"The issue of a grain export ban is one of domestic grain price dynamics. We are witnessing such a trend at the moment," Economy Minister Andrei Belousov said.

"With such a trend, it’s quite possible that the government will decide to restrict grain exports," he added.

Benchmark wheat futures immediately rose after Belousov’s comments. But Deputy Prime Minister Arkady Dvorkovich was later quoted by his spokeswoman as saying the country still does not plan to curb grain exports..

Hot and dry weather has burnt into Russia’s cereal harvest, slashing yields by more than a quarter just as the U.S. experienced its worst harvest in more than half a century, sending global prices for wheat and corn into overdrive.

Markets have been on alert since the drought started this year after Russia shocked grain markets with a one-year export ban 2010 when drought decimated that year’s harvest. Officials have repeatedly said a similar move would not be made this time, even as food inflation rears up.

Domestic prices for Russian third-class milling wheat may rise to 9,000 roubles (US$290) per tonne by the end of the year, from the current 8,000 roubles, Belousov said, adding that the government will discuss grain exports "this autumn."

International traders polled by Reuters in August had said they expected Russian export restrictions from October.

"What’s for sure is that food inflation is key and domestic prices are moving higher," a European trader said.

"Last time (in 2010) we got at least 30 days notice but basically they do what they want," he added.

"No ban" pledge

Deputy Prime Minister Arkady Dvorkovich, who ranks above Belousov in the government hierarchy, said in August that the government will not limit grain exports even if its exportable surplus is exhausted.

"Exports will continue as normal," Dvorkovich was quoted as saying by his spokeswoman. "We do not plan any restrictive measures for the agricultural market."

He added that a government commission will hold a meeting about grain harvest prospects next week, where it may discuss a possible start of sales of some grain from the government intervention stocks.

A domestic trader told Reuters the Economy Ministry had proposed introducing a floating export tariff that would depend on wheat prices in Russia and on the international market, but the offer was rejected.

"Normally, such statements are not released spontaneously, they (the Economy Ministry and other officials) may have agreed their positions," the trader said.

He added that if Russia is hoping to protect its international grain trade, the country could impose a floating tariff from Jan. 1 after negotiations with the World Trade Organization and when majority of shipments to Egypt, the world’s largest wheat buyer, would be finished.

International traders said they were resigned to snap changes in policy.

"They are blowing hot and cold as usual," a French futures dealer said.

"We know they’ll be something (to limit exports) one way or another. Since the WTO entry people say an embargo is impossible but with Putin anything is possible," he added.

Russia’s 2012 current grain harvest forecast is at 73 million tonnes and if that dipped to 70 million tonnes, Russia’s exportable surplus would be around 10 million tonnes, Belousov said.

Ukraine move

Russia’s statement is also expected to prompt the Ukrainian government to review its position on control over wheat exports this season, large foreign traders told Reuters after Belousov’s remarks.

"About 3.8 million tonnes of wheat have already been exported or will be exported in the near future and officials have indicated that traders should suspend wheat exports or the government would be forced to limit shipments," the trader said.

Later on Friday, Ukraine’s state railroad administration in the western Lviv region ordered local railroads to ask traders for export quota documents before shipping their wheat and rye abroad, according to a document obtained by Reuters.

Ukraine’s government and traders earlier this month agreed that the former Soviet republic could export no more than 4.0 million tonnes of wheat this season without restrictions.

— Andrey Ostroukh and Polina Devitt report on financial and commodities markets respectively from Moscow for Reuters. Additional reporting for Reuters by Pavel Polityuk in Kiev, Sarah McFarlane and Nigel Hunt in London and Gus Trompiz in Paris.

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Visiting Volgograd, a provincial capital in the Volga River valley where drought is spreading and threatening yields, Medvedev had announced a new government forecast of 75-80 million tonnes — a five-million-tonne cut in the range.

A government source said this week that under a maximum forecast of 80 million tonnes, Russia could produce up to 50 million tonnes of wheat.

"Eighty million tonnes was the optimistic forecast. I think it will decline and go to a figure of 70-75 million tonnes," Deputy Agriculture Minister Alexander Chernogorov was quoted as saying on Thursday at a conference in Novosibirsk, the provincial capital of another drought-hit region in Siberia.

"This trend is present," he said.

Russian officials have been scrambling to reassure grain markets, which were shocked in 2010 by Russia’s snap decision to ban exports after that year’s drought. There is now speculation that Russia could limit exports again this year.

Medvedev said on Tuesday that Russia would still retain an exportable surplus and that domestic needs — which average 70 million tonnes per year — would be amply covered with new crop grain and stocks.

His deputy, Arkady Dvorkovich, reiterated Medvedev’s 75-80 million tonne forecast on Thursday and said Russia could export 10-12 million tonnes of grain.

He said the current pace of export — much slower than last year’s flood of exports when Russia lifted the export ban on July 1, 2011 — posed no immediate risk to inflation targets or domestic food supplies.

"Exports are now running at a moderate pace and will be below the 2011 level," Dvorkovich told a briefing after a government meeting on Thursday.

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