Average U.S. ethanol margins have risen for the fourth week running as prices for corn, the top raw material cost for distillers, have fallen more than $1 a bushel over the month, experts said.

The lower price of corn has really helped the economics of the ethanol industry, said Rick Kment, an ethanol expert at DTN in Nebraska.

The ethanol crush spread for average ethanol producers rose about 10 cents to 50 cents a gallon this week, using the formula of the Midwest ethanol price, minus the corn price divided by 2.8.

Operating costs such as natural gas and overhead trim the crush spread by about 20 to 30 cents per gallon, depending on the distillery, bringing net margins to between 20 and 30 cents a gallon this week.

The July corn contract on the Chicago Board of Trade closed at $3.43-1/2 a bushel on Thursday, down more than $1 from prices in early June.

Prices could keep falling. The U.S. Department of Agriculture on Friday said farmers will harvest their second-largest corn crop ever, which will make for sharply lower summer price prospects for corn.

The recession continues to hit fuel demand, however, which could cut the amount of corn used to make ethanol for this marketing year by 100 million bushels, to 3.65 billion bushels, the USDA forecast.

Kment said poor fuel demand coming during peak summer driving season, is keeping distillers cautious about running their ethanol plants at full steam. If we see a significant drop in demand, they could be in a little bit of same situation, as last autumn when margins began to drop.

Spot ethanol prices in the Midwest were down about 5 cents to $1.71 per gallon on weaker crude prices, which have fallen on bloated supplies of oil products, dealers said.

Still, the sunnier margins came as a relief to the industry, which has seen a slew of shutdowns, bankruptcy filings and curtailments as the hardest-hit distillers slow operations.

And U.S. production of ethanol is expected to be higher than last year as mandates for biofuel blending call for increases each year. The mandates call for 15 billion gallons per year of traditional ethanol to be blended into gasoline by 2015. up from 10.5 billion gallons this year.

Many ethanol producers make the livestock feed distillers grains as an byproduct, which can improve profits. Producers near feedlots can sell wet distillers grains, which are cheaper to make and can enhance profits. Ethanol plants farther from feedlots sell dried distillers grains, but have to buy natural gas to dry them, which adds to costs.

(Reporting by Timothy Gardner; Editing by Lisa Shumaker)