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GRAINS-Corn drops after USDA projects record-large 2017 yield

* USDA corn yield forecast of 175.4 bpa tops estimates

* Big fund short position, improved demand limits corn drop

* USDA leaves soy yield unchanged, record crop expected (Recasts throughout with USDA report market reaction, adds quote, updates prices, adds byline, changes dateline from PARIS)

CHICAGO, Nov 9 (Reuters) - U.S. corn futures plunged on Thursday after the U.S. Department of Agriculture projected a bigger-than-expected 2017 U.S. harvest due to a record-large average yield that topped even the highest trade forecasts.

Soybeans also dropped as the USDA left its 2017 yield outlook unchanged despite widespread expectations for a cut.

In its monthly supply and demand report, the USDA raised its corn crop forecast to 14.578 billion bushels, based on an average yield of 175.4 bushels per acre (BPA) which, if realized, would top a record set last year. The soy crop was seen at a record 4.425 billion bushels, on a yield of 49.5 bpa.

Chicago Board of Trade December corn was down 5 cents, or 1.4 percent, at $3.43-1/4 a bushel at 12:15 p.m. CST (1815 GMT) after falling to within 1/2 cent of its contract low. March and May contracts both posted contract lows.

An already-large net short position held by non-commercial traders, a group that includes hedge funds, kept prices from falling further.

"Corn has already been beat down so low and we can only drive it down so far because funds are already so short," said Karl Setzer, analyst with MaxYield Co-operative in West Bend, Iowa.

An increase in USDA's corn demand outlook, including a higher export forecast, also limited market declines, he added.

Earlier on Thursday, the USDA said corn export sales last week jumped to a 5-1/2 year high of more than 2.9 million tonnes, including 2.3 million for shipment in the current marketing year, topping trade estimates.

CBOT January soybeans fell 11 cents, or 1.1 percent, to $9.87-1/2 a bushel after hitting a 3-1/2 week high ahead of the report amid signs of strong demand from China.

The United States soybean industry has signed two letters of intent with Chinese importers covering a $5 billion purchase of an additional 12 million tonnes of soybeans in the 2017/18 marketing year, deals announced during President Donald Trump's visit to Beijing.

The Chinese government raised its forecast for soybean imports in the 2017/18 crop year to 95.97 million tonnes from 94.5 million previously, boosted by strong crushing demand.

CBOT December wheat was up 1 cent at $4.27-3/4 a bushel, supported by tighter-than-expected U.S. supplies of higher protein varieties in its monthly report. (Additional reporting by Gus Trompiz in Paris and Naveen Thukral in Singapore; Editing by Tom Brown)