Exporters canceled major contracts of drought-hit Black Sea wheat to Bangladesh on Monday, signaling the need for Asian millers to scramble for supplies from other key growers like Australia.

Russia banned grain exports on Thursday last week as the worst drought on record ravaged crops across the Black Sea region, boosting the Chicago Board of Trade front-month wheat contract up 66 percent from a low of $4.25- in June.

Chicago wheat futures fell nearly 3 percent on Monday, extending their losses to around 10 percent in two sessions, but traders say the impact of the Russian ban has not been fully felt and the market faces wide swings in prices.

We see more deals being canceled as nothing can be done about it, said one Singapore-based trading manager. People have no choice but to go for Australian wheat as the U.S. is still more expensive due to higher freight costs.

Global suppliers canceled around 200,000 tonnes of Black Sea wheat to Bangladesh following the ban, raising fears of more cargoes being dropped in the days ahead.

AUSTRALIAN CASH PRICES FIRM

Other Asian buyers signed deals for supplies of Black Sea wheat at around $200-$240 a tonne in May and June, including cost and freight (C&F). But prices have climbed to $270-$290 a tonne and concern is growing on commitments already made.

Traders have estimated up to one million tonnes of wheat cargoes to Asia could be affected by Russia's decision to ban grain exports.

Mills in Bangladesh, Thailand, Vietnam, Malaysia and Indonesia use cheaper Black Sea wheat and blend it with higher quality U.S. and Australian grains. Feed millers have also been snapping up cargoes of feed quality wheat from Ukraine this year.

Australian cash wheat prices have strengthening in last few weeks on prospects of buyers seeking more supplies.

Australian prime wheat is quoted around $320 to $340 a tonne, C&F to Southeast Asia, compared with $280 to $300 a few weeks ago.

We've also got some of the north Asian buyers coming into the market this week for their routine tender programs, said Tom Puddy, head of grain trading at Western Australian grain firm CBH Group. We are expecting about 100,000 tonnes going to north Asia from Australia this week.

Chicago Board of Trade wheat for September delivery dropped 2.7 percent to $7.06- a bushel by 0843 GMT, adding to the 7.6 percent fall on Friday.

Influential U.S. investor Jim Rogers, who appeared in Reuters forums, said he was bullish on agricultural commodities.

I expect agriculture to continue to do well for several years, no matter what happens to the world, he said.

The Russian drought itself will not lead to a food crisis, but we are going to have other similar problems because agriculture has been so depressed for three decades.

Russia's wheat crop may fall to as low as 43 million tonnes this year from 61.7 million tonnes in 2009 after a severe drought has destroyed many grain producing regions, leading agricultural analysts SovEcon said on Monday.

Australia, which is expected to produce a bumper crop at the end of this year, is also facing a threat of dry weather in Western Australia.

Dry weather is prompting analysts to cut estimates for the 2009/10 wheat harvest in Western Australia, the top grain exporting state with a 40 percent share, adding to global concerns about lower supplies.

(Additional reporting by Bruce Hextall in Sydney; Editing by Manash Goswami and Ed Lane)

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