By Aleksandras Budrys and Michael Hogan
MOSCOW/HAMBURG (Reuters) - Rains have improved winter grain sowing conditions in some parts of Russia's European region but Germany, the EU's second-largest wheat producer, is facing crop damage because of late rains.
Problems in Germany, which together with France is a powerhouse of EU grain production, could cloud the picture in a market in which Russia's main rivals the United States, Canada, Australia, Argentina and the EU are hoping to exploit its woes.
Germany's 2010 grain crop is likely to fall to around 44 million tonnes from 49.7 million last year, leading grain trading house Toepfer International forecast.
German crops have suffered from an early summer heat wave followed by heavy harvest-time rain, which has hit quality.
Grain markets paused on Tuesday as equities fell on concerns about a faltering global recovery but traders say prices are underpinned by Russia's drought that forced an export ban and may mean the top-three wheat exporter turns major importer.
Wheat prices hit two-year highs early in August as Russia's worst drought in a century burnt crops and sparked wildfires, battering Russia's hopes of building its grains infrastructure to the point it could challenge for market dominance.
"The Russian disaster (may) also (have) had more lasting impact which may prevent wheat prices from returning to their previous level," Emmanuel Jayet, analyst at Societe Generale said, referring to lows before wheat started to rocket.
PATCHY RAIN
The outlook for plantings of winter wheat, vital to Russia's grain campaign next year, received only patchy good news from recent rains, which have not penetrated into all of the country's main breadbaskets.
This could yet return to haunt Russia as the United States completes a solid wheat harvest and conditions turn more favourable for Australia.
The Bureau of Meteorology on Tuesday forecast a 60-65 percent chance of above-average rainfall over the September-November spring period for much of southwest Western Australia, which is the country's largest grain-exporting area.
Government officials have denied Russia, whose ambitions to transform itself into the world's largest grain exporter have been knocked by a severe drought in many producing regions that destroyed large swathes of crops, will need imports.
Meanwhile the wider impact of the drought has already rippled into the economy, with data earlier this month showing inflation pressures had picked up.
EU WHEAT IN VOGUE
EU wheat has proven popular as buyers jockey for grain on international markets in the wake of the Russian grain ban and as Ukraine's government on Wednesday prepares to take a final decision on whether to halve its own grain exports.
On Monday Jordan bought 100,000 tonnes of German wheat, its second purchase this month to build stocks after drought cut supplies of cheaper Black Sea grain.
Jordan bought another 100,000 tonnes of German wheat from the same supplier on August 12, which was its first non-Black Sea wheat contracted in several years.
Lebanon's purchase of 50,000 tonnes of wheat from the U.S. and optional suppliers Canada or Germany was another sign that potential customers within range of the Black Sea exporters were looking elsewhere for grain.
"This looks like U.S. supplies are starting to come into markets right on Russia's front door," one European trader said. "Russia has been a major supplier to Lebanon in past years."
With harvesting drawing to a close in France, the wheat crop was confirming expectations for good milling quality, with little impact on quality from rain which hampered work this month in northerly regions.
This puts France in a strong position to challenge for markets keen to secure grain from Russia and its Black Sea neighbours Ukraine and Kazakhstan, which have seen their own harvests set back by weather.
(Writing by Keiron Henderson; editing by Veronica Brown)
