Market slows, ethanol plans grow

October 23, 2006|By Greg Burns | Greg Burns,CHICAGO TRIBUNE

OSCO, Ill. -- Gary Asay raises thousands of hogs in this small town near the Mississippi River, and for years he's had nothing much around him but farmland stretching in every direction.

Now an ethanol plant will be opening just 25 miles to the south in Galva. Another is coming to Annawan, about 25 miles to the east, and another just 30 miles across the river in Buffalo, Iowa. The town of Fulton, 44 miles to the north, will be getting a big one, too, leaving Asay to wonder if all those factories amount to too much too soon: "Anyone who has looked into it is concerned," he says. "There are too many plants too close together."

The ethanol boom is spreading money around the heartland like so much fertilizer. Billions of dollars in new government subsidies have touched off a flurry of private investment at biofuel operations across the Midwest. Tired towns where opportunity has slipped away for decades now see their salvation in the giant distilleries that turn corn into alcohol for the gas tank. Almost every rural hamlet has a plant in its sights, or so it seems.

Yet the benefits of ethanol fall unevenly, and some longtime rural interests stand to lose ground as corn farmers and others gain.

If the local crop gets used for ethanol instead of exports, then grain elevators, loading equipment and barges used to ship corn could become obsolete. If grain is less readily available for feed, Midwest livestock producers such as Asay could be squeezed out. If ethanol plants emit excessive levels of pollution, their nearby neighbors could be in for a rude surprise.

And what if the ethanol boom goes bust? What if oil prices, already down sharply from their summer peak, head back to $20 a barrel? What if some cheaper raw ingredient takes the place of grain? What if ethanol plants really belong near their customers in big cities, instead of small towns in corn country?

Already, gasoline prices have plunged, corn has shot higher, and the hype surrounding ethanol investments has fizzled. A pair of ethanol producers that went public this summer have seen their stocks pummeled. In September, a third producer postponed its planned initial public offering amid hostile market conditions.

Yet the rush for new ethanol plants continues in the heartland. Town after town is jockeying for a spot on the forward schedules of the relatively few companies that specialize in designing the rural factories. Big dreams still rule the day.

"Gasoline prices have dropped dramatically, and that gives some people cause to wonder, but not me. I don't think there's any place you could build a plant and not make money," says Ron Plain, agricultural economist at the University of Missouri. "Turning farm crops into automobile fuel has the potential to be the biggest change in U.S. agriculture since the introduction of the soybean."

Where boosters see vast opportunities, however, David Sykuta sees an "ethanol dream world" based on energy markets that go up but never down. Grass roots ethanol investors accustomed to lavish government crop subsidies will be in for a shock if oil prices keep falling and bailouts fail to follow, he warns.

"They're all told they can have it all with no consequences," says Sykuta, who heads the Illinois Petroleum Council. "Some of these towns are going to get a heaping dose of the realities of the energy industry. It's the opposite of what they're used to."

Greg Burns writes for the Chicago Tribune.

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