U.S. ethanol subsidies may have increased corn prices by as much as 17 percent this year, according to Bruce Babcock, a professor of economics at Iowa State University.

High gasoline prices may have lifted ethanol demand, creating a “tighter” corn market in 2011 than in previous years, according to a study by Babcock for the Geneva-based International Centre for Trade and Sustainable Development.

“Under these tight conditions, the added demand incentive from the blender tax credit can have a significant impact” on prices, Babcock said in an e-mailed statement. “Additional flexibility in U.S. policy could be introduced by relaxing blending mandates when feedstock supplies are low.”

Corn prices have surged 79 percent in Chicago in the past 12 months on demand from China and for ethanol production. The U.S. Senate has voted to eliminate a 45 cents-a-gallon tax credit given to ethanol blenders. Under an energy law known as the Renewable Fuels Standards, petroleum refiners are required to use 15 billion gallons of ethanol by 2015.

More of the U.S. corn crop will be used in gasoline than in animal feed for the first time in 2011-12, the U.S. Department of Agriculture forecasts. Crude oil prices in New York have risen 21 percent in the past year.

If U.S. ethanol production had remained at 2004 levels, corn prices in 2009 would have been 21 percent lower, according to Babcock.

Ethanol futures surge

Biodiesel on the New York Mercantile Exchange is up 51 percent in the past year and ethanol futures on the Chicago Board of Trade have surged 66 percent. Soybeans used to make biodiesel are up 44 percent and corn used in ethanol production has gained 79.9 percent.

In the United States, an energy law signed in 2007 requires 12.6 billion tons of ethanol to be blended into gasoline in 2011. Argentina is expected to produce 2.3 million tons of biodiesel, made from soybeans, this year, up 27 percent from 2010, Oil World said in a report on June 7.

Corn and soybeans may gain further if adverse weather hurts plants this summer after excessive rainfall slowed planting in the United States, Oil World said. Prices may also rise if crude oil, up 21 percent in the past year, gains further and increases demand for biofuels made from grains and oilseeds, according to the report.

“The conflict food versus fuel could again be on the agenda soon in case of any major production losses in oilseeds or in corn and other grains,” Oil World said. “An increase in crude mineral oil prices above current levels in 2011-12 would be supportive also for vegetable oils, oilseeds and meals.”