The price of European wheat dropped to near-contract lows on Sunday, as the suspension of export taxes by Argentina raised the prospect of increased competition in an oversupplied global market.

At 1543 GMT on Euronext, December wheat was down 0.6% to 189.50 Euros ($223.12) a metric ton. This is after the contract price had almost reached its low from early September of 188.00 Euros.

The most active position on Euronext rose to a new two-week-high of 193.25 euro on Thursday. This was boosted by the firm Russian prices as well as a rally for Chicago grains.

The news that Argentina would suspend all export taxes for more than a month in order to boost the dollar earnings dampened sentiment. The euro's strength, which is punishing for exports, also dampened the mood.

A futures dealer stated that "the wheat market was not looking good already, with large crops expected in southern hemisphere."

"Argentina will have a bumper crop and they are now going to be competitive with Black Sea origins, and that could drive Black Sea and Euronext price lower."

In the coming weeks, increased competition from Argentina may further limit France's export options. The European Union's largest wheat producer is expected to be excluded from an Algerian import bid due to a longstanding diplomatic dispute between Paris and Algiers.

One German trader stated that "any Algerian purchase will likely be from the Black Sea region, which is much cheaper than the West EU. The west-north EU is also unable to supply enough 11.5% protein wheat for the market."

"Overall, the market is awash with wheat from Russia, Ukraine, Romania, Bulgaria and other origins."

Dealers said that slow selling by farmers, such as French and German producers, who are facing prices below their costs of production, and the uncertainty surrounding U.S. maize harvest results and European maize harvests helped to cap losses for grain. Reporting by Michael Hogan, Gus Trompiz and Tasim Zahid

(source: Reuters)