Corn futures rose 3% Wednesday after the U.S. Agriculture Department predicted corn stocks would fall to their lowest level since 1996.

The report is the latest sign of stretched food supplies at a time when developing country economic growth is fueling seemingly insatiable demand for agricultural goods. The United Nations warned last week of possible food riots as its food price index hit a new peak (see chart, right), above its bubbly 2008 level and doubling its value as recently as 2003.

“We have been headed in the same direction since mid-summer, because demand is just not backing off,” said Sal Gilbertie, who runs the Teucrium Corn exchange-traded fund, which trades under ticker CORN. “We are seeing a steady tightening of the balance sheet, which the market is going to have to deal with by price rationing.”

Corn futures for March delivery surged to $6.27 Wednesday morning, putting them 46% above their year-ago level. The price remains a dollar or so below the early 2008 peak that accompanied the last round of food riots.

But Gilbertie, whose corn fund was launched in June just as agricultural commodity prices took flight, said “no one seems to know what the upper end is” on the corn price.

The same might be said of agriculture-related stocks, such as that of fertilizer producer Mosaic (MOS) and tractor maker Deere (DE), both of which rose 2%.

The rising corn prices are feeding through to other commodities as well. Gilbertie notes the 25% or so rise over the past year in the prices of livestock such as feeder cattle. Over time, those prices tend to be among the most stable of agricultural commodity values, he said. But “they really have been surging lately,” he said.

Those increases have been driven in part by the increasing use of corn to produce ethanol. Rising corn prices will eventually choke off the use of corn in animal feed, as farmers turn to soybeans and other substitutes.

But with gasoline prices around $3 in most of the United States and the government expanding the use of ethanol, there is no prospect for a decline in corn for fuel use, as inefficient as that whole business might be.

Even so, Gilbertie said there is hope that some of the trends that led to the past year’s corn runup will moderate in 2011. Corn yields fell in the most recent season, which he said happens regularly but typically only once in a multiyear cycle.

If farmers plant more corn and yields resume their long-term rise, supplies could expand enough to keep up with growing demand. At least for now, anyway.

“The mass of humanity is expanding,” said Gilbertie. “That’s real live demand, not part of a bubble.”