EU wheat falls further as US-Iran peace hopes sink oil

PARIS, May 6 (Reuters) - Euronext wheat dropped for a second session on Wednesday to hit a two-week low, pressured by a plunge in oil prices as investors reacted to reports that Washington and Tehran were close to a deal to end their conflict.

September milling wheat BL2U6, the most-active contract on Paris-based Euronext, settled 1.7% down at 207.50 euros ($243.69) a metric ton, after earlier touching a two-week low at 206.50 euros.

"Wheat prices extended their decline, undermined by a further decline in crude oil prices, as Iran and the U.S. were reported to be edging towards an initial peace deal," consultancy CRM Agri said.

Oil influenced grain markets during the Middle East conflict as some crops are used for biofuel while rising fuel and fertiliser costs have threatened to affect harvest production.

Euronext prices were also curbed by widespread rain in Europe that is easing concern about crop stress following a dry start to spring.

Traders were also assessing initial results from an Algerian import tender, with traders reporting that state grains agency OAIC bought around 400,000 tons of milling wheat, mostly at around $270 a ton cost and freight (c&f).

Reaction to the fresh demand was tempered by the moderate volume and expectations that Black Sea origins would fill the order, with France still thought to be sidelined for diplomatic reasons.

“French prices are close to the Black Sea region, but France again looks like being excluded from the tender because of bad French/Algerian political relations,” a German trader said.

In limited other export demand, one Indonesian buyer was seeking a panamax-size shipment of 11.5% Black Sea wheat at $279-$280 a ton cost and freight included (c&f) for May/June shipment, according to traders.

Financial investors sharply increased their net long position in Euronext wheat last week, when prices rallied to a one-month high, data published by the exchange showed.

($1 = 0.8515 euros)