Extreme dryness in key wheat-growing regions of Russia is stoking fears of further crop losses for the country, market participants said Tuesday, but neighboring Ukraine is expected to see some relief from adverse growing conditions.

"The damage has been done in the Volga valley, with crop losses in Rostov and Stavropol likely to be pretty permanent after little recent rain and high temperatures," said Rabobank grains analyst Nicholas Higgins. "There is a little bit of rain on the horizon which could be the start of a positive trend, but certainly won't be enough to allay fears of further crop losses."

The world market is still wary of extreme weather affecting Russian production, and consequently its grain export levels, after the key supplier temporarily introduced an embargo in 2010 after devastating drought cut its harvest by around a third. The current problems aren't yet seen as severe enough to prompt speculation of possible restrictions on exports, but the situation will be closely watched in case it escalates.

Rainfall has been fairly rare in Russia since the beginning of April, with temperatures averaging around five degrees Celsius higher than average, Agritel said Tuesday. The French farm-advisory service said that a continued lack of rain could cause damage to crops, with fears about water deficits concerning farmers in the Volga, Ural and Siberian regions of Russia.

Rabobank's Higgins said that trade estimations of Russia's wheat exports for 2012-13 are decreasing and the situation doesn't look good without significant rain in the aforementioned regions. He expects exports of 16 million metric tons, while the USDA's most recent forecast is for 18 million tons.

Agritel said that much-needed rain is expected in Ukraine over coming days, but currently projections show that it will lose intensity upon reaching the Russian border, meaning the water deficit could remain in the areas already most affected.

Higgins said Ukraine may have the power to limit exports but given current domestic prices and stocks from last year's "unbelievably good" crop, the prospect shouldn't be too worrying. The country has a very large carryout in 2011-12--the highest ending stocks for wheat since 1994-95--that will support its ability to carry out a full export regime, he said.

MDA EarthSat Weather said Monday that rains should remain active across northern and western Ukraine and central Volga Valley this week, which will maintain abundant moisture there. However, the forecaster said notable dryness will continue in southeastern Ukraine and southwestern Volga Valley.

-By Michael Haddon, Dow Jones Newswires; 4420-7842-9289; michael.haddon@dowjones.com

(END) Dow Jones Newswires

May 15, 2012 12:44 ET (16:44 GMT)