Suppliers of Russian wheat to Asia are edging nearer to cancelling contracts after Moscow's ban on grain exports, forcing buyers to turn to alternative origins as U.S. wheat futures soar to a 23-month high.

There was no immediate panic reaction from top Asian importers because global stockpiles were ample, but the rally could stoke fears of food inflation in key buyers with a near doubling of prices on the Chicago Board of Trade since lows in June, analysts and traders said on Friday.

U.S. wheat futures jumped more than 6 percent, taking this week's gains to more than 26 percent in a buying frenzy sparked by the move to temporarily halt grain shipments from Russia, the world's third-largest exporter.

There are two things driving the market, fear and fund buying, said Jonathan Barratt, managing director at Commodity Broking Services in Sydney.

There is no panic because world stocks are high. If you are a buyer you are not going to chase these prices, you are only going to buy to fill spot needs.

In its July estimate, the U.S. Department of Agriculture has put global wheat stocks at 187.04 million tonnes in the year 2010/11, down from 193 million in 2009/10.

The rally in wheat has spilled over into U.S. corn and soybeans, with both gaining more than 10 percent in July, although crop-friendly weather in key growing region the U.S. midwest capped gains.

Trading companies that have sold Russian wheat to millers in Asia are considering declaring force majeure on supply contracts that could involve up to 1 million tonnes of wheat.

If the contract says Russian wheat, it is straight away force majeure, said one trader with an international trading company in Singapore, referring to terms in commodity deals that remove liability for unforeseen events which hinder trade.

We haven't heard but it will happen, even my company will do it.

FEARS OF FOOD INFLATION

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

Indonesia, Asia's top wheat importer, is covered for higher consumption in Ramadan, an industry official said. The Muslim fasting month is due to begin in the middle of this month.

They started stocking up three months ago. They will wait and see for a while and will be back to market after the Eid in mid-September, said an official of U.S. Wheat Associates, referring to the festival marking the end of Ramadan.

Persistent high prices could drive fear of food inflation in key buyers such as Indonesia and the Philippines, analysts said.

If prices remain elevated for a sustained period, then the probability of upward adjustment in retail price of wheat and its derivatives goes up, Barclays Capital said in a report.

However, food prices tend to be politically sensitive, so we can expect some action from Asian governments.

China and India, the world's top wheat consumers, are largely insulated from rising prices by sufficient wheat reserves.

In the Philippines, a leading importer of feed wheat from the Black Sea region, buyers were waiting to hear from suppliers.

Those with supply contracts are a bit nervous, even the buyer, said a grains trader in Manila.

The contracts are written with optional origins but it means the sellers will also have to pay through their noses and those noses will bleed really bad.

India, which has bought around 150,000 tonnes of wheat since late last year, is unlikely to import more, as it has bulging domestic stocks and faces higher international prices.

Neighboring Pakistan is not expected to export the 2 million tonnes it planned earlier, because it is now battling floods.

There is still an option to export some, but there is no final decision, a food ministry official said. It could be in the range of 500,000 to 700,000 tonnes.

Pakistan would have to divert wheat to its northwestern Khyber-Pakhtunkhwa province which faces a food shortage after the most devastating floods in 80 years.

Russia's Grain Union, a key industry group, has asked the government to postpone its export ban until September 1, union spokesman Anton Shaparin told Reuters. The ban, announced on Thursday, will take effect on August 15.

The rising price hit shares of Asian food companies that are end-users of the grain, while those of producers benefited.

China's best-selling instant noodle brand, Tingyi <0322.HK>, dropped as much as 4 percent while rival Want Want China <0151.HK> fell 1.7 percent. Indonesia's largest instant noodle maker, PT Indofood Sukses Makmur , lost as much as 3.5 percent.

But shares of wheat producers in Australia, the world's fourth largest wheat exporter, jumped on the higher price of the commodity. GrainCorp rose 3.6 percent while AWB jumped 5.2 percent.

(Additional reporting by Augustine Anthony in Islamabad, Rosemarie Francisco in Manila, Chikako Mogi in Tokyo, Manolo Serapio Jr and Harry Suhartono in Singapore, Himangshu Watts in New Delhi and Fitri Wulandri in Jakarta; Editing by Clarence Fernandez)

Price Inflation