Rural

COOPERA COOPERATIVES

USDA / Rural Development September/October 2006

Ethanol Issue

Hopes, Concerns & Potential

page 4
Five years ago, shortly after the Sept. 11 attacks, Indy race

car driver Paul Dana had an idea: run the Indianapolis 500,

the world’s largest single-day sporting event, on ethanol as a

symbol of America’s determination to reduce its dependence

on imported oil.

The idea came naturally to Paul, who had grown up on a

Missouri farm with a Corn Belt perspective on ethanol. So he

set out to make it happen, with the help of the Renewable

Fuels Assoc. and some farm groups. He lobbied drivers, team

owners and anyone else who would listen, and he soon persuaded Tony George, the owner of the Indianapolis Motor

Speedway, to take a close look. 

Paul’s perseverance paid off. Once the engineers had vetted the project, Tony George gave the order and the Indy

Racing League (IRL) announced a historic switch: Indy cars

are going green. The 2006 race was run without incident on

a 10 percent ethanol blend, and the 2007 IRL circuit will be

100 percent ethanol powered. 

Paul Dana was tragically killed in a racing accident in

March 2006 at the Homestead-Miami Speedway in Florida,

but his vision lives on. The Farm-Belt “homebrew” of the

1960s is now powering high-performance race cars, as well as

helping fuel millions of private automobiles across the country. Ethanol has truly come of age.

This issue of Rural Cooperatives reviews ethanol’s rapidly

growing impact on America’s farm economy. When Paul Dana

began his quest, the United States was producing 1.77 billion

gallons of ethanol annually. In 2005, barely five years later, we

produced 3.9 billion gallons. When the 42 plants now under

construction join the 102 already operating, total capacity will

exceed 7.8 billion gallons. Ethanol this year may absorb 20

percent of the U.S. corn harvest. The effects are many:

• Improved national security due to a reduction in oil

imports.

• A cleaner environment. 

• Higher prices for corn growers.

• Wealth creation, new jobs and tax-base increases in rural

communities.

• Potentially higher costs for livestock operations, which

are at least partially offset by an increased supply of

dried distillers grain.

• Lower support payments and reduced U.S. vulnerability

to WTO litigation.

• New markets for third-world producers if ethanol

diverts U.S. corn from the export market and as ethanol

production expands internationally.

These and other adjustments will continue to unfold as the

ethanol industry matures. From a rural development standpoint, it is important to note that ethanol is much more than

just BTUs. It is a rural, distributed resource. Farmers own

the feedstock. Transportation costs favor local sourcing and a

decentralized production base. State-of-the-art technical and

managerial assistance is readily available. A franchise model

of development opens the door to local ownership and control. 

While the ethanol boom is attracting an ever-wider pool

of investors, agricultural producers and cooperatives are

thus still able to compete. This is also true in other emerging energy resources like wind, solar and — a few years

down the road — cellulosic ethanol. Renewable energy is

distributed energy, and that spells opportunity for rural

entrepreneurs. 

A strategic goal for USDA Rural Development, therefore,

is to encourage local investment in, and ownership of, the

renewable energy resources already present in rural communities. This is a historic opportunity for wealth creation in

rural communities. Renewable energy is a top priority for

America’s farmers as well as the nation as a whole, and we

look forward to working with America’s cooperatives to get

the job done.

Another great opportunity: some of you may still have

time to register for Advancing Renewable Energy: An

American Rural Renaissance, a conference to be held Oct.

10–12 at America’s Center in St. Louis. See pages 35 & 42

for more details, or visit: www.technologyforums.com/6EN/

—Thomas Dorr

USDA Under Secretary for Rural Development ■

2 September/October 2006 / Rural Cooperatives

COMMENTARY

Renewable Energy: 

Ethanol Comes of Age

Driver Jeff Simmons of the Rahal Letterman Racing Team (left) discusses the conversion to ethanol fuel at the Indianapolis 500 with

Rural Development Under Secretary Thomas Dorr. USDA photo by

Darrell Mowery
Rural Cooperatives / September/October 2006 3

Rural COOPERATIVES (1088-8845) is published

bimonthly by Rural Business–Cooperative Service,

U.S. Department of Agriculture, 1400 Independence

Ave. SW, Stop 0705, Washington, DC. 20250-0705.

The Secretary of Agriculture has determined that

publication of this periodical is necessary in the

transaction of public business required by law of 

the Department. Periodicals postage paid at

Washington, DC. and additional mailing offices.

Copies may be obtained from the Superintendent of

Documents, Government Printing Office, Washington,

DC, 20402, at $23 per year. Postmaster: send address

change to: Rural Cooperatives, USDA/RBS, Stop

3255, Wash., DC 20250-3255.

Mention in Rural COOPERATIVES of company and

brand names does not signify endorsement over

other companies’ products and services.

Unless otherwise stated, contents of this publication

are not copyrighted and may be reprinted freely. For

noncopyrighted articles, mention of source will be

appreciated but is not required.

