A revival in the profitability of ethanol plants, fostered by a stronger oil market, will support a rebound in corn prices of 40% over the next year, Goldman Sachs has said

Analysts at the investment bank warned that the "more-than-ample supply outlook" for US corn, for which Washington is forecasting record yields this year, had prompted them to trim their hopes for price rises.

Nonetheless, even these reduced estimates forecast a return to $4.00 a bushel in three months' time, and to $4.50 a bushel in 12 months, suggesting "upside particularly on a 12-month horizon".

Separately, hopes of an end to the slide in corn prices were also raised by Credit Suisse which noted that, with non-commercial investors having already retreated from big long positions, there appeared "limited near-term downside to corn prices, at least from speculators".

Chicago corn for December stood at $3.17 a bushel in early live deals in Chicago on Monday, down 2.75 cents on the day.

'Better ethanol economics'

Goldman Sachs' optimism reflected improved conditions for ethanol plants, whose profitability had rebounded to about 40 cents per gallon of ethanol, the best for two years.

"Better ethanol economics point to rising biofuel-related usage," Goldman Sachs said.

And ethanol plant profitability - which turned negative in the summer of 2008, driving many producers out of business – should improve further as the oil market revives, the report said, noting a "constructive" view of oil prices.

Extra demand fostered by global economic recovery will push world oil production back below consumption, helping prices to $95 a barrel by the end of next year and improving demand for alternative fuels.

Current US Department of Agriculture forecasts envision 32% of this year's American corn crop going to make ethanol, up from 5% in the mid-1990s.