* Soybeans set record high
* Corn front-month hits record top, off peak
* Wheat nears four-year high
* U.S. govt forecasts hot, dry weather to continue (Adds analyst quotes, updates market action at the close)
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 prices coming off peaks after investors cashed out of the biggest grains rally since 2008.
Corn prices crossed into uncharted territory above $8 per bushel -- about three-and-a-half times the average price 10 years ago of $2.28. Soybeans punched past $17 for the first time -- also three-and-a-half times the 2002 average.
Analysts said that while forecasts for continued dry weather are expected to sustain the rally, corn prices could be vulnerable to any move by the government to lower the amount of corn-based ethanol blenders are required to mix with gasoline.
Even as chatter about a possible revision of the ethanol mandate has escalated, U.S. Agriculture Secretary Tom Vilsack, the former governor of top farm state Iowa, has ruled out such a move.
"The only thing that can stop this rally is if they pull the mandate," said grains analyst Mark Kinoff, president of Ceres Hedge in Chicago. "In two weeks, if corn prices are $2 higher they might change their tune," he added.
"Obama would need inexpensive food and energy to get back into the Oval office," he said of President Barack Obama and his campaign to win reelection in November.
The National Oceanic and Atmospheric Administration forecast above-normal temperatures and below-average precipitation for the Midwest through October.
That 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 loftiest in four years and up more than 50 percent in a month. Wheat has received 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.
Corn prices came 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.
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 high prices for corn and soybeans in the world's largest grain-exporting nation were 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 that 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.
However, 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.
Those two elements 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.
CBOT spot September corn ended 1.6 percent higher at $8.07-3/4 per bushel after hitting a record high $8.12, surpassing the peak of $7.99-3/4 set last July. New-crop December was off 0.7 percent at $7.78-1/2, after hitting a contract high of $7.99.
August soybeans jumped 3 percent to $17.33-3/4, after posting a record-high $17.49. New-crop November rose 2 percent to $16.52-1/4, hitting a contract high $16.73-3/4.
Chicago September wheat put on 3.5 percent at $9.35, peaking at a session high $9.38, the highest in nearly four 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 Dale Hudson, Keiron Henderson, Maureen Bavdek and David Gregorio)