The U.S. Department of Agriculture (USDA) prohibits

discrimination in all its programs and activities on

the basis of race, color, national origin, age, disability, and where applicable, sex, marital status, familial

status, parental status, religion, sexual orientation,

genetic information, political beliefs, reprisal, or

because all or part of an individual’s income is

derived from any public assistance program. (Not 

all prohibited bases apply to all programs.) Persons

with disabilities who require alternative means for

communication of program information (Braille,

large print, audiotape, etc.) should contact USDA’s

TARGET Center at (202) 720-2600 (voice and TDD). 

To file a complaint of discrimination, write to USDA,

Director, Office of Civil Rights, 1400 Independence

Avenue, S.W., Washington, D.C. 20250-9410, or call

(800) 795-3272 (voice), or (202) 720-6382 (TDD). USDA

is an equal opportunity provider and employer.

Mike Johanns, Secretary of Agriculture

Thomas C. Dorr, Under Secretary,

USDA Rural Development, 

Jack Gleason, Administrator, 

Rural Business-Cooperative Programs

Dan Campbell, Editor

Vision Integrated Marketing/KOTA, Design

Have a cooperative-related question?

Call (202) 720-6483, or

Fax (202) 720-4641, Information Director,

This publication was printed with vegetable oil-based ink.

Rural COOPERA COOPERATIVES

September/October 2006 Volume 73 Number 5

p. 4

p. 10

p. 13

p. 16

FEATURES 

Special Issue > Energy by the Bushel

DEPARTMENTS

2 COMMENTARY

31 CO-OP DEVELOPMENT ACTION

33 NEWSLINE 

43 INSIDE RURAL DEVELOPMENT 

On the Cover:

Mid-Missouri Energy Cooperative member Brian Miles isn’t just harvesting corn, he’s harvesting ethanol and helping to wean America from its

dependence on foreign oil. The hopes, concerns and potential for the

nation’s ethanol industry are examined in this special issue. USDA photo

by Dan Campbell 

4 Fuel Farming

Missouri farmers harvest

bumper crop of ethanol

By Dan Campbell

8 A farm-supply co-op

view of ethanol

By Dan Campbell 

10 Left Behind

Some country elevators left

behind as ethanol diverts

supplies

By Catherine Merlo

13 Bring It on Home

Local ownership of renewable energy helps ‘keep it 

on the farm’

By Alan Borst 

16 From Grass to Gas

How soon will cellulosic

ethanol be a factor?

By Anthony Crooks

19 Keep on Truckin’

Ethanol boom creates 

transportation challenges

By Stephen Thompson

22 Measuring the gains

for distillers grains

By Anthony Crooks

25 Ethanol from Sugar

What are the prospects 

for U.S. sugar co-ops?

By James Jacobs

29 VAPG program

helping fuel biofuel

growth
By Dan Campbell, editor

dan.campbell@wdc.usda.gov

s he guides his combine across fields of

ripe corn near Marshall, Mo., Brian

Miles doesn’t look anything like a Texas

oil tycoon. Nor do Randy Britt of nearby

Kaseyville or Dale Samp of Cairo, Mo.,

as they tend their crops and livestock. 

But a new breed of home-grown ‘oil baron’ is

sprouting on farms like this all across America. J.R.

Ewing (of “Dallas” fame) has nothing on these farmers

and others like them, some of whom are making more

profit these days from their investments in ethanol than

from other farm income. Indeed, J.R.’s oil fields probably

went dry years ago, but these “fields of renewable energy” should never run dry, barring severe drought.

Much of their crop will be trucked just a few miles

away to be processed into ethanol. Better still, the corn

will be processed at bio-refineries that Miles, Britt,

Samp and hundreds of their fellow Missouri producers own and operate.

Inside the cab of his combine, Miles glances at the corn stalks bowing down and disappearing beneath him, then at a yield monitor that displays his per-acre haul and the average moisture content of the corn. As he drives, the GSP-enabled monitor creates an electronic map of his fields that will later be used to fine-tune everything from his fertilizer

and seed applications to where he will lay new drainage tiles. 

“This technology helps us practice precision agriculture, so we only apply what the

crop needs,” he says over the rumble of the machine. “We treat the land with respect,

because I want my kids and their kids to be able to farm this land as well,” says the young

father of three. The increased returns the farm nets from its ethanol investment may also

help ensure that farming remains economically viable enough to keep his children in

farming, should they so choose. 

In addition to the economic benefits of biofuel, producers also cite patriotic and homeland security incentives as adding to a sense of urgency for renewable fuels development. 

“We are showing the nation that we do not have to be so dependent on foreign oil,

and that we should not allow ourselves to be held hostage to Middle East oil,” says John

Eggleston, president of Northeast Missouri Grain Processors Inc., a cooperative which is

majority owner of Northeast Missouri Grain LLC (NEMO) in Macon, Mo., the state’s

first ethanol plant. “We still have a long way to go, but farmers are helping to change the

energy picture. We feed the world, and we can help fuel it too.” 

