(Recasts, updates prices, adds dealer's quote)
MUMBAI/SINGAPORE, Jan 27 (Reuters) - Chicago grains retreated slightly in early trade on Thursday on a stronger dollar, although losses were capped by higher oil prices and tensions between key wheat exporters Russia and Ukraine.
U.S. soybean futures eased on profit-taking after rising to a seven-month high on Wednesday on concerns about a reduced South American harvest and a rally in soyoil prices.
"Beans are getting support from South American weather and crude oil. Vegetable oil prices are ruling near record highs and this should improve crush margins," said a Mumbai-based dealer with a global trading firm.
Crude oil prices reached their highest since 2014 on Wednesday, providing support to corn and soybeans, both key feedstocks for making biofuel.
The most-active soybean contract on the Chicago Board of Trade (CBOT) lost 0.68% to $14.30-1/2 a bushel, as of 0410 GMT. Wheat fell 1.16% to $7.85-3/4 a bushel and corn slipped 0.44% to $6.24-1/4 a bushel.
The U.S. dollar index was 0.72% higher after the Federal Reserve signalled it was likely to raise interest rates in March, clipping demand for dollar-priced commodities.
Tensions remain high over Russia's demand that NATO pull back troops and weapons from Eastern Europe and bar Ukraine from ever joining the alliance.
The United States said on Wednesday it had set out a diplomatic path to address the sweeping demands, as Moscow intensified its military build-up near Ukraine with new drills.
Interruptions to grain flows from the Black Sea region could leave importers scrambling for alternatives including European Union and U.S. wheat, and fuel food inflation.
Ukraine is projected to be the world's third-largest exporter of corn in the 2021/22 season and fourth-largest exporter of wheat, according to International Grains Council data. Russia is the world's top wheat exporter. (Reporting By Gavin Maguire and Rajendra Jadhav; Editing by Rashmi Aich and Subhranshu Sahu)
