Heavy rains have left as much as 60% of Ukraine's wheat exports unfit for human consumption, providing a boon to the animal-feed sector but threatening to push up food prices in countries like Egypt.

The shift in wheat shipments is also denting Ukraine's export competitiveness at a time when the introduction of duties is proving restrictive and Russia is seeking greater market share.

The rains started in July, wetting the winter wheat as it was harvested and causing the quality to deteriorate. As a result, Ukrainian agricultural analysis body APK-Inform expects nearly five million metric tons of wheat will be exported for use as livestock feed. Last year, Ukraine exported 1.68 million tons of wheat as livestock feed.

Ukraine won't run out of wheat for domestic consumption; the biggest impact of the damage will be on its exports to the rest of the world, and in particular Egypt, which is its biggest customer.

Trade relations with Egypt have been rocky. Egypt has blocked Ukrainian grain shipments since 2008 due to quality issues, but in recent weeks Cairo has been considering resuming the imports with greater controls in place.

Egypt needs to import wheat and other staples to bring down rising food prices, which was one of the driving reasons behind the street protests earlier this year that forced President Hosni Mubarak to step down. But even if Ukraine makes it back onto Egypt's list of approved exporters, much of the weather-ravaged crop won't be suitable for consumption.

Ukraine is the world's sixth-largest wheat exporter, with APK-Inform forecasting the country will export about eight million tons of the grain this year. But Ukraine faces competition from its much-larger neighbor, Russia.

Andrey Sizov Jr., managing director of Moscow-based think tank SovEcon, said weaker competition from Ukraine would allow Russia to reclaim its crown as a premium exporter.

"Lower competition from Ukraine because of heavy rainfall that has hurt crop quality and problems in France now places Russia as Europe's premium exporter of wheat right now," Mr. Sizov said.

Russia, which analysts estimate will export 16 million tons of wheat this year, is aggressively marketing its grains at a discount to European wheat in order to reassert its market position, market participants said.

Russia lost its position when the worst drought in more than 100 years severely crimped grains output last year and led the Kremlin to ban shipments. That ban was only lifted July 1.

At present, Russian wheat costs $40 a ton less than European wheat. Brenda Sullivan, an analyst at Sucden Financial in London, said the arrival of Russian wheat for the first time in a year has already weighed on prices, with European milling futures shedding 28% since their May high.

Traders said it is still too early to say how low prices may go but noted that the situation in Ukraine is weighing on the market and giving Russia another bargaining tool with consumers.

Egypt, the world's largest importer of wheat, has bought 720,000 tons of Russian grain through a series of tenders since the export ban was removed. The country needs to import nine million to 10 million tons a year, and has traditionally sourced more than 50% from Russia and 10% from Ukraine.

"Initially, the Egyptians were reluctant to buy wheat from Russia because of the whole ban issue. But money talks, and given Russia's competitive prices and Ukraine's problems, the Egyptians accepted Russian wheat in tenders," SovEcon's Mr. Sizov said.

Ukraine's exports are also feeling the pinch from the recent introduction of duties along with changes in value-added taxes. In January, a drought ravaged Ukraine's wheat crop, leading the government to introduce quotas limiting exports. These were removed July 1 and replaced with a 9% export duty on all wheat.

Last month, Ukraine's wheat exports slumped 72% to 117,000 tons from 426,000 tons in the previous month, Ukraine-based research body UkrAgrconsult said, citing figures from key sea port terminals.

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