Co-ops unite producers 

Miles is one of 700-plus farmers of Mid-Missouri Farmers Energy (MidMo), a newgeneration cooperative that operates a 50-million-gallon-per-year ethanol plant near the

4 September/October 2006 / Rural Cooperatives

A

Fuel Farming

Missouri farmers harvest bumper crop

of ethanol, raising spirits and cash 
small village of Malta Bend, about 12 miles northwest of

Marshall. This new-generation co-op plans to begin an expansion project next year which will double the plant capacity to

100 million gallons of annual production. Samp and Britt are

among the 311 members of NEMO, which produces about 45

million gallons of ethanol annually in Macon. 

Producers who invested in the ethanol plants have reaped

dividends “beyond our wildest expectations,” says Ryland

Utlaut, president of MidMo and former president of the

National Corn Growers Association. “We couldn’t have picked

a better time for our plant to come on line,” he says, noting

that the start-up 19 months ago coincided with a tremendous

run-up in ethanol prices. 

Ethanol profits climbed steadily as oil prices

soared from $40 to more than $75 a barrel last

summer. The phase-out of MTB as an oxygenator for gasoline and the hurricanes that

battered Gulf Coast oil refineries also combined to push the price up. 

Some producers report that their stock values in co-op ethanol plants have increased 5 to

10 times since the initial purchase (although

virtually no one is selling stock, so such claims

are hard to verify). MidMo paid members a 31-

percent dividend on its first partial year of

operation, and will pay an even higher dividend

this year. NEMO has also paid sizable dividends for several

years running. 

In addition to returns from their ethanol plants, producers

have also benefited from corn prices that have been boosted

from 10 to 20 cents per bushel in the plants’ procurement

areas. “That doesn’t just help co-op members, it helps all farmers,” says Eggleston. 

Good uses for ethanol dividends 

On the Miles’ farm, those ethanol dividends helped to buy

an additional 140 acres that the family had been renting for

more than 30 years. For Samp, ethanol dividends provided

additional funds for the custom home he built on his farm.

Britt says he’s used his ethanol returns in a number of ways to

improve his grain and cattle operation. 

Miles credits NEMO and the Golden Triangle Energy

Cooperative in Craig, Mo., for “paving the way for our success.” The success of MidMo is similarly inspiring more biofuel projects. Three or four of his fellow MidMo directors are on

boards of co-ops or LLCs that are building biodiesel plants

around the state, including one slated to open this fall in

Mexico, Mo. 

Miles, who grew up in Marshall and graduated from the

University of Missouri in Columbia, says the town’s economy

had been fairly stagnant for many years. But the ethanol plant

has been a jolt in the right direction. “The addition of 35 or 40

good jobs at the plant — and that doesn’t count other spin-off

jobs it created — is a huge plus for a rural town like ours.” 

“The impact has been tremendous,” agrees Matt Staley,

Rural Cooperatives / September/October 2006 5

Clockwise from upper left: Brian Miles used ethanol dividends to

buy some rental acreage; the Mid-Missouri Energy plant; Randy

Britt says ethanol has provided an alternative market for corn,

helping to boost prices; The Northeast Missouri Grain ethanol

plant; Dale Samp’s ethanol dividends helped with costs of building

a new home on his farm. USDA photos by Dan Campbell 
vice president and branch manager for the Farm Credit

Services (FCS) of Missouri office in Marshall. FCS helped

many producers finance their stock purchases in MidMo. “It’s

not only the dollars the plant has generated, but its success

has also been a great source of community pride. And it has

inspired other fledgling co-ops and LLCs that are now riding

their coat tails.” 

Macon County Presiding Commissioner Craig Jones says

the NEMO plant is “pulling grain from 100 miles away and

has been the most productive new business venture the county has seen in years. And it’s virtually all new money,” he

stresses, adding that its spin-off benefits have “mushroomed”

throughout the county. 

NEMO has created 42 full-time and seven part-time jobs.

Pay and benefits are good, and that doesn’t count related jobs

in trucking, rail and all the other “ripple-effect” jobs, Jones

adds. He thinks NEMO’s success may

even have helped inspire voters to

approve a special tax needed to four-lane

a highway through the county, which in

turn should help attract other new businesses. 

“Ethanol has been the best thing to

happen in Missouri in a long time,” says

Britt while driving his pickup truck

across a pasture of tall grass where some

of his 400 Black Angus cattle are grazing. “Returns have been much better

than anyone could have reasonably

expected, and it has strengthened the

corn market. Our choices used to be to feed corn to our cattle, haul it to the river terminals or ship it south to turkey

growers. Now we keep it close to home and get and extra 10-

15 cents a bushel for it.”

With the production of so much dried distillers grain

(DDG) at the ethanol plants, which is sold for livestock feed,

Britt says ethanol may even help bring back some of the cattle-feeding industry, which moved west years ago. 

Opening the door

When Eggleston and his fellow producers first discussed

building an ethanol plant in the late 1990s, Missouri had no

ethanol facilities and no new-generation co-ops. So raising

equity investments from producers and lending institutions

proved challenging. “It seemed this plant was never meant

to be built,” Eggleston recalls.

