Wheat futures slumped to their lowest in eight months as heavy snow improved prospects for drought-hit US crops, adding to pressure on prices from a rising dollar and retreating external markets.

Commodities as a whole found headway difficult on Thursday, as fears that the US central bank may withdraw ultra-easy monetary policy, coupled with a weak reading for a French economic indicator, curtailed hopes for reviving growth.

The decline, echoed in share markets, was exacerbated by a further rise in the dollar, to five-month highs, underpinned by the idea of former US monetary policy, and making dollar-denominated assets, such as many commodities, less appealing to buyers in other currencies.

The CRB commodities index stood 1.1% lower in late deals.

'Major precipitation event'

However, the decline was particularly notable in wheat, after snows eased concerns for dryness in areas including the central and southern Plains, where drought sent winter wheat into dormancy in its worst condition on record.

Dan Cekander, director of grain market analysis at broker Newedge, said: "We are definitely having quite some precipitation in the hard red winter wheat area," the likes of Kansas and Oklahoma, which has borne the brunt of the drought.

"This is a major precipitation event."

According to weather service WxRisk.com, snowfall over the next few days "will range   from 4 to 12 inches, but 12-18 inches are possible over  western and  central  Kansas".

MDA's Don Keeney said that this week's heavy snow across the central Plains "should help to ease drought conditions there once it melts, while heavy rains in the South East should improve conditions there as well".

'Rain makes grain mentality'

The improving crop hopes sent grain prices lower, with Jerry Stowell at Country Futures, noting that "a rain  makes grain mentality is pressuring corn and wheat today".

Indeed, the snows outweighed further evidence of America's revival as a wheat export power, with the US Department of Agriculture reporting that an unknown importer had purchased 110,000 tonnes of US soft red winter wheat, the type traded in Chicago.

This on top of firm weekly export data revealed last week, and Wednesday's victory in a wheat tender by Egypt, the top importing country.

"There is export business. It seems demand is pretty good," Mr Cekander told Agrimoney.com.

'Diseases, excessive rains, hail…'

Furthermore, bulls had on their side a further downgrade by Argentina's agriculture ministry of 700,000 tonnes to 9.4m tonnes in its estimate for the domestic wheat harvest.

"Final yields fell short of initial expectations, due to crop diseases, excessive rainfall in August, several heat waves in November during the grain-filling stage, hail, and strong winds during the harvest," the ministry said.

But the overpowering selling pressure, little helped by a USDA report pegging Indian exports at a record in 2013-14, sent Chicago wheat for March down to \$7.19 ¼ a bushel, the contract's lowest since June, before recovering some ground in late deals.

The lot closed at \$7.21 ¼ a bushel, a loss of 2.3% on the day, with the better-traded May contract tumbling 2.9% t0 \$7.24 a bushel.

The declines dragged European contracts lower too, despite data showing the EU cleared a healthy 589,000 tonnes of the grain for export this week, taking the total so far in 2012-13 to 12.7m tonnes.

Paris wheat for May lost early gains to close down 0.1% at E238.25 a tonne, while its London peer closed down 0.5% at £207.50 a tonne.

'Corn is struggling'

The precipitation made itself felt on corn too, in improving crop prospects especially western Corn Belt states where last year's drought has persisted.

Furthermore, the US Department of Agriculture hardly improved the mood by cutting its outline forecast for US corn prices in 2013-14 by \$0.60 a bushel to \$4.80 a bushel – a level not seen in the Chicago futures market since October 2010.

It would also represent a slump of one-third on estimated average 2012-13 prices.

Benson Quinn Commodities said: "Corn is struggling and remains lower with market trading 2013-14 record production and a lack of export demand for old crop," which remains unpopular in export markets.

Ethanol revival

As with wheat, there was some news for corn bulls to clutch on to, this time from the domestic market, and a further recovery in production of ethanol, which in the US is made from corn.

US ethanol output last week rose by 8,000 barrels a day to an average of 797,000 barrels a day, getting back within range of levels needed to meet USDA forecasts for the whole of 2012-13, and hardening ideas of better margins, which are bringing many mothballed plants back online.

"I would have thought that was a positive number, but that's not how the market seems to see it," Mr Cekander said.

Chicago corn for March ended down 1.4% at \$6.90 ¾ a bushel, the lowest close for a spot contract since early January.

Big Chinese purhases?

It needed a strong story to lift an agricultural commodity above the fray, which soybeans had in the continuing talk of strong Chinese demand, at a time when harvest delays and infrastructure hiccups, besides a strike threat, have prevented them meeting their appetite in Brazil.

"Talk continues to circulate that China has purchased five-to-10 cargoes of soybeans since their return from holiday," Paul Georgy at broker Allendale said.

"It is possibly to fill immediate needs, as Brazil's load out backlogs increases. Brazilian port workers are planning a nationwide strike on Friday morning and Tuesday afternoon."

Furthermore, with ideas of the Argentine crop from, for example Lanworth, now spilling below 50m tonnes, Argentina's prospects for easing tight world supplies look a little less upbeat too.

Soybeans for March closed 0.3% higher at \$14.87 ¾ a bushel, with the better-traded May lot up 0.1% at \$14.70 ½ a bushel.

'Harmattan winds are weakening'

Among soft commodities, New York arabica coffee futures also showed some resistance, closing up 0.1% at 141.75 cents a pound for May delivery to distance themselves a little further from the two-year low reached on Tuesday, encouraged by a touch of short-covering.

And New York cocoa for May added 1.0% to \$2,133 a tonne, although only after setting a seven-month low of \$2,102 a tonne, undermined by fears of West African selling lying ahead.

Rains in West Africa too pressed on prices early on.

"With rains increasing, Harmattan winds are weakening and should have little impact on the cocoa crop," weather service MDA said.

"Showers are expected to remain more widespread through the next week, seen mainly in southern areas."

Downbeat data

However, raw sugar for March closed down 1.3% at 18.12 cents a pound, and the May lot by 1.2% to 17.90 cents a pound, undermined by an International Sugar Organization assertion that pressure on prices is here to stay until at least late this year.

The ISO also raised above 8m tonnes its estimate for the world sugar surplus in 2012-13.

New York cotton for May, having hit a nine-month high in the last session, dropped 1.5% to 83.23 cents a pound, undermined by USDA estimates for the 2013 US crop.

While the USDA saw upland cotton sowings tumbling by 19.0% to 9.8m acres, this was far higher than the 9.3m acres forecast in the outline estimates released earlier this month.