U.S. corn supplies, already expected to shrink to a 15-year low later this year, may be even smaller than previously expected as ethanol makers use more of the crop, analysts say.

Corn stockpiles at the end of the current marketing year Aug. 31 are expected to drop to 736 million bushels, according to a Dow Jones Newswires survey of analysts. That would be down 9 million bushels from a U.S. Department of Agriculture estimate in January.

The USDA is scheduled to release monthly supply and demand updates tomorrow at 7:30 a.m. Central time.

Livestock producers’ feed costs surged in recent months as corn prices rallied above $6 a bushel following a disappointing U.S. harvest. Any further tightening in supplies likely signals even higher corn prices, analysts say.

The combination of tight supplies and high feed costs “are never good for the livestock industry,” said Elaine Johnson, an analyst with CattleHedging.com, LLC. Previously, feeder cattle prices would adjust relative to fattened cattle prices as feed costs rose.

“Now, however, we are seeing global growth occurring in meat protein demand at a time when cow herds are at their lowest levels in decades,” Johnson said. “Profitability should be very good for the cow-calf sector. However, profitability in the cattle feeding and packing sectors could both be squeezed.”

The corn market’s escalation partly reflects stepped-up competition from the ethanol industry, where high gasoline prices have provided incentive to ramp up production. During the week ended Jan. 21, U.S. ethanol production averaged 38.7 million gallons a day, a record high, according to government data.

Previously, the USDA projected the ethanol industry’s corn consumption for 2010-11 at a record 4.9 billion bushels, or 35 percent of total supplies. Two years ago, ethanol makers used 27 percent of supplies.

Jerry Gidel, an analyst with North America Risk Management Services Inc., said ethanol demand may be revised higher by 50 million to 100 million bushels. However, any increase in ethanol use may be offset by lower corn exports, Gidel said. He expects the USDA’s corn ending stocks estimate to remain unchanged at 745 million bushels.

Ending stocks at 745 million bushels would amount to a little over 20 days’ supply, compared with nearly 48 days’ worth at the end of 2009-10.

Though corn costs are increasing, high cattle and hog prices should continue to encourage livestock feeding, said Darrel Good, an economist at the University of Illinois.

The number of cattle in U.S. feedlots at the end of January was up 5 percent from a year earlier, Good noted, and dairy producers don’t appear to be reducing cow herds. These “all point to strong feed demand in the near term,” Good said in a report.

Livestock feeders are expected to use 5.2 billion bushels of corn in 2010-11, up from 5.14 billion bushels the previous year, according to the USDA.

At today’s close, March corn futures in Chicago fell 1 cent to $6.73 ¾ a bushel, down from a 30-month high of $6.82 ½ yesterday. Prices probably will climb further, traders say, with many expecting corn to surpass $7 in coming weeks.

“The trend in everything is clearly higher,” said Greg Deneen, an independent broker in the CME Group corn futures pit.