“It was almost like pulling teeth,” agrees Dale Samp,

Eggleston’s co-director on both the NEMO co-op and LLC

boards. “A lot of the producers were already highly leveraged and were reluctant to take on more risk.” In his own

case, Samp says one factor that influenced his decision to

join was attending a meeting where Jeff Broin, CEO of the

Broin Companies, made a strong case for producers to

invest in ethanol as a hedge against low corn prices. 

While enjoying the high dividends of recent years, Samp

says the ethanol market will have to drop back to earth

again at some point. But he expects the operation to continue to be profitable, especially with China and India now

soaking up more world oil supplies. 

NEMO’s initial plan had been to build a 30-million-gallon plant. But the reluctance of growers to invest in it

meant the co-op had to keep reducing the scale of the project, eventually settling for a 15-million-gallon plant. The

co-op had hoped to own the plant outright, but it formed

an LLC to facilitate raising additional funds. 

The co-op wound up

owning 81 percent of the

LLC and holds five of the

seven seats on the LLC

board. Broin and

Associates., which built the

plant and provides operational management under contract

to the LLC, holds one board seat, and Corn Energy LLC

holds the seventh seat. Other investors include Ralls

Electric Cooperative and the Missouri Corn Merchandising

Council. 

It took about 100 producer meetings to raise the $6 million in equity needed to build the plant. The minimum

investment was five shares at $2,500 each. Ralls Electric

Cooperative stepped in at a crucial point in the planning

with assistance when the fledgling co-op was low on money,

and the co-op was also able to tap into a state economic

development fund. 

Missouri recognized that the state and rural communities

would gain much more from local, producer ownership than

6 September/October 2006 / Rural Cooperatives
from outside ownership. So it established a 20-cent-per-gallon

subsidy for the first 12.5 million gallons of ethanol produced

and 5 cents per gallon for the next 12.5 million gallons, but

only if producers own at least 51 percent of the plant. 

NEMO’s plant capacity was doubled about three years

ago, to 36 million gallons, and it is actually producing at a

45-million-gallon clip, which Eggleston says is a tribute to

manager Steve Burnett and the staff. The expansion timing

was good, as ethanol prices were climbing just as the work

was completed. 

In the early days, it was hard to find local buyers for the

plant’s DDG, so most of it was shipped to Arizona and

California. But now most is shipped by truck to cattle,

poultry and hog producers in-state. 

In addition to ethanol and DDG sales, NEMO has invested in a food-grade carbon dioxide facility and the company

that markets and trucks the pressurized CO2 to beverage

companies, a brewery, a municipal water plant and some

food and meat processors. A truck terminal was built to handle the CO2 traffic, which employs another 15 full-time

drivers and mechanics. The co-op leases the facility to a subcontractor. 

Investing in other ventures

Another plant expansion isn’t really feasible for NEMO at

this time, but members wanted to expand their presence in

the ethanol market, so it instead purchased a 30-percent

interest in a new, 45-million-gallon ethanol plant opening

this fall in Ladonia, Mo. NEMO has also invested in MoBiofuels, a new biodiesel plant in Mexico, Mo.

It has also purchased an interest in some non-biofuel projects, including Mo-Farm Dairies, a 1,250-head dairy in the

southwest corner of the state, and it contracts with Favored

Grain, which procures non-GMO grain from producers for

feeding to cattle raised to supply meat to high-end restaurants. 

When the plant capacity was expanded, NEMO also

entered into a joint venture with the city of Macon on a 10-

megawatt turbine generator. Under the arrangement, the city

gets the electricity and NEMO gets the waste exhaust heat

from the large jet engine that powers the generator.

The waste heat is fed through a large boiler which,

in turn, generates more than half of the steam

requirements of the ethanol plant.

NEMO’s plant is located on a 1/2-mile-long rail

spur, but the majority of its ethanol goes out on

trucks. Still, Eggleston says it would have been a mistake to build without rail access. In the early months

of operation, when NEMO was having a hard time

selling DDG, “we would have drowned in DDG if

we hadn’t been able to ship it out on railcars,”

Eggleston says. DDG sales now account for 15 to 25

percent of the plant’s annual revenue. “We call DDG

and CO2 co-products, not byproducts, to emphasize

how critical they are to our success,” he adds.

MidMo 100 percent farmer owned 

MidMo was formed through the merger of two

different groups pursuing ethanol plants; one effort

was centered in Marshall, the other at Carrollton,

Mo. Patty Kinder, now assistant plant manager at

MidMo, was at that time an economic development

officer in Carrollton. Utlaut credits her for bringing the two

groups together and for making the call to the Fagan Group

that resulted in an initial ethanol feasibility survey of the area. 

By 2001, the combined group had a business plan in hand.

The new co-op then launched its equity drive, which it

hoped would raise just over $12 million of the $24 million in

equity needed, which would give the co-op 51 percent control. Shares were $10,000 each, with a minimum of two

shares required for membership. Only producers were eligible to join. Average investment per member was $33,000.

The co-op signed up members in 43 Missouri counties and

five other states. 

