PARIS: Euronext wheat dropped sharply for a second day on Tuesday, pressured by liquidation in Chicago as investors pared back wheat positions after record-breaking rallies this year driven by the war in Ukraine.

A risk-off mood in financial markets fuelled by inflation concerns, signs of improving weather for US crops and diplomatic talks to reopen Ukrainian ports encouraged selling, though traders were surprised at the losses given uncertain global supply as the war continues in Ukraine.

September milling wheat on Paris-based Euronext was down 3.5% at 378.50 euros ($402.88) a tonne by 1617 GMT, after falling to a one-month low at 374.75 euros. The front month had edged higher earlier, consolidating after a 3.6% slide on Tuesday as traders saw prospects for fresh demand in a tender by top importer Egypt.

However, another steep fall for Chicago wheat, which was about 5% lower in US trading following a 6% plunge on Tuesday, later dragged Euronext downwards. “There is some heavy liquidation going on by funds on the US market,” one futures dealer said.

Sluggish US wheat exports, rain relief for drought-affected US winter wheat and forecasts of better weather for North American spring wheat dampened price sentiment on the US market, traders said. UN Secretary-General Antonio Guterres said he was hopeful of an easing the food crisis prompted by the war in Ukraine, but cautioned that any agreement to unblock shipments of commodities such as grain was still some way off.

Traders were awaiting the outcome of a tender being held by Egypt, the importer’s first for shipment in the 2022/23 season that starts in July. Bulgarian, French, Romanian and Russian wheat were offered with French supplies facing stiff competition despite the fall on Euronext and weakness in the euro. US wheat was not offered.

Financial investors had raised their net long position in Euronext’s wheat futures and options last week, data published by the exchange on Wednesday showed.