However, ethanol production is now slowing as the combination of lower gasoline prices and higher corn prices has squeezed margins for both producers and blenders of ethanol.

The Renewable Fuels Standards require a 600-million-gallon (4.5 percent) increase in renewable biofuel blending in 2013, but if margins remain under pressure, part of that requirement could be met with credits associated with excess production in 2011 and 2102 rather than with actual ethanol production. If that occurs, corn consumption for ethanol production would fall short of the USDA projection of 5 billion bushels for the 2012-13 marketing year.

"The domestic feed and residual use of corn totaled about 4.215 billion bushels during the first three quarters of the current marketing year, about 119 million bushels less than during the same period last year," he said.

For the year, the USDA has projected use at 4.55 billion bushels, 243 million less than used last year. To reach the projection, use during the fourth quarter would need to be only 335 million bushels. Based on historic levels of use and the current livestock and poultry inventory, use would be expected to be much larger during the quarter than would be needed to reach the projection.

Apparent consumption in the summer quarter, however, is expected to be reduced by the larger-than-normal harvest and consumption of new-crop corn before Sept. 1.

"The Sept. 1 inventory estimate is intended to reflect only old-crop inventories. If new-crop corn is consumed before Sept. 1, it gets reflected in the feed and residual estimate of old-crop corn in the fourth quarter regardless of what it is used for," Good said.

Larger-than-normal consumption of new-crop corn results in a smaller level of old-crop use and larger old-crop stocks on Sept. 1 than otherwise would have occurred, he said.

On the other hand, consumption of the newly harvested crop before Sept. 1 results in an inflated estimate of use during the first quarter next year. The current USDA forecasts reflect this expectation, with feed and residual use next year projected at 5.45 billion bushels.

"Even with some of that expected consumption occurring this year, the projection appears too large. The bottom line is that new-crop corn prices are likely high enough to result in less consumption in 2012-13 than is currently forecast," he said.

The dilemma, however, is that it is far from clear how much corn will be available next year. At current prices, consumption next year might be closer to 13.3 billion bushels than the 13.775 projected by USDA.

"To maintain year-ending stocks at 850 million bushels, production would also have to total 13.3 billion bushels. With acreage harvested for grain at 88.851 million, the U.S. average yield would need to be near 150 bushels to produce 13.3 billion bushels.

“Based on recent and upcoming weather, there is considerable risk that the yield will be below that level. If so, additional rationing and even higher prices will be required," Good said.