After 82 meetings, the co-op had commitments for more

Rural Cooperatives / September/October 2006 7

Clockwise from upper left: ethanol and corn samples are tested in the lab at the

NEMO plant; MidMo (next two photos) plans to double production capacity, to

100 million gallons; NEMO Plant Manager Steven Burnett checks on the CO2

plant, which supplies a brewery and other beverage customers; Ryland Utlaut,

center, in the receiving room at MidMo. USDA photos by Dan Campbell

continued on page 39
They are like first cousins who are often

mistaken for each other. Both are farmerowned co-ops with headquarters offices

practically next door to each other in

Columbia, Mo. Both provide vital supplies

and services to their members. 

But MFA Inc. and MFA Oil are two separate businesses. MFA Inc. provides members with fertilizer, seed and livestock feed,

as well as grain-marketing services. MFA

Oil deals mainly in gasoline and diesel fuel. 

Both co-ops have much at stake in the

region’s rapidly evolving renewable fuels

economy. 

At MFA Inc., the reaction to ethanol

depends on which side of the building you

are on. Ron Utterback, vice president of

crop protection, farm supply and seed, is

optimistic. “We could definitely benefit

from it, depending on the speed of its development and how fast we adapt.” 

He has little doubt that the state’s corn acreage will

increase sharply as a result of ethanol development,

probably at the expense of soybeans. He also expects

that some land in the CRP conservation program will also

be put back into production. But that will likely be

acreage that “really should have never gone into the CRP

to start with,” he says. 

For MFA, more corn acreage means more sales,

because corn requires more fertilizer and crop protectants than soybeans, Utterback says. Typically, two acres

of soybeans are planted for every acre of corn in the

state. So there is room to expand corn without even

requiring that more land be put into production. Utterback

says he thinks that the planting pattern will shift closer to

a 50-50 corn/soybean split, more typical of other Corn

Belt states. 

When it comes to soil types and micro-climates, Missouri is a very complex state. Few know that better than

Utterback, who directs MFA’s efforts to tailor its seed and

fertilizer products to the state’s unique growing regions

(it also supplies producers in neighboring states). MFA

has climbed to the top of its market because its products

have been adapted over the past century to the region’s

many micro-environments and soil classifications, he

notes. 

The emergence of ethanol is not the only factor

prompting more acres to shift to corn. New seed varieties

that allow corn to thrive on drier, “tighter” soils have also

been prompting some expansion of corn planting. So

Utterback sees potential for this traditionally corn-deficit

state to increase its corn crop considerably, and for MFA

to increase its business right along with its members’

corn crops.

Livestock concerns 

On the other side of the MFA Inc. building, Dr. Kent

Haden, vice president of livestock operations, has some

concerns. He doesn’t want to be the rain cloud over the

ethanol parade. However, he gets paid to look at the

health of the state’s livestock industry and factors

impacting it. Ethanol is most definitely such a factor, so

he has been studying its potential impact in a state that

ranks second only to Texas in the size of its cow-calf

herd (2.1 million cows). 

His main concern is that if increased corn planting

doesn’t take up the slack, competition for corn could

drive prices so high that it could force some of Missouri’s

livestock out of state – perhaps even to Argentina or

Brazil. “When livestock goes, usually it’s poultry first,

then hogs and then cattle [which corresponds to each

segment’s dependence on corn for feed],” Haden says. 

Haden views dried distillers grain (DDG) as a goodquality protein ingredient for up to 20 percent of feed for

cattle. But DDG has turned the feed picture somewhat

topsy-turvy. Protein has long been the main nutrient catA farm-supply co-op view of ethanol 

8 September/October 2006 / Rural Cooperatives

MFA Oil is selling E85 at 30 retail outlets and a10-percent ethanol-gas blend at

virtually all of its 77 Break Time convenience stores and 166 unmanned fueling

stations. Photo courtesy MFA Oil 
Rural Cooperatives / September/October 2006 9

tle producers sought in their feeds. However, cattle on a

heavy DDG ration get plenty of protein, but may not be

getting sufficient starch. 

Starch, of course, is stripped from corn in making

ethanol. Without sufficient starch, beef does not marble

properly — especially not the way the Japanese and

some other Asian export markets like it, Haden says. And

there’s the rub, since corn is by far the most cost-effective source of starch for cattle, Haden says. 

Dressed carcasses of hogs fed a heavy DDG ration

also typically weigh about 6 pounds less than corn-fed

hogs, based on University of Missouri data, because

more of the growth goes to the guts, notes Haden. He is

not aware of any similar data for cattle. MFA is producing some special mineral supplements it recommends for

producers feeding high-DDG rations.

Some have suggested that new feed yards could open

near DDG sources in Missouri. Haden says he hopes it

happens. But, he adds, it will be tough to accomplish

because 30 Missouri counties have adopted stricter environmental regulations that make it hard to keep more

than 300 head confined in one location. “And more counties are adopting those regulations.” The same regulations will likely limit growth of the state’s dairy industry,

he notes. 

