On Wednesday, European wheat futures exploded to a new high as rumours swirled that Russia’s exports in the year ahead would be slashed by drought. Rapeseed wasn’t quite as strong today, but is holding at a high level.

Tuesday the Russian Deputy Economy Minister Andrei Klepach said his nation’s total grain production could end up around 80 million tonnes. That would be down from an earlier government estimate of 85 million. However, many trade guesses are already 5-10 million tonnes lower, with more hot and dry weather expected this week.

It is already clear that production will be way down from last year. The USDA pegs last year’s total Russian grain output at roughly 93.5 million tonnes. Wheat comprised around two-thirds of that amount.

As crop production estimates come down, some guesses suggest that Russia’s wheat exports could plunge to the ballpark of 11-12 million tonnes in 2010-11. There are even rumblings of a temporary halt to exports, as government officials assess the situation. In comparison, the USDA estimates that Russia exported 17.5 million tonnes of wheat in 2009-10.

Meanwhile, crops in Germany, France and some other parts of the European Union are also suffering from excess heat and a lack of rain.

In response, the NYSE Euronext milling wheat futures traded in Paris rocketed up more than 4% to a new high. The November contract ended at 188.50 Euros. That represents a 35% spike up since early July, and a 45% advance since where it traded during March and April.

Although wheat was the star today, European rapeseed futures are still performing very well. This is no surprise, as the areas in Russia and the Black Sea region where wheat is suffering from drought also produce some sunflowers, canola/rapeseed and other oilseed crops. Therefore, there has to be at least some moderate declines in production, making world users all that much more dependent on the ability of U.S. farmers to put out a big soybean crop. In addition, the Canadian canola crop was irreparably damaged by flooding this spring.

The Euronext November rapeseed future ended Wednesday at 358 Euros. That was just below the high around 370 made last week – and represents a strong 25% advance since March.