GRAINS-Corn, soybeans jump to record highs, stir food crisis fears

* Soybeans set record high

* Corn front-month hits record top, off peak

* Wheat nears 4-year high

* NOAA forecasts hot, dry August (New throughout, updates prices, market activity)

By K.T. Arasu

CHICAGO, July 19 (Reuters) - Corn and soybeans soared to record highs on Thursday, as the worsening drought in the U.S. farm belt stirred fears of a food crisis, with a U.S. government agency forecasting that the heat and dryness will extend into next month in the Midwest.

The forecast by National Oceanic and Atmospheric Administration bodes ill for soybeans, which will go through the critical yield-setting stage in the next two weeks into August and need adequate moisture for proper growth.

About 80 percent of the corn crop is already pollinating. Hopes are fading fast for any recovery in yield in areas hardest hit by the worst drought 56 years, analysts said.

Soybeans took over leadership of the price rally, posting much larger gains than corn on Thursday.

Chicago wheat futures were also higher, with prices near their highest levels in four years, up more than 50 percent in a month. Wheat has gotten a boost from corn and soybean futures, along with crop troubles in Europe, particularly Russia.

There have been constant whispers of Russia curbing wheat exports to preserve supplies for domestic use, but Russian officials have said they have no plans to do so.

Updated U.S. weather forecasts called for light rains in Michigan, Indiana and Ohio on Thursday. Still, large swaths of the Midwest, which accounts for three-quarters of the corn and soybeans produced in the United States, will remain dry.

Corn prices were off their peaks after rains overnight and on Thursday morning in part of Illinois, a top corn and soybean growing state, and in Chicago, home to the global citadel of grains trading --- the Chicago Board of Trade.

"There is some of that mentality," said grains analyst Dan Basse, president of AgResource Co in Chicago, alluding to the adage that grain traders sell when it rains on La Salle street, the city's financial district.

Corn prices began to retreat when pit trading at the CBOT began at 9.30 am Central Time (1430 GMT).

A weather report from the Drought Monitor showed the drought was expanding. Half of the Midwest was in severe to exceptional drought, up from about a third of the region a week earlier.

The National Oceanic and Atmospheric Administration said above-average temperatures were expected over the vast majority of the contiguous 48 U.S. states in August, with below-average precipitation for the Midwest.

The high prices for corn and soybeans in the world's largest grain exporting nation was beginning to dent sales.

U.S. government data showed sales of soybeans to buyers overseas fell last week to the lowest level in six months. For corn, the weekly sales were one-fifth of a year ago, with Taiwan choosing to cancel a large purchase.

Concerns were growing that high prices could trigger a food crisis like the one in 2008, when food shortages triggered riots in some countries.

"I hesitate to use those words (food crisis) but the circumstances are more severe now than they were in 2008," said Dennis Gartman, a commodity trader and editor/publisher of The Gartman Letter.

Key ingredients in the food crisis of 2008, which combined with other political factors to topple the government in Tunisia, were crude oil prices rallying to a record high above $147 per barrel and prices for rice surging in Asia -- two elements that are missing this time around.

Asia has an abundant supply of the rice staple this year, while U.S. crude oil is well below $100 per barrel.

Chicago Board of Trade spot September corn rose 0.8 percent to $8.01-1/2 per bushel after hitting a record high $8.12, surpassing the peak of $7.99-3/4 set last July. New-crop December was up 0.3 percent at $7.86, after hitting a contract high of $7.99.

August soybeans rose 3 percent to $17.31-3/4, after posting a record high $17.46-1/2. New-crop November rose 2 percent to $16.52, hitting a contract high of $16.73-3/4.

Chicago September wheat rose 2 percent to $9.19-1/2, peaking at a session high $9.37-1/2, the highest in nearly 4 years. Wheat futures continue to remain in the shadow of the all-time high set in 2008 at above $13 per bushel. (Additional reporting by Sam Nelson and Karl Plume in Chicago, Ivana Sekularac in Amsterdam and Colin Packham in Sydney; Editing by Keiron Henderson, Maureen Bavdek and David Gregorio)