Oil co-op sees gains 

Things are more clear-cut for MFA Oil. Tom May,

director of marketing, says the co-op is bullish on ethanol

and is doing all it can to educate consumers about the

advantages of its use. MFA Oil sells a 10 percent ethanol

blend at virtually all of its 77 Break Time convenience

stores and 166 un-manned retail outlets. E85, a blend of

85 percent ethanol and 15 percent gasoline used in flexfuel vehicles, is sold at 30 of those locations. Various

blends of biodiesel are also available at many outlets as

well. 

Most of MFA Oil’s retail outlets are in rural Missouri, as

well as parts of Arkansas, Iowa and Oklahoma. “So the

health of rural towns is absolutely critical to the health of

our cooperative. We think ethanol is making a positive

economic impact on the communities we serve,” May

says. MFA Oil was recently presented with the Paul Dana

Award (named after the race car driver who got ethanol

approved for use in the Indy 500) by the American Coalition for Ethanol, designating it as its marketer of the year. 

MFA Oil has entered into a partnership with Mid-Missouri Energy (MidMo) under which it is selling E85 for 20

percent less than regular gasoline. Flex-fuel vehicles get

5 to 20 percent less fuel mileage, so a 20-percent reduction in price makes E85 a good value for the cooperative’s

customers.

“MFA Oil is excited to partner with another farmer

cooperative to bring more value to Missouri’s corn crop

and economy. We felt working with MidMo was a great

way of keeping more ethanol dollars at home,” says May. 

MFA Oil gave away a Ford F-150, flex-fuel pickup

truck last Fourth of July as part of an ethanol-education

campaign. At that event, May says he “lost track of how

many people stopped by our booth and said they would

be filling up with E85 now that it costs 20 percent less

than unleaded gasoline.” He also sees signs that consumers are beginning to understand that E85 is better for

the environment because it burns cleaner than fossil

fuels. (E85 emissions contain just 1 part per million of

nitrogen oxide vs. 9 parts per million for gasoline,

according to the October issue of Consumer Reports

magazine). 

May says he finds it “almost mind-boggling that it took

the nation so long” to finally get a head of steam going

behind its biofuels industry. In Missouri, there are 120,000

flex-fuel vehicles, a number that should be steadily going

up as consumers get behind homegrown fuels, May says.

The state of Missouri has passed a law mandating that by

2008, all gasoline in the state be blended with 10 percent

ethanol, which will encourage further development of the

state’s ethanol industry. 

“Ethanol is not the only answer to our energy needs,

but it is one thing that is working out there right now,”

May says. “Cellulosic ethanol will probably be playing a

role in the future, too. With sky-high gas costs, you know

the market will find a way to produce more alternative

fuels.” 

— By Dan Campbelll, editor ■

“They’re the good guys!”

High oil prices, the war in Iraq and other factors prompted a group of protestors to set up a

picket line outside a Big O Tire-Petro Mart gas

station in Columbia, Mo., in June. 

But when the leader of the group, University of

Missouri librarian Rebecca Schedler, learned that

the station is owned by MFA Oil, she redirected

her troops, according to a report in the Columbia

Daily Tribune. “That’s a farmers’ cooperative.

They’re the good guys,” she said. 

The picketers instead set up shop outside the

gas station of a major national oil company.

Chalk up another “cooperative advantage.” 
By Catherine Merlo

Editor’s note: Merlo is a Bakersfield, Calif.-

based writer/editor with extensive experience writing about cooperatives and the

issues that impact them. 

n his 25 years as executive

director of the Minnesota

Grain and Feed

Association, Bob Zelenka

has faced farm crises,

droughts and floods. But nothing has

shaken him or the 600 country grain

elevators and feed mills he represents as

deeply as the current ethanol boom.

“It’s been the biggest thing to hit our

industry,” says Zelenka, “and the hardest to adapt to.”

In the last year alone, Zelenka has

seen almost a dozen Minnesota grain

elevators go out of business and several

others forced to consolidate “because of

the ethanol industry’s growth,” he says.

Zelenka and his members aren’t the

only ones worrying about ethanol’s growing appetite for corn. As more of the

U.S. crop is diverted to ethanol production, some agricultural insiders are beginning to voice concerns over the pell-mell

pace of the renewable fuel’s growth and

its impact on various farm sectors. 

While the ethanol gold rush delivers a

much-needed boost for corn farmers and

rural America — more demand for the

yellow-eared crop, more ethanol plants,

more tax revenues and jobs — a growing

number of analysts are calling for a closer look at the boom’s wider-reaching

consequences. Already, a “food vs. fuel”

ethics debate is emerging in agricultural,

energy and academic circles.

Some farm experts predict the explosion of corn-based ethanol production

will shift demand away from important

food and livestock needs. They say that

could lead to potential corn shortages

and higher costs for grain exporters,

hog and poultry operators, transportation companies, even food processors.

Others wonder whether vastly expanded

corn acreage might consume marginal

land and affect conservation practices. 

