KANSAS CITY — First rumors, then confirmation in early August that Russia would ban grain exports from Aug. 15 through the end of 2010 due to extreme drought sent U.S. wheat futures prices skyrocketing, then plunging back to earth with limit losses in the same week, somewhat reminiscent of the extreme volatility seen in 2008 when many grain and oilseed prices soared to record highs.

While the Russian situation appears the most severe, several other key wheat producing areas are being watched, including Europe, and have seen crop prospects diminish.

Most reports have indicated the drought in Russia to be the worst in 100 to 130 years, and some even suggested it is the worst in 1,000 years. So far the heat, fires and stifling smoke and smog have resulted in thousands of deaths. The drought also has devastated the nation’s crops and drastically reduced export prospects, especially for wheat.

The prolonged drought also has raised concerns about production of winter crops for harvest in 2011. Seeding typically starts in August. Sources from within Russia estimate winter crop seeding could be reduced by a third, although the area likely would would be sown to spring crops, which could result in lower yields. The situation appeared less severe in Ukraine, where farmers were expected to plant despite the dryness. Winter wheat accounts for about 40% of Russia’s production and 90% of Ukraine’s outturn.

U.S. wheat futures prices soared nearly $1 a bu to near two-year highs on Aug. 5 when the Russian export ban was announced. But prices gave back most of those gains on ideas the run-up was excessive, until the U.S. Department of Agriculture’s World Agricultural Supply and Demand Estimates (WASDE) released Aug. 12 again resulted in strong gains, but closing prices still were well below the previous week’s highs.

The U.S.D.A. in its Aug. 12 WASDE projected 2010-11 Russian wheat production at 45 million tonnes, down 15% from its July projection of 53 million tonnes and down 27% from 2009-10 outturn of 61.7 million tonnes. The U.S.D.A. last week cut its 2010-11 export projection for Russia to only 3 million tonnes, down 80% from 15 million tonnes in July and down 84% from 18.5 million tonnes in 2009-10.

“Severe and persistent drought has sharply reduced yield prospects in Russia’s Central, Volga and Ural districts,” the U.S.D.A. said in its World Agricultural Production report on Aug. 12. “Ministry of Agriculture harvest data from Aug. 4 indicate that wheat yield is down 39% from last year in the Volga district and down 37% in the Central district.” But the report also noted yields in Russia’s Southern and North Caucasus districts were up 6% to 8% from a year ago.

Wheat areas to experience production estimate cuts from July or last year included Canada, the European Union, Kazakhstan and Ukraine, with the latter nation most likely to join Russia in restricting exports in some way. Ironically, some were suffering from too much rain.

Canadian wheat production was forecast at 20.5 million tonnes, down 23% from 2009-10 as plantings were delayed and acres were lost to a wet spring. Wheat outturn in the E.U. 27, the world’s largest wheat producing region, was projected at 137.51 million tonnes, down 3% from July but down only slightly from 2009-10, the result of wet conditions in the east and dry conditions in the west. Ukraine’s production was forecast at 17 million tonnes, down 15% from July and down 19% from 2009-10, due to excessive moisture, with Kazakhstan’s outturn at 11.5 million tonnes, down 18% from July and down 32% from last year, due to the same drought that is affecting Russia.

The crop problems translatted into a reversal of fortune for exporters in the United States and some other wheat exporting countries. After dismal exports in 2009-10, foreign sales of U.S. wheat already had picked up significantly in the current marketing year, which began June 1. Through Aug. 5, year-to-date export sales commitments of U.S. wheat were 44% ahead of the same period in 2009-10, the U.S.D.A. said in its latest weekly Grain Export sales report.

Last week the U.S.D.A. projected 2010-11 exports of U.S. wheat at 1,200 million bus, up 20% from July and up 36% from 881 million bus in 2009-10.

“Exports are projected 200 million bus higher (than in July) with declines in foreign production, particularly in the F.S.U.-12, reducing global supplies and making U.S. wheat competitive in key Middle East and North Africa markets,” the U.S.D.A. said.

The U.S.D.A. last week also increased export projections for Australia by 1 million tonnes from July and for the E.U. 27 by 1 million tonnes, despite its lower production forecast.

The U.S.D.A. projected world wheat production at 645.73 million tonnes last week, down 15.34 million tonnes, or 2%, from July and down 34.57 million tonnes, or 5%, from 680.3 million tonnes the previous year. World wheat ending stocks for 2010-11 were projected at 174.76 million tonnes last week, down 7% from July and down 10% from last year, but second highest in the past six years after 193.97 million tonnes in 2009-10. FBN