EU wheat drops to new lows as supply pressure builds

PARIS, April 22 (Reuters) - Euronext wheat slid to new contract lows on Tuesday as forecast rain eased crop concerns and reinforced the prospect of ample supplies after a slow export season, traders said.

September futures BL2U5, the most active position on Euronext's Paris-based milling wheat futures, settled 2% down at 208.25 euros ($238.43) per metric ton.

It earlier set a contract low at 207.75 euros that marked a weakest price for a second-month contract BL2c2 since late August.

Front-month May futures BL2K5 also hit a contract low, at 206.75 euros, before settling at 208.50 euros, down 1.3%.

May and September futures had each set previous contract lows on Thursday before a four-day closure for Easter.

The return of rain to dry wheat belts in northern Europe and the southern U.S. Plains further reduced harvest worries after a recent improvement in growing conditions in top exporter Russia.

"Supply fundamentals are changing and Matif (Euronext) is looking bearish with improved production prospects," a futures dealer said.

The European Union's crop monitoring service increased slightly its yield forecast for this year's EU soft wheat crop.

Weekly EU export data, meanwhile, showed the bloc's soft wheat shipments were running 34% below last season's level.

After a price fall last month raised expectations of an upturn in demand, export hopes have been cooled by a surge in the euro and a latest diplomatic row between France and Algeria.

The renewed tensions dashed hopes that Algeria might turn back to French wheat in a tender last week after months without purchasing a single cargo from what is usually a major supply source.

"Against this background, there is now discussion about whether Euronext will be able to hold the 200 euro level," a German trader said.

The euro EUR= edged lower against the dollar but remained near a 3-1/2 year high struck on Monday. FRX/

An official forecast projecting Morocco's cereal harvest will rebound by 41% from last year, following rainfall since March, weighed on Euronext by potentially curbing the drought-hit country's import needs, traders said.

Euronext also factored in losses for Chicago wheat Wv1 since Monday. GRA/

The return of rain has raised water levels on the Rhine, with vessels able to carry more cargo, though the river is still too shallow for normal sailings.

($1 = 0.8734 euros)