Even Warren Staley, CEO of

agribusiness leader Cargill, has questioned whether biofuels such as ethanol

and biodiesel are the answer to U.S.

reliance on foreign oil. Staley said that

at a time when the need for increased

food production is critical, promotion

of ethanol runs contrary to Cargill’s priority to be the leading global food

provider, Dow Jones’ MarketWatch

reported May 1. 

Moreover, Staley and others also

have pointed out that even if all of the

U.S. corn crop were used to produce

ethanol, it would replace only about 20

percent of motor fuel.

“Ethanol is not the be-all, end-all

solution,” says Don Roose, president of

U.S. Commodities, an Iowa-based grain

and livestock hedging and trading firm.

“It’s one of a number of sources of

renewable energy, and it’s unrealistic to

think we can switch grain production

over and stop imports of foreign oil.”

Ethanol’s “untethered” growth

Minnesota’s Zelenka has ruffled a

few feathers in the last year by questioning ethanol’s unchecked growth,

which, he says, is propelled by government incentives, not by the market. 

“We get criticized for suggesting

there are ramifications from the untethered growth of this industry,” he says.

“But you can’t help but see that there

are downsides to this industry’s growth

that, unfortunately, no one seems to

want to recognize.”

Zelenka points to grain elevators,

which depend heavily on the export and

domestic feed markets. Some now find

themselves bypassed in the corn buy-andsell process because ethanol plants often

prefer corn shipments straight from the

farm. That leaves many elevators feeling

the pinch of hard-to-find supplies to fulfill their market requirements. In some

areas, corn deficiencies are driving up

local prices, creating thinner margins for

the grain storage businesses. 

“A lot of our members have found

that ethanol is a real threat to their existence,” says Zelenka. 

For example, two or three years ago,

some grain elevators invested $5 million

each to build new shuttle-loading facilities. “Those were massive investments,”

Zelenka says. “Now they’re having dif10 September/October 2006 / Rural Cooperatives

Left Behind

Some country elevators left behind

as ethanol diverts traditional supplies

I

Bob Zalenka says ethanol is diverting

corn from many local elevators, causing a

dozen facilities in Minnesota to shut down

last year. Photo courtesy Minnesota Grain and

Feed Assoc. 
ficulty competing with, in some cases, a

subsidized ethanol plant nine miles

away. Who would have expected this

explosion in ethanol?”

Ethanol boom forces 

major ag changes 

Fueled by increased demand for

energy, ethanol commenced its eye-popping growth at the new millennium’s

start. In 1999, there were 50 ethanol

plants in the United States. Today, there

are 102 ethanol bio-refineries, with

another 42 under construction, reports

the Renewable Fuels Association. 

“Planned plants, if all develop, would

take total corn processing into the 8.2-

to 8.6-billion-bushel area — assuming

processing for non-ethanol uses remains

relatively constant,” says Robert Wisner,

an agricultural economics professor at

Iowa State University. “Other uses of

corn are currently running at about 8.3

billion. This year’s corn crop, with the

second highest yield on record, is forecast to be just under 11 billion bushels.

The bottom line is that we will need a

lot more corn acres in the next few years

if most of these plants materialize.” 

Many of those acres will come out of

soybeans and will be continuous corn,

Wisner adds, which carries a number of

implications for other farm sectors.

“Major adjustments will be required by

a large part of the agricultural sector,

including input firms and retailers,

grain handlers, transportation firms,

manufacturers of grain bins and handling equipment and livestock-related

businesses,” he says.

Hard on hog producers

Among those wary of ethanol’s

potential to devour U.S. corn supplies

are hog and poultry producers. The

ethanol explosion is “a negative” for

them, says Glenn Grimes, professor

emeritus of livestock marketing with

the University of Missouri-Columbia.

That’s because those industries rely

heavily on corn for feed. About 10 percent of the nation’s corn production is

fed to hogs, Grimes says. On the plus

side for livestock, ethanol production

generates distillers grains (DDG), a

high-protein co-product of ethanol that

can replace corn in beef and dairy

rations, and to a lesser extent in hogs

and poultry (see page 22). 

Both hog and poultry production are

highly vulnerable to feed price increases.

“Each 50-cent increase in corn equates

to a $2.50 per-hundredweight rise in

hog production costs,” Grimes says. 

The breakeven price for producing

live hogs during 2005-06 was $39-$40

per hundredweight, says Grimes. If

corn prices should rise from their current $2-per-bushel level to $5 per

bushel — not an impossible scenario —

that could send hog costs $15 higher,

pushing producers out of business. 

“With the growth in ethanol production that is planned for the next few

years, any kind of short corn crop

would mean $5 or higher corn prices,”

says Grimes. “With crude oil prices and

government programs, ethanol plants

can pay $8 to $9 and still break even.

We’d see drastically lower U.S. hog

production long before we hit $8 corn.”

Pushing hog producers out of business would remove many more jobs

than found in ethanol production,

Grimes says. “The number of people

involved in producing ethanol from 1

million bushels of corn is much smaller

than in raising hogs with 1 million

bushels of corn,” he says. 

Among the results of higher corn

prices also would be “significantly higher food prices,” adds Grimes. 

Another consequence could be a

drop in corn exports as producers

scramble to fill domestic ethanol orders.

