Wheat futures prices soared Thursday to their highest levels in two years after Russia said it would ban grain exports due to a severe drought, a move that heightens concerns about global supplies of the grain and the possible impact on food prices.

September wheat futures at the Chicago board of trade were up the exchange-imposed daily limit of 60 cents at $7.85 3/4 a bushel in late trading, an 8.3 percent rise and the highest level since Aug. 29, 2008. U.S. wheat futures have gained nearly 85 percent from a nine-month low in June on expectations that demand for U.S. wheat will increase.

The export ban by Russia, a major producer and supplier to other countries, comes after several weeks of deteriorating prospects for the Russian wheat crop. Market participants had speculated in recent days that an export ban was likely, but the full effect of such a possibility clearly hadn’t been priced in. While most market participants don’t foresee the kinds of problems that sparked food riots in 2008, the dramatic increase in prices and the uncertainty over future supplies of the grain have forced buyers and sellers to recalibrate their plans.

Switzerland’s two largest food retailers–Migros-Genossenschafts-Bund and Coop Schweiz–said Thursday they are considering price increases for products that contain wheat. The announcements from the companies, which also own food manufacturing facilities, follows a similar warning Wednesday from the U.K.’s Premier Foods PLC (PFD.LN), which also said that the division that sells its flagship Hovis bread will post lower profits in the second half of the year.

The Russian export ban, which affects wheat, corn, barley, rye and flour, is set to run from Aug. 15 until the end of the year, according to a spokesman for Russian Prime Minister Vladimir Putin. Traders with existing contracts may ship only through Aug. 15.

“Due to the abnormally high temperatures and drought, I consider it expedient to introduce a temporary ban on the export from Russia of grain and other agricultural products produced from grain,” Putin said at a government meeting.

The ban is “a big deal” because the former Soviet Union has emerged as a major exporter on the world market, said Jerry Gidel, analyst at North America Risk Management Services, a brokerage in Chicago. Russia was the major supplier to Egypt, the world’s largest importer, in the crop year that ended in May.

“The key thing is that people were assuming there’d be some kind of exports out of Russia, and now there might not be any for some period of time,” Gidel said.

The chairman of Egypt’s Grain Chamber, Ali Sharaf El Din, said Thursday that Egypt has six months worth of wheat supplies should shipments of Russian wheat be disrupted.

Nonetheless, a source at the country’s Ministry of Trade said Egypt remains “vulnerable” to problems in Russia due to its heavy reliance on Russian wheat.

“The Russia drought may put Egypt, and other importers of Russian wheat, in a vulnerable situation, given that Russia has been one of our biggest suppliers, but it is not our only source and the situation is not unrecoverable,” the person said.

Ukraine, another major exporter, also has canceled several wheat export contracts due to lack of supply from farmers and other issues, trading executives said. The news heightened fears about tightening supplies because export restrictions in the former Soviet Union helped shove prices to record high prices in early 2008.

The former Soviet Union has been struggling with scorching heat and dryness for weeks, and no significant relief is in sight. The outlook for continued dryness sparked worries that conditions will still be unfavorable when farmers plant their next crop this autumn.

Agribusiness giant Cargill Inc., whose operations include grain sourcing, processing and transport, expressed concerns about trade barriers.

“Such trade barriers further distort wheat markets by making it harder for supplies to move from areas of surplus to areas of deficit, and by preventing price signals from reaching wheat farmers,” the Minneapolis-based company said in an emailed statement.

The wheat supply concerns are spurring price increases for other grains too. September corn futures in Chicago hit a seven-month high in early trading, rising 6.2 percent to $4.25 a bushel. Corn and wheat are linked because both grains are used for animal feed. When wheat locks up at the exchange-imposed limit, traders who want to buy grain futures will likely look to CBOT corn and soybeans.

The Food and Agriculture Organization confirmed the bleak supply situation this week, cutting its 2010 global wheat production forecast this week. It pegged production at 651 million metric tons, down 3.7 percent from its previous estimate, but said that figure represented an adequate supply of the food staple.

However, the situation doesn’t appear to be as dire at it was in 2008, when crops failed worldwide and wheat prices rose to more than $13 a bushel. According to the latest projection from the U.S. Department of Agriculture, there will be almost 30 million tons of wheat in U.S. stockpiles at the end of next May, a 23-year high. U.S. inventories had dropped to an all-time low in 2007-08.

Cargill noted Thursday that wheat crops in countries such as Russia and Kazakhstan are significantly below expectations, which is affecting regional supplies.

“From a global perspective, however, the U.S. wheat crop has been strong and world wheat stocks are higher than they were during the wheat price spikes in 2008,” the Minneapolis-based company said.

Meantime, several restaurant chains say they are sheltered from rising wheat prices through contracts that lock in prices.

Pizza chains Domino’s Pizza Inc. and Papa John’s International Inc. have locked in wheat prices until the first quarter of next year. Darden Restaurants Inc. owner of Olive Garden and other restaurant chains, has the majority of wheat and flour purchases covered through the end of the 2010.

Darden, where wheat makes up 8 percent of its total costs of goods, expects wheat prices to retreat from the current levels, unless damage in drought-affected areas in Russia, Ukraine and Kazakhstan worsens, Darden spokesman Rich Jeffers said. Even with a temporary supply disruption from drought-affected areas, worldwide supply of wheat should be “more than sufficient to meet demand.”