Grain prices, which have more than doubled since the onset of the Russian drought, have been further supported by a reduction in the global harvest forecast.

The record drought has seen the Russian government reduce estimates of the 2010 grain harvest to 60-65 million tons.

It announced a temporary ban on grain exports from August 15 to December 1 to shield domestic consumers from price hikes. But the ban caused global grain prices to surge to more than $8 per bushel, despite analysts saying there is enough grain to go around. Karen Ward, Global Chief Economist, HSBC says the risk is if market begin to price in rising expectations about food prices.

“The danger is that, given we’ve been through 2007-08 and we saw wheat price rises precede other price rises in other commodities. The danger is that financial markets start to anticipate price growth in other commodities, and that’s actually then what causes a more general food price hike. So whilst the fundamental don’t point to rapid price gains across all of these different markets, I certainly think there are some risks that we need vigilante of.”

Global prices gained more support when the US Agriculture Department reduced its global wheat harvest forecast by 2.3%. But it noted that global supplies were more than they were during the 2007-2008 grain crisis.

The Russian grain export ban has local producers looking to shore up their position in the global market over the longer term, according to Ivan Obolentsev, President of Agroprom Union.

“The competition on the international food market is extremely high, and food issue is the most sensible on the international market. There are resources in the world and it will be supplied by somebody. A range of countries – North Africa, Bangladesh, Egypt – they need grain anyway. We need to continue talks with those countries. We need to think about – if next year we will have good harvest and we will return to international market – how we would manage that with the competitive price.”

Russia has already ceded its position as the world’s third largest grain exporter, with rival producers such as the US, France and Australia ready to capitalize. With domestic prices rising despite the ban, Russian grain producers hope that they can retain their position in an increasingly tough global marketplace.