U.S. corn supplies later this year will be about 6.5% smaller than previously forecast amid strong export and ethanol demand and a disappointing harvest last year, analysts say.

Corn stockpiles at the end of the 2010-11 marketing year August 31 are expected to decline to about 778 million bushels, according to a survey of analysts conducted by Dow Jones Newswires. In a December report, the U.S. Department of Agriculture estimated 2010-11 ending corn stocks at 832 million bushels, the lowest in 15 years.

The USDA is scheduled to release updated supply and demand data January 12 at 7:30 a.m. Central time. Also January 12, the USDA will release final crop production figures for 2010 and its quarterly grain stocks report.

Shrinking corn inventories reflect heavy August rains that hurt crops in parts of the Midwest, as well as continued expansion by the ethanol industry, which is using record amounts of the grain. Ending corn stocks of 778 million bushels would mark a drop of 55% from the 1.71 billion bushels on hand at the end of 2009-10.

Livestock feeders’ margins were squeezed as tightening corn supplies sent prices above $6 a bushel in recent months. Corn futures in Chicago rallied 52% in 2010, and on January 3 touched a 29-month high at $6.34 a bushel.

A reduction in corn supplies likely will keep prices elevated in coming months, but it would take a more dramatic cut to push the market above the highs reached earlier this month, analysts say.

“An ending stocks projection below 800 million bushels would tend to reinforce the uptrend in prices, but probably wouldn’t send prices to new high on its own,” said Marty Foreman, an analyst with Doane Advisory Services.

Recent strength in corn prices is mostly due to dry weather hampering crop development in Argentina, Foreman said. He expects corn prices to stay high at least through the winter.

“It seems that in years like this where demand is running a little stronger than forecasts and supplies are tightening, price remain relatively strong at least until planting season, when it becomes clear that corn acreage will increase and the crop will be planted in a timely manner,” Foreman said.

Mike North, senior risk manager with First Capitol Ag, said the USDA’s current corn ending stocks number, at 832 million bushels, “has everyone’s attention.”

But if the USDA report January 12 is close to trade expectations, “it will likely have little effect on the market, as everyone has been expecting a tightening number since November,” North said. A sharp reduction, below 600 million bushels, for example, “would send the market higher for sure,” he said.

How high corn would rise is anyone’s guess, but resistance does exist at $6.50 in old-crop and $6 in new crop” futures, North said. “Obviously, any run in corn that would outpace the run in (beef and pork prices) would be a negative one. We will certainly test the peoples ‘appetite’ for higher-price beef, pork, and poultry.”

At today’s close, March corn futures at CME Group rose 14¼ cents to $6.09¼ a bushel.

The USDA is expected to trim its estimate for the 2010 corn harvest to 12.51 billion bushels from 12.54 billion in a November report, based on the Dow Jones survey. The soybean harvest is expected to be raised to 3.377 billion bushels from the record 3.375 billion-bushel crop forecast in November.

In 2009, U.S. farmers harvested a record 13.11 billion bushels of corn.