EU wheat rallies as low US crop forecast adds to drought fears

PARIS, May 12 (Reuters) - Euronext wheat futures jumped on Tuesday in step with Chicago prices as a lower-than-expected official forecast of the next U.S. crop heightened fears about drought damage in the U.S. Plains.

September milling wheat BL2U6, the most-active position on Paris-based Euronext, settled 4% higher at 216.50 euros a metric ton at the end of the day session.

That was the second day of gains for the contract as it recovered from a two-week low on Friday.

In closely watched forecasts for the upcoming 2026/27 season, the U.S. Department of Agriculture projected the smallest U.S. wheat crop since 1972, with its estimate falling below trade expectations.

In its outlook, the USDA also pegged global wheat stocks in 2026/27 below average analyst expectations, reflecting a drop in output in several major producing countries.

Chicago wheat Wv1 surged by over 6% while the smaller Kansas wheat KWv1 market jumped by its daily limit. GRA/

Wheat prices had already risen earlier in the session, after the USDA reduced on Monday its weekly rating for U.S. crop conditions.

A jump in oil prices, as deadlock in U.S.-Iran peace talks threatened prolonged disruption to energy and fertiliser supplies through the Strait of Hormuz, also lent support to grain markets. O/R

A drop in the euro EUR= against the dollar further underpinned European grain prices. But dealers said the USDA report underlined a tough export outlook for European wheat, with improved harvests in North Africa expected to curb demand.

Weekly European Union data showed the bloc's soft wheat exports so far this season had reached 20.46 million tons, up 8% from a year ago, though data remained incomplete for several countries.

In France, the agriculture ministry kept unchanged its estimate of this year's soft wheat area at 4.61 million hectares, up 2.6% from 2025.

Monday's expiry of May wheat futures on Euronext led to zero physical deliveries, according to the exchange's data.

Dealers said a steep discount for the May position compared with new-crop prices may have prompted participants to book gains by buying back short positions, instead of going to delivery.

The May contract expired at 180.00 euros.