
The August report is also the first estimate of U.S. corn and soybean yields and output based on field surveys. Record-large crops are expected but traders are consumed with only one question: how much worse can it get for wheat?
"There is going to be a primary focus on the world balance sheet," said Shawn McCambridge, grains analyst for Prudential Bache Commodities in Chicago.
Traders expect a Russian wheat crop of 46.5 million tonnes, compared to USDA's estimate in July of 53 million tonnes. Russia harvested 61.7 million tonnes in 2009 and exported 17.5 million tonnes. Moscow has banned grain exports from Aug 15-Dec 31. Russia ordinarily is the No 3 wheat exporter.
The drought also is ravaging Ukraine and Kazakhstan and raised fear of a global food crisis like 2007-08 when prices soared and tens of millions of people were unable to buy enough to eat.
Most analysts are skeptical of a looming food crisis. They say wheat shortfalls in Russia will be stauched by surpluses in other major nations after three years of bumper crops.
The United States, the world's biggest wheat exporter, has nearly a four-month supply of wheat. With a hefty crop this year, the surplus could grow to a half-year supply.
"It's a windfall for U.S. wheat farmers. They are going to get a substantial premium on prices they were looking at a month ago," said McMinimy.
On the domestic side, traders said they expected USDA to estimate a record corn crop of 13.279 billion bushels was likely and a near-record 3.357 billion bushels of soybeans. The estimates are based on interviews of farmers, field surveys and satellite imaging among various sources.
The U.S. wheat surplus will drop to 962 million bushels at the end of 2010/11, 12 percent lower than now forecast, due to larger exports, said traders.
Graphics by Jasmin Melvin; Editing by Russell Blinch