Wheat prices on the Chicago exchange hit a 23-month high Thursday after Russian Prime Minister Vladimir Putin announced a temporary ban on grain exports.

"We cannot allow an increase in domestic prices and we need to maintain the number of cattle," he told a cabinet meeting.

Russian Prime Minister Vladimir Putin meets with fire-fighting pilots Wednesday. The same drought that has caused wildfires in Russia has led Putin to ban grain exports. (Denis Sinyakov/Associated Press)

A government spokesman said the ban would take effect Aug. 15.

Wheat prices on the Chicago Mercantile Exchange rose by its daily limit of 60 cents to above $7.85 US a bushel. That's up almost 80 per cent in a bit more than a month.

A 42 per cent jump in July alone was the biggest monthly gain in at least 51 years.

Russia is the world's third-biggest exporter of wheat, but earlier in the week the government cut its forecast for this year's grain harvest to between 70-75 million tonnes because of the driest conditions in decades.

The drought — which has also spurred hundreds of wildfires — has already destroyed a fifth of Russia's wheat crop, and forecasters predicted continuing hot and dry weather there.

Last year, Russia exported 21.4 million tonnes of grain.

"It almost feels like no one thinks it is going to rain in Russia anymore or ever again," said John Sanow, an analyst with Telvent DTN in Omaha, Neb. There's some talk that if it stretches into the fall, it could affect 2011 production."

UN cuts production forecast

On Wednesday, the United Nations' food agency cut its forecast for production in 2010, citing bad weather not only in Russia but also other countries.

Flooding in Canada has led to a record level of unseeded acreage on the Prairies. Excessive moisture conditions also affected the U.S. corn belt in late spring, and China has been hit by flooding.

The UN's Food and Agriculture Organization cut its wheat production forecast Wednesday by 3.7 per cent to 651 million tonnes from its forecast of 676 million tonnes in June.

Still, it said world commodity supplies remain "more balanced" than during the crisis in 2007-08, when wheat peaked above $13 a bushel.

"Fears of a new global food crisis are not justified at this point," FAO said in a report.

With files from The Associated Press