Concerns about Black Sea region grain production heated up again in grain markets on Tuesday amid falling estimates of Russia’s crop and talk that country will restrict grain exports to ensure domestic supplies as severe drought continue to stress Russian key crop regions.

Russia denied the market talk of export restrictions. "The ministry has not sent any grain export restrictions proposals to the government," a Russian agriculture ministry spokeswoman said in a statement.

However, it is widely believed that the Russian government will take action to restrict exports if it fears supplies will not be large enough to meet domestic demand or if high grain prices threaten to drive up inflation.

Russia slapped restrictive export tariffs on wheat and barley in 2008 due to low supplies, which brought exports to a virtual halt for the first half of the year.

Earlier on Tuesday, Russia's Deputy Economy Minister Andrei Klepach said the country may harvest less than 80 million metric of grain, against a previous official grain crop forecast of 80-85 million tons.

The Russian Grain Union on Tuesday lowered its estimate of all-grain production to 75-78 million metric tons from a previous forecast of 81-85 million tons.

The official agency, which works alongside the Russian Agriculture Ministry pegged wheat production of 45 million tons, 8 million tons below USDA’s most recent estimate of the Russian crop.

The lower end of the Grain Union's current forecast matches the Agriculture Ministry's recent estimate of domestic grain consumption, indicating Russia's 2010-11 grain exports may be limited.

Russian Grain Union President Arkady Zlochevsky told Dow Jones Newswires that actual domestic grain demand this year may be only 71 million to 72 million tons.

"Of course they will export grain, the question is how much," he said in an interview. "It would be a shame to lose that position" in the world market, he said, adding that Egypt would be disappointed not to receive Russian grain.

Private analyst SovEcon Ltd. offered an even more dire assessment of the Russian crop situation, saying the drought might cut the Russian grain production to less than 70 million tons.

"A significant part of the sowings, mainly along the Volga river, has been lost," SovEcon said in a note. "The dimensions of losses may become clear after the harvesting ends there and in the central part of the country at the end of August."

In another sign of worsening Black Sea Region weather problems, private analyst UkrAgroConsult said that Ukraine's government may limit food grain exports in the second half of the 2010/11 season to avoid domestic shortages in the wake of crop damage.

Frosts and drought have destroyed about 1.0 million hectares (2.471 million acres) of Ukrainian grain crops and the government has said the harvest could fall to 42 million tons in 2010 from 46 million in 2009 and 53.3 million in 2008.

Ukraine’s farm minister said on Tuesday that the share of milling wheat in Ukraine's 2010 wheat crop is likely to fall by 15% compared to the 2009 harvest and could total about 9 million tons, a local news agency reported.

Analysts said that this year's wheat crop could be about 18.6 million metric tons, with only about 30% of that – roughly 5.6 million tons – of food quality.

USDA most recently pegged Ukraine’s 2010 wheat crop at 20 million tons.