U.S. grain and soybean futures fell Thursday, driven lower by the rising U.S. dollar and concerns about waning demand.

The losses were fueled by investors reducing risk exposure, with the uncertainty of 2011 U.S. crop production keeping traders cautious of aggressively pushing risky market positions.

The influence of external financial markets weighed on prices, with a stronger dollar attracting broader-based selling in grain futures.

Losses were spread across corn, wheat and soy markets, as investors trimmed exposure after the recent run-up in prices ahead of Monday's crop report, said Sterling Smith, market analyst with brokerage Country Hedging in St. Paul, Minn.

"The market is trying its best to price in crop size, but with variable crop conditions seen from field to field, it makes getting accurate crop info difficult," Smith said.

Corn futures absorbed losses as market participants worried that government forecasters may make a smaller-than-expected cut to its inventory forecast.

The government, in a monthly crop report due Monday, is projected to tighten its corn supply outlook nearly 11%, according to a survey of analysts.

However, that is less than what some had previously projected, notes Mike Zuzolo of Global Commodity Analytics & Consulting. That led to traders "deflating some of the price balloon ahead of the USDA report," he added.

Traders are cautious of aggressively pushing prices until they get a better idea of crop size from U.S. Department of Agriculture or from actual harvest results.

Investors are nervous about the length of fund positions in the market, particularly with the global economy looking more tenuous, Smith said.

Otherwise investors are concerned about slumping export demand, a feature hurting all grain and oilseed markets particularly ahead of the autumn harvest.

Strength in the dollar fueled concerns about weakening demand. The rising greenback makes U.S. grains less attractive to foreign buyers at a time when exporters are already struggling on the world market, analysts note. U.S. wheat faces stiff competition for exports from countries in the Black Sea region like Russia.

CBOT November soybeans dropped 2 1/2 cents, or 0.2%, to $14.18 1/4 a bushel. CBOT December corn dropped 14 cents to $7.34 a bushel.

CBOT December wheat slid 13 1/2 cents to $7.38 a bushel while KCBT December shed 13 cents to $8.46 and MGEX December stumbled 18 1/4 cents to $9.08 1/4.

Other Markets

CBOT December soymeal dropped 0.5% to $372.10 a short ton and December soyoil ended down 0.6% at 58.33 cents a pound. CBOT November rice slid 1.7% to $17.83 per hundredweight.

Ethanol for December delivery dropped 0.9% to $2.716 a gallon. Oats for December delivery ended down 2.3% at $3.53 1/4 a bushel.