"Grain bubble" in the making (Fri Sep 28, 2007)

CHICAGO (Reuters) - U.S. grain prices that have hit multiyear highs amid global production woes and strong exports could be in the early stages of a "bubble," according to a panel discussion on a government crop report issued on Friday.

"The market is in the early or intermediate stage of a 'grain bubble.' Farmers should be worried about prices going down," said James Bower of Bower Trading.

He was speaking at a panel discussion hosted by the Chicago Board of Trade after the U.S. Agriculture Department released its small grains summary and quarterly stocks reports.

Bower was joined by analyst Jerry Gidel of North American Risk Management Services and analyst Joe Victor of Allendale Inc to discuss the reports before the markets open.

U.S. wheat prices hit all-time highs on Thursday as importing nations scrambled for supplies. The Chicago Board of Trade March contract set an all-time high for any CBOT wheat contract at $9.49-3/4, before closing at $9.36-1/2.

CBOT corn is edging closer to the $4 a bushel level even as farmers harvest a record crop following the largest seeding of the grain since 1944. Soybean futures are at three-year highs.

U.S. grains have been enjoying a strong pace in exports due in part to a weak dollar, which on Friday dropped to a record low against the euro and a basket of major currencies as markets bet that reports on U.S. business activity and inflation will confirm the view more rate cuts lie ahead.

The Federal Reserve last week cut interest rates by a half-percentage point to buffer the economy from a housing slump and related financial market turbulence.

"The dollar is not going to benefit grains from this point on," Bower said, without elaborating but obviously alluding to the already sharp decline in the greenback.

USDA on Friday forecast wheat quarterly stocks in the United States as of September 1 at 1.717 billion bushels, down from trade estimates for 1.833 billion bushels and compared with 1.751 billion a year ago.

U.S. all-wheat production this year was forecast at 2.067 billion bushels, down from trade estimates for 2.118 billion bushels, and compared with 2.114 billion estimated in August.

Major wheat producing nations like Canada, Australia and France have also suffered production problems due to inclement weather. Australia's wheat crop is estimated to have shrunk to 15.5 million tonnes from 22.5 million tonnes.

USDA forecast quarterly corn stocks at 1.304 billion bushels as of September 1, up from trade estimates for 1.146 billion bushels and compared with 1.967 billion bushels a year ago; soybean stocks were pegged at 572 million bushels, up from trade estimates for 553 million and compared with 449 million bushels a year ago.

Victor said the spotlight in Friday's trading would shine on wheat, adding that U.S. wheat exporters were running well ahead of the pace needed to meet targets.

"Looking at Australia ... I'm looking for a word that describes something that's worse than bleak. That's where they are," he said, referring to the country's shrinking crop.