Grains, soy fall on wet outlook, strong dollar

By Naveen Thukral and Nigel Hunt

SINGAPORE/LONDON (Reuters) - Wheat, corn and soybean prices all fell on Tuesday, weighed down by forecasts for much-needed rains in the U.S. Midwest and a broad-based decline in commodity markets linked to a strengthening dollar.

"The affirmative weather for crops and the strength in U.S. dollar are putting pressure on the investors not to be in the agriculture markets," said Nicholas Chung, senior manager of the commodities team at Korea Development Bank in Seoul.

September soybean futures on the Chicago Board of Trade SU8 were down 33-3/4 cents at $13.05-1/2 a bushel at 1045 GMT. Prices had risen sharply during the last couple of weeks, buoyed by a surge in oil prices, a weak dollar and concerns that dry weather in the U.S. Midwest may diminish crop prospects.

The U.S. currency surged on Tuesday, however, hitting a six-month high against the euro, oil prices fell sharply and rain was forecast for the Midwest.

"Commodities across the board are all a touch softer and ags are pretty much following that trend as well," said Barclays Capital analyst Sudakshina Unnikrishnan.

Global Forecast System (GFS) computer model on Monday turned wetter for late next week, projecting heavy rains of one to three inches for parts of the Midwest.

August is critical to the development of the U.S. soybean crop, while July weather influences the corn yield.

Topsoil moisture has evaporated due to limited rains since late July, especially east of the Mississippi River.

"Weather conditions are a key driver. If we see rain in the Midwest we will see that impacting corn and soybeans negatively," Unnikrishnan said.

She added, however, that she did not anticipate there would be a steep downside correction in prices, with markets underpinned by robust demand from key importers such as China.

CBOT corn prices also fell with September CU8 off 10 cents at $5.70-1/4 a bushel.

So far, the U.S. Agriculture Department is estimating that American farmers will harvest their second-largest corn crop in history, 12.3 billion bushels. USDA projects soy output at 2.97 billion bushels, which would be the fourth-largest on record.

Wheat prices also weakened but remained comfortably above levels traded a couple of weeks ago.

"I think the downside is limited as (wheat) stocks are still fairly low. We may see a bit of a build (in stocks) but we've seen pretty strong demand with a raft of recent import tenders," Barclays Capital's Unnikrishnan said.

(Editing by Christopher Johnson)