* USDA report shows crop ratings decline less than expected
* Dryness seen hitting U.S. soybeans in crucial phase
* Ukrainian farmers not seen cutting winter wheat area
CHICAGO, Aug 29 (Reuters) - Chicago soybean and corn prices retreated on Tuesday following U.S. government data showing a smaller-than-expected decline in crop conditions than what many analysts had expected.
Wheat hit a two-week low as sluggish demand for U.S. supplies and competition from cheap Russian grain limited the upside in prices.
The most active soybean contract on the Chicago Board of Trade (CBOT) lost 7 cents to $13.98-3/4 a bushel by 11:27 a.m. (1627 GMT).
Corn dipped 2-1/2 cents to $4.93-3/4 a bushel, while wheat slid 12 cents to $6.05 a bushel, its lowest since August 15.
The U.S. Department of Agriculture (USDA) in a weekly crop progress report on Monday rated 58% of the soybean crop as good to excellent, down a percentage point from 59% last week. Thirteen analysts surveyed by Reuters had on average expected a 3 percentage point decline.
The USDA rated 56% of the corn crop as good to excellent, down 2 percentage points from 58% a week ago versus a 3-point decline predicted by analysts.
The muted decline has some crop watchers predicting further cuts in coming weeks, while others think the crop may have weathered the extreme heat better than expected.
"I think those crop conditions that we saw yesterday are going to create a very divisive line between your bulls and your bears," said Ted Seifried, vice president of Zaner Group. "You can look at it either way."
For spring wheat, the Department of Agriculture rated 37% of the crop as good to excellent, down 1 percentage point and matching the average analyst estimate.
Soybean losses were pared after the USDA confirmed private sales of 246,100 metric tons of U.S. new-crop soybeans and 105,000 tons of U.S. new-crop soymeal, all to unknown destinations.
Wheat fell despite supportive news from Statistics Canada, projecting Canada's 2023 all-wheat crop at 29.472 million metric tons, down 14.2% from the prior year and below an average of trade expectations for 30.4 million.
"The Stats Canada numbers were friendly," said Ed Duggan, Senior Risk Management Specialist at Top Third Ag Marketing. "Wheat just can't find anything to get excited about."
Black Sea supplies continue weighing on U.S. wheat.
Ukrainian farmers are not expected to reduce the area of winter wheat they sow for the 2024 harvest despite higher logistics costs due to the war, a senior farming official told Reuters. (Reporting by Christopher Walljasper in Chicago; Additional reporting by Naveen Thukral, Peter Hobson and Sybille de La Hamaide;)
