EU wheat hits contract lows after Egypt rejects French cargo

European wheat prices fell to new contract lows on Monday after a move by Egypt's state grain buyer to reject a cargo of French wheat because it did not comply with new import rules, raising concerns about future sales to the world's top grain buyer.

Front-month March on the Euronext milling wheat futures market was down 2.25 euros at a contract low of 161.50 euros a tonne by 1657 GMT.

The 63,000-tonne French wheat cargo arrived in Egypt in December. It was initially rejected by agricultural quarantine for containing ergot, a common grains fungus, before being re-inspected.

Traders said GASC's decision to apply zero tolerance towards ergot could lead to a risk premium and deter some exporters from bidding in its tenders. Traders had already turned out in lower numbers than usual at GASC's latest wheat tender last month.

"Nobody will benefit from this story. Especially not Egypt, which, even if it is the world's largest buyer, is showing it is no longer a reliable buyer," a European trader said.

"In this context exporters are again likely to be very careful in Egypt's next tenders," French consultancy Agritel also said.

European wheat prices were also capped by expectations Russia will not curb overseas sales by changing its grain export taxes despite proposals to curb exports to reduce rising animal feed costs for Russian farmers.

The drop in EU prices prompted the return of Algeria, a major buyer of French wheat, which launched a tender for April and May shipment with the bidding deadline on Tuesday.