Goldman Sachs Group hiked its three-month projection for corn prices by 11 percent and raised its six-month outlook as well, saying demand from ethanol makers and livestock producers is running stronger than government predictions even amid tight grain supplies.

Corn futures may reach $6.85 a bushel over the next three months, up from a $6.15 target a month ago, Goldman Sachs said in an agriculture markets update released Nov. 10. The New York-based bank said corn could hit $6.50 over the next six months, up from $6.15 in a previous outlook.

In a Nov. 9 report, the U.S. Department of Agriculture said the nation’s corn harvest will be about 1 percent smaller than the agency estimated in October. While the USDA resolved uncertainty over the size of the U.S. crop, “demand uncertainty remains high for the 2011-12 marketing year, especially for corn,” Goldman Sachs said.

The USDA “raised many questions on U.S. domestic corn demand,” Goldman Sachs analysts led by Damien Courvalin said. The analysts said they adopted the USDA’s reduced corn supply outlook, but see prices rising in part because many livestock are still profitable with cattle and hog markets near all-time highs.

“We continue to expect stronger U.S. domestic corn demand, especially in coming months,” Goldman Sachs analysts said. Although the analysts expect livestock consumption to decline next year as chicken and beef industries cut back, they believe feed demand will be higher than the USDA estimated.

“Cattle and hog margins remain positive at current corn prices, pointing to near-term strength in feed demand,” Goldman Sachs said. “This strength in feed demand was illustrated by the stronger-than-expected September cattle placements.”

“Further, we still see risks that the surprisingly low level of U.S. corn feed demand in 2010-11 may have been underestimated,” the analysts said.

In a separate Nov. 9 report, USDA lowered estimated feed and residual use for corn to 4.6 billion bushels for the 2011-12 marketing year, down 4 percent from 2010-11 and the lowest figure for that category since 4.46 billion bushels in 1989-90.

U.S. corn inventories at the end of the 2011-12 marketing year Aug. 31 will total 843 million bushels, the USDA said, down 25 percent from 2010-11 and the lowest amount of the grain on hand prior to a new harvest since 1996.

Goldman Sachs also said it expects ethanol distillers to use more corn than the USDA forecast, even with a tax credit encouraging use of the fuel additive expiring at the end of this year.

“We believe that ethanol production will remain strong until year-end as producers and exporters try to capture both the current elevated producer margins as well as the blender credit before its expiration,” Goldman Sachs said. “Further, continued strong ethanol exports in 2012 would create upside risk to our corn grind for ethanol forecast.”

The corn market’s upside will probably be “capped,” Goldman Sachs said, as prices above $7 a bushel would achieve “significant demand destruction” both in feed and export demand and would prompt farmers to sell this year’s harvest.

Over the next 12 months, corn may drop toward $5.50, unchanged from a previous forecast, Goldman Sachs said.

In trading Nov. 11, corn futures for December delivery traded on Chicago-based CME Group fell 7 cents to $6.38 ½ a bushel, down 2.6 percent on the week for the contract’s first drop in the past six weeks. March corn fell 7 cents to $6.47 ¾.

Goldman Sachs analysts projected a cattle futures price target at $1.20 a pound for the next three months and $1.30 for the next six months, unchanged from their previous outlook, which was released Oct. 4. The three- and six-month targets for lean hog futures were left unchanged at 95 cents a pound for both.

On Nov. 11, December live cattle futures fell 1.05 cents to $1.2055 a pound, down 3.7 percent this week. December lean hog futures rose 0.7 cent to 86.45 cents a pound, down 0.5 percent on the week.

Goldman Sachs is one of the world’s biggest commodity traders. As of the end of August, Goldman Sachs held almost $23.2 billion in customer funds, the most among futures commission merchants and retail foreign exchange dealers tracked by the U.S. futures industry regulator.