U.S. ethanol prices are surging, as supplies shrink amid transportation constraints.

Ethanol for delivery in April rose 6.9% last week to $2.467 a gallon, the highest settlement since Dec. 4 on the Chicago Board of Trade. Prices are up 40% from a low of $1.757 a gallon reached Jan. 27.

A bitterly cold winter and rising crude-oil shipments have caused railroad traffic to back up in the Midwest, where most U.S. ethanol is made, using corn grown in the region. The snarl is preventing the biofuel from reaching the coasts, where refiners mix it with gasoline or it is exported.

“You just can’t get it moved to where you need it to go,” said Jerrod Kitt, director of market information at Linn Group, a Chicago-based brokerage. “You could definitely see $3 [a gallon] ethanol in the Midwest.”

In New York Harbor, where shipping costs usually bump up ethanol prices by 10 cents a gallon over the Chicago benchmark, buyers are paying about $1 more per gallon, according to data from pricing service Platts. The higher prices are because railcars are so scarce, said Matt Clausen, an ethanol trader at CHS Inc., CHSCP +0.46% an Inver Grove Heights, Minn., agribusiness cooperative.

At the same time, demand from buyers such as Canada and the Philippines has remained robust because Brazil, the second-largest producer behind the U.S., is exporting less ethanol while it uses more of the biofuel, analysts said.

In November, the U.S. exported nearly two million barrels of ethanol, the most since March 2012, according to the latest data from the U.S. Energy Information Administration.

With rail capacity limited and demand still strong, U.S. stockpiles of ethanol are dwindling. Inventories fell 700,000 barrels in the week ended March 7 to 15.9 million barrels, the lowest level for any week in March, according to EIA data going back to 2011.

Supplies usually build up in the winter ahead of the summer driving season, but instead stockpiles are at their lowest level since December.

To compensate, the industry plans to increase production, said Neil Koehler, president and chief executive officer of Pacific Ethanol Inc., an ethanol producer based in Sacramento, Calif.

The company said in late February that it aims to restart a California ethanol plant that has sat idle for nearly five years.

Higher ethanol output would allow stockpiles to rebuild, but “the logistics issues with the railroads are not going to resolve themselves immediately,” Mr. Koehler said.

The industry is also watching the U.S. Environmental Protection Agency, which in November proposed reducing its mandate for ethanol blending in gasoline. A final rule has yet to be announced.

A reduced mandate would hurt ethanol demand, but producers say they could handle the hit because they expect feedstock costs to stay low.

Corn futures on the CBOT are down about 35% from a year ago, trading around $4.86 a bushel. One bushel of corn yields about 2.8 gallons of ethanol, according to the American Coalition for Ethanol.