* Weather at center stage in grains * Models offer forecasts for bulls and bears * Export demand back on front burner * Strong dollar may weigh on export demand By K.T. Arasu CHICAGO, May 28 (Reuters) - Conflicting forecasts by European and U.S. weather models for the U.S. Midwestern grain belt this week -- a time when rains are essential for the fledgling corn crop -- may cause a tug-of-war between bulls and bears in the grain markets. The point of contention between the two weather models is if there will be substantial or meager rains in the Midwest on Wednesday night into Thursday morning. The actual outcome could rally or tumble Chicago Board of Trade corn futures. Meteorologist David Streit of Commodity Weather Group said the U.S. weather model, as of Friday afternoon, was showing rains across 75 percent of the Midwest while the European model forecast rain for just 25 percent of the region. "There is a big difference about that system. The American model shows extensive rains in the south and east of the Midwest while the European model shows the best rains will be in the (Mississippi) Delta and eastern quarter of the Midwest." He said the European model had a slight edge over the U.S. one in terms of proven accuracy in forecasting weather over the 6- to 10-day period, adding that the key difference between the two comes from the way they analyze atmospheric data. Corn planting in the Midwest got off to a record start in March due to the mildest winter in decades and the favorable conditions for the crop led the U.S. Department of Agriculture earlier this month to forecast a record crop this year. Since then, some areas of the Midwest -- where a bulk of the country's corn and soybeans are grown -- have turned dry, raising concerns the crop could suffer without timely rains. Any damage to the crop in the world's largest exporter of the grain could trigger world-wide price hikes, especially because markets had been counting on a large crop this year. A large crop is needed to replenish U.S. stocks that are set to fall to their lowest in 16 years this summer due to a disappointing harvest in 2011. Corn futures had been under pressure due to prospects for a bumper U.S. crop this year, with the December contract, which reflects this year's harvest time price, hovering at a 15-month low. SOUTHERN U.S. CORN AT RISK FROM DRY WEATHER The weather watch could start this weekend, when 1/2 to 1 inch of rain is forecast on Sunday night into Monday over the northwestern half of the Midwest from Nebraska to Wisconsin. "The key is going to be how much rain there is over the weekend. Three-quarter of an inch without good coverage will not be good. If the weather is hot and dry it could impact some of the advanced corn in Southern locations," said Michael Cordonnier of consultancy Soybean and Corn Advisor. "If the hot and dry weather at the end of May is the start of a pattern, that is not good at all," he said, adding that the corn crop in the Mississippi Delta was heading into pollination and therefore needed sufficient rains to develop good yields. "Stress in the crop pre-pollination could lock in poor yields," he said. "If the crops do not recharge (with moisture) soon, things could go downhill." Corn and soybeans are planted earlier in the Southern belt than in the Midwest because of warmer weather. The southern harvest is set to kick off about two weeks earlier in August this year as a mild winter allowed for early seeding. Much of the Southern corn goes into the export channel because of its close proximity to terminals at the U.S. Gulf. 'LEAVES ROLLED UP TIGHT' Grains analyst Dan Cekander of Newedge USA said some of the corn plants in central Illinois were showing signs of heat stress, indicated by leaves curling up. "Leaves are rolled up tight in the afternoon in central Illinois," he said, adding that weather would be a key market factor this week. The corn crop in the Midwest typically goes through the yield-setting pollination stage in July, but the process could come earlier this year due to early seeding. The soybean crop, which is usually planted after the corn crop in the Midwest, goes through its critical development stage in August when it sets pods, determining yields. Traders will also be on the look out for export demand this week in the wake of more competitive prices for corn and soybeans in Brazil and Argentina. There are also concerns over Chinese demand due to slowing growth in Europe, its biggest trading partner. Traders said China and other importers might be shifting their demand to cheaper supplies in South America after export sales of U.S. corn fell below trade expectations in the latest reporting week and China cancelled some cargoes of U.S. soy. Grains analyst Don Roose of US Commodities in West Des Moines, Iowa, said prices for soybeans were substantially lower in competitor Brazil. "Brazil's prices are 50 to 60 cents lower. Our export business is slipping partly due to the dollar," he said. The dollar index, a measure of the greenback against a basket of major currencies, is at its highest level in about 20 months while the Thomson Reuters-Jefferies CRB index was the lowest in about 20 months. The stronger dollar could curb export demand for grains this week, but last week's lower prices may be a counter that. "Demand is on the front burner," said grains analyst Mike Zuzolo of Global Commodity Analytics, adding that corn export sales last week were 57 percent below the four-week average.