US corn stocks down 9 pct on ethanol, price to soar

* US corn end stocks down 9 pct, 7 pct below expectations

* US corn prices expected to hit new 2-1/2 year high

* Corn stocks/use ratio 5 pct, matches 95/96 low

* Higher ethanol, HFCS output draws down stocks (Corrects lead paragraph to say the cut is from the previous month's forecast and that end stocks were 7 percent below market expectations. Also corrects first bullet point.)

By Charles Abbott

WASHINGTON, Feb 9 (Reuters) - U.S. corn stocks are expected to fall 9 percent from a previous month's forecast to the lowest level in 15 years as a record amount of the harvest is used to make fuel, the U.S. government said on Wednesday.

The report by the U.S. Department of Agriculture was expected to push corn prices to a new 2-1/2 year high on Chicago grain markets and spark new concerns about using food for fuel as grain prices soar to new highs and contribute to unrest that is spreading through the Middle East.

"This is probably going to get us off to a strong start this morning to say the least, said Shawn McCambridge, grains analyst with Prudential Bache Commodities.

Corn was expected to jump 15 to 20 cents a bushel at the opening of Chicago futures trading on the shrinking ending stocks.

Due to strong demand by ethanol makers for corn, the government estimated in its monthly report that only 675 million bushels of corn will remain in grain bins when this year's crop is ready to harvest, the smallest carry-over since 426 million bushels in 1995/96. In both cases, it would be a 2-1/2 week supply or a 5 percent stocks-to-use ratio.

The end-stocks forecast were more than 7 percent below average market expectations of corn stocks ending at 729 million bushels. Corn futures prices have been running at near-record highs, fueled by concern that rising demand for grain would outpace production around the world. A United Nations food-price index hit a record high in January.

CORN FOR FUEL

Some 4.95 billion bushels of corn, or 40 percent of the crop, will be used to make ethanol during the marketing year that ends on Aug. 31, up 50 million bushels from the previous estimate, USDA said. It would be the largest corn-for-ethanol total yet.

Ethanol output was at record-high levels in December and January, USDA said, and export demand is high.

"Corn costs for many ethanol producers and other end users may also be below spot values to date as a substantial portion of this year's crop appears to have been forward priced," said USDA, suggesting that ethanol makers may not feel the effect of rising prices.

More corn also will be used to make high fructose corn syrup, USDA said, pointing to strong shipments of the sweetener to Mexico. An upturn in industrial production will boost demand for starch from corn, said USDA. It allotted an additional 20 million bushels for HFCS and starch.

World corn stocks will drop by 3.5 percent, or 4.5 million tonnes, to 122.5 million tonnes, USDA said, due to smaller stockpiles in the United States and Brazil. USDA cut its estimate of Argentine corn production by 1.5 million tonnes, to 22 million tonnes, due to drought.

USDA left unchanged its soybean end-stocks estimate at 140 million bushels and wheat end-stocks at 818 million bushels. Traders also saw those estimates as bullish, calling wheat futures up 10-12 cents per bushel and soybeans up 8-10 cents.

(Source: http://www.trust.org/alertnet/news/usda-sees-us-corn-stocks-down-9-pct-due-to-ethanol)