Euronext sticks by new wheat contract after stalled start

* Euronext faced with slow start for premium wheat futures

* Says new contract offers attractive delivery points, fees

* To drop No. 2 contract despite opening March 2018 futures (Recasts with Euronext commodities head, trader comment)

By Valerie Parent and Gus Trompiz

PARIS, March 10 (Reuters) - Euronext plans to drop its established wheat futures before the 2018 harvest in favour of a just-launched premium wheat contract, the exchange said on Tuesday, shrugging off an awkward start for the new product.

Euronext has touted its new No. 3 premium milling wheat contract as the answer to failings exposed by a rain-hit harvest last year. It also seen by traders as a riposte to plans by the world's biggest futures operator CME Group to launch a rival European wheat market.

After a promising debut on March 2, activity in the new contract has dried up. Open interest has decreased and some sessions have seen no trades, leaving market participants doubtful about its short-term prospects.

Euronext said it would open the March 2018 position on the established No. 2 wheat contract on Wednesday, after previously indicating it might not do so in order to usher out the older contract.

But the exchange still planned to discontinue the No. 2 contract after the 2017/18 crop year and expected market users to be won over by features of the new product, Olivier Raevel, commodities director at Euronext, said.

"The two contracts are going to converge because operators are going to move towards the one which has more delivery points and which offers adjusted fees," he told Reuters.

Euronext had previously decided to upgrade the quality specifications of the No. 2 contract from 2017, but Raevel said it would not be offering the Atlantic coast delivery silos or fee discounts that are available with the premium futures.

"There won't be any more delivery silos added to the No. 2 contract and there won't be any positions opened for the 2018/19 season," he said.

This means Euronext will not open the September 2018 position for the old contract, as would have normally occurred in September this year in line with the three-year trading horizon it offers for wheat.

Euronext has also pointed to the fact new commodity derivatives take time to develop, and some traders say the new product could gain momentum from 2016 since participants have relatively few forward positions in place beyond this year.

But traders say it still marks an uncomfortable transition for Euronext's wheat market, its flagship commodity product.

Traders note the physical market, which uses futures for pricing in commercial contracts, is for now reluctant to abandon the proven liquidity of the No. 2 futures.

"There won't be a real need for this new contract until there are physical contracts priced against the No. 3 futures," one futures dealer said.

"It's a bit late for the No. 3 to work for 2015 delivery positions, unless there is a weather risk to the harvest." (Editing by Michel Rose, editing by David Evans)