(Repeats story from July 12 with no changes to text)
* Corn on track for further gains; drought chips yields
* Importers lulled into false sense of security with stocks
* Pipeline of demand building as buyers play waiting game
By Veronica Brown and Nigel Hunt
LONDON, July 12 (Reuters) - What looks to be the worst U.S. drought in a quarter of a century has given rise to an old-fashioned commodity rally on world markets, with key grain prices hitting highs which caused food crises in vulnerable parts of the globe last time around.
Seeking to protect their populations from hunger this time, many countries relying heavily on imports have held off for now, touting healthy stock levels and hoping other sources will come through and bring prices down.
But their hopes may be dashed if they all return to market at once.
With so much of the world putting faith in a record U.S. corn crop, it is little wonder that prices have surged around 40 percent in the past three weeks as relentless dry weather melted yield expectations for cereals. Soybeans are at record highs, while wheat is not far behind.
"Production potential looked great and it kind of lulled these end-users into a false sense of security. At that point we were seriously looking at (corn) prices under $5 if weather conditions remained ideal, but now we've rallied sharply higher and never looked back," Jefferies Bache analyst Shawn McCambridge said.
Now, corn futures contracts backed by the 2012 harvest are above $7 a bushel and climbing fast.
Traders said consumers in Europe, North Africa and the Middle East had pulled back on regular purchases, expecting prices to cool off.
"This to me is a time bomb. I am routinely one of the more bearish people but it wouldn't surprise me if corn traded at $10," the trader added.
There are several parallels between the current state of play and food crises of the past few years, including scorching weather, wilting crops and sky-rocketing prices. Just substitute 2012's U.S. drought and corn for 2010's Russian crop failure.
Similarities can also be found on the macro front - 2008, when prices were last at these levels, saw a mushrooming financial crisis culminate in the failure of Lehman Brothers, and now Europe's debt crisis has left the euro zone precariously balanced, with other regions also on edge.
The uncertainty has led to swings in all the markets this time as then, but the simple common denominator of supply and demand has been the driving force of the latest grain price spike, with weather the only fundamental that matters.
Such frenzied buying leads ultimately to additional food inflation and domestic price rises can be a tipping point in countries with already struggling populations.
BUYERS WATCH, WAIT
State buyers from the top importing countries, including Egypt and Iran, China and India are sanguine so far, united in delivering a message of comfort in domestic stock levels and ability to sit out the current price surge.
Leading wheat buyer Egypt, importing more than 10 million tonnes per year, has said it has a strategic stock of about six months plus to last until January.
"Of course entering the markets for August shipment isn't likely now and that's because our local purchases leave us in a very comfortable position," Nomani Nomani, vice chairman of the General Authority for Supply Commodities (GASC) said last week.
In Asia, top grain consumers China and India have ample stocks of wheat and rice, thanks to near-record harvests in the last few years. U.S. corn export sources also noted that China and South Korea were ahead of the curve, booking larger shipments in anticipation of supply problems and high prices.
The surge in prices has revived memories of the 2007/08 food crisis which the United Nations Food and Agriculture Organization (FAO) estimated added 75 million to the number of chronically hungry people in the world. Other estimates put the increase at up to 160 million.
The International Grains Council's Grains and Oilseeeds Index, a weighted average of prices for wheat, corn, soybeans, soymeal, rice, barley, sorghum and rapeseed, rose this week to its highest level since July 2008.
While grain stocks currently stand 25 percent higher compared with 2008, according to IGC data, the devil is in the detail as China now has a large holding of wheat and corn and is unlikely to release it onto international markets.
Consumption of grains has steadily increased in recent years. The IGC forecast earlier this month it would rise by 1.8 percent in 2012/13 (July/June) boosted by increased meat consumption, particularly in developing countries.
Trade sources say Iran, while resting from a sanction-busting led shopping spree earlier this year and counting its domestic harvest, is checking international prices daily with a view to major purchases of grain.
Talks on multi-million tonne barter wheat deals with India and Pakistan have hit a wall and their failure will only intensify the country's purchasing needs.
Sticking with the Middle-East, crisis-torn Syria is in a chronic state, with the unintended impact of sanctions against the Assad regime leaving it unable to trade in big enough amounts to satisfy its grain import requirement of about 3 million tonnes.
Attempts at deals have failed repeatedly, with prices rising all the while.
"With the economy already a major concern, soaring grain prices will heap more and more pressure on the Syrian government. Forex reserves are at new lows and decreasing at a faster rate as commerce and the ability to collect taxes decreases," said Alan Fraser, Middle East analyst with security firm AKE.
Thailand, Asia's biggest exporter of frozen chicken, expects higher prices of corn and soybeans to stoke food inflation as the cost of feeding animals climbs.
"We are now facing higher cost of feedstuff and we expect to see a rise of 5-10 percent in food prices in the fourth quarter of the year," said Pornsil Patchrintanakul, deputy secretary-general of the Thai Chamber of Commerce.
On corn, importers are taking a certain amount of comfort from Brazil's record harvest. But there are caveats.
"Brazil has a record corn crop. They're expected to export 14 million metric tons. But there's going to be a lot of competition for that cheaper Brazilian corn," said Bill Tierney, chief economist with Chicago-based AgResource Company.
BULGING DEMAND PIPELINE
Parking on the sidelines to avoid the sting of higher prices seems like a sensible tactic
Morocco is currently reluctant to buy, but faces its highest cereal import needs in three decades due to a poor domestic harvest. The north African country's cereals crop fell from 8.4 million tonnes in 2011 to 5.1 million tonnes this year.
"Buyers have been rejecting offers in the last couple of weeks expecting prices to come down," a Singapore-based grain trader said. "We have seen it in South Korea, the Philippines and Vietnam but how long can they wait?"
Buyers will do their best to hold out for the release of new crop grain in September and October from multiple sources including Eastern Europe, with Black Sea countries having forged a place on international markets as key suppliers of grain at cheap prices.
However those origins are also under pressure.
Hot and dry weather has forced Russia, Ukraine and Kazakhstan to reduce their harvest forecasts and the region's total grain output could be at least 35 million tonnes less than in 2011. (Additional reporting by Naveen Thukral in Singapore, Karl Plume in Chicago, Michael Hogan in Hamburg, Valerie Parent in Paris, Sarah McFarlane and Jonathan Saul in London, Souhail Karam in Rabat, David Alire Garcia and Adriana Barrera in Mexico City, Maha El Dahan in Abu Dhabi, Risa Maeda in Tokyo, Meeyoung Cho in Seoul, Ho Binh Minh in Hanoi, Apornrath Phoonphongphiphat in Bangkok, Erik dela Cruz in Manila and Ratnajyoti Dutta in New Delhi; editing by Philippa Fletcher)