U.S. wheat futures are expected to fall early Wednesday as strength in the dollar and improving crop prospects in Ukraine damp U.S. export projections.

Traders predict soft red winter wheat for September delivery, the most actively traded contract, will start down 5 cents to 10 cents a bushel at the Chicago Board of Trade. In overnight electronic trading, the contract dropped 11 cents, or 1.6%, to $6.94 1/2 a bushel.

Driving prices lower are concerns gains in the dollar and a potential global economic slowdown will reduce demand for commodities, including grains. A firm greenback makes dollar-denominated products less attractive to foreign buyers.

The U.S. is already facing increased competition for wheat export business as output is rising in the Black Sea region following a devastating drought last year. Ukraine on Wednesday raised its grain export forecast to 20 million to 25 million tons from an earlier estimate of 19 million to 20 million. Russia, meanwhile, is poised to restart grain exports next week after banning them in August.

In Europe, rains in dry areas have fueled projections that exports may be larger than previously thought. Europe, Russia and Ukraine compete for export business with the U.S., the world's top grain exporter.

"The combination of Russia moving into the export market and rain in parts of Europe in recent weeks has hurt wheat's rally potential," wrote analysts at Stewart Peterson, a risk management firm in Wisconsin.

Traders are keeping an eye on export potential as prices have pulled back 25% from a 2 1/2-year high reached in February on an increase in foreign demand. Export sales recently have been sluggish, traders said.

Tunisia's state grains buyer has entered the market with a tender to purchase 75,000 metric tons of milling wheat from any origin, European traders said Wednesday. Japan's agriculture ministry said it was seeking 50,000 metric tons of feed wheat and 200,000 tons of feed barley in a tender.

Yet, the demand wasn't seen as strong enough to pump up global wheat prices. European wheat futures fell almost 3% to a nearly two-month low Wednesday, setting a negative tone for the U.S. markets, traders said.