That export decline “could be a saving

grace for Latin American farmers who

have been battered by fierce U.S. competition,” writes the Council on

Hemispheric Affairs (CHA).

Environmental consequences

Concern over environmental impacts

has some observers waving a yellow flag

over the alternative fuel’s booming

development.

About five to six gallons of water are

needed for each gallon of ethanol produced, Iowa State’s Wisner says. An

ethanol plant that produces 100 million

gallons of fuel a year will use about 500

to 600 million gallons of water annually.

Many areas, including parts of

Minnesota, are short on water supplies

and have not planned for the high water

use of thirsty ethanol plants. “Some

areas’ water resources will be placed

under stress,” Wisner says. 

What’s more, America’s corn fields

already take up the largest chunk of

U.S. farmland, accounting for some 80

million of the nation’s roughly 357 million acres of farmable land. To meet

escalating demand, corn acreage may

have to expand another 3 million acres

Rural Cooperatives / September/October 2006 11

Ethanol leaders aware of concerns

Ethanol leaders are aware of the concerns from various farm sectors about

the consequences of ethanol’s corn-driven needs, says Matt Hartwig, communications director with the Renewable Fuels Association. “We’re very cognizant of the limits of how much corn can be used before it has negative

impacts on other industries, which we don’t want,” he says.

With technological advances and improved efficiencies at both the farm

and ethanol plant levels, “we’ll be able to get increased ethanol production

using roughly the same acres as now,” says Hartwig.

By 2015, U.S. corn growers will produce 15 billion bushels per year, Hartwig

says, based on numbers from the National Corn Growers Association. “We’ll

be able to produce 15 billion gallons of ethanol, using 5 to 5.5 billion bushels of

a 15-billion-bushel crop,” he says.

“Ethanol represents one of the, if not the, most important value-added

industries for American agriculture,” adds Hartwig. “Its positive impact can’t

be denied.” ■
12 September/October 2006 / Rural Cooperatives

USDA Chief Economist Keith Collins addressed key

ethanol-related issues in a statement before the U.S. Senate

Committee on Environment and Public Works on Sept. 6. Following is a brief excerpt. For more on each of these points

and Collins’ other comments, visit: www.usda.gov/oce.

• Gasoline and ethanol prices are likely to stay high

enough over the next several years to maintain

ethanol expansion. 

• Corn ethanol returns are such that plants can remain

profitable over a wide range of corn prices. 

• Corn prices could set new record highs over the next

five to six years. 

• Ethanol plants will likely continue to operate even if

corn prices rise well above past record highs.

Ethanol plants will be able to bid corn away from a

variety of other uses over a wide range of corn prices. 

• The United States will need substantial increases in

corn acreage to prevent exports from declining and

livestock profitability from falling. 

• The Conservation Reserve Program (CRP), which has

36 million acres set aside from crop production for

environmental reasons, may provide a source of additional crop acreage. 

•It is likely other exporters (such as Brazil and Argentina) will have to supply more corn to the world market

as world meat demand rises and U.S. corn ethanol

production increases. 

• Corn stocks are likely to be increasingly tight and corn

prices high, so the corn sector will be highly vulnerable to market disruptions — ethanol plants and other

users will be operating in a much riskier environment

than we have today. 

• Corn ethanol alone cannot greatly reduce U.S.

dependence on crude oil imports. 

• Cellulosic ethanol production appears to be the best

renewable alternative for reducing crude oil imports. 

• Ethanol growth is manageable in the near future. Markets will work over the longer term, but the allocation

function of market prices can mean substantial costs

for some sectors ... . ■

a year, says U.S. Commodities’ Roose. 

That could mean spreading corn

production into marginal land and

drawing acreage out of conservation

reserve programs. Such acreage expansion is likely if U.S. corn production is

to reach the 15 or 16 billion bushels

expected for food, ethanol and export

needs, say Grimes and Wisner. That

could potentially impact soil conservation and wildlife.

Rethinking ethanol policies

What Zelenka and others want is a

more carefully thought-out national policy on ethanol. Many would like to see

ethanol produced from corn alternatives, such as switchgrass, or corn stalks.

A clear hierarchy for the nation’s

agricultural resources should be established, Zelenka says. In his opinion, that

means a ranking of food, feed and fuel

— in that order. Zelenka is not opposed

to ethanol, calling its concept “good.”

“We’ve encouraged our members to

work more closely with ethanol plants,”

says Zelenka. “But it’s been a real challenge for [grain elevators]. It creates

uncertainty when you don’t know when

the next ethanol plant will pop up.

They’re thinking, ‘Should I build additional storage? Improve my transportation facilities?’”

Open discussion, however, is difficult,

says Zelenka. “People are scared to

speak out,” he says. “The zeal to put

these ethanol plants up clouds the realistic picture. It’s considered blasphemy if

you say anything negative about them.”

Too far with ethanol incentives?

Like Wisner, Roose and Zelenka,

Grimes recognizes ethanol’s positive

impact on corn producers. But the

University of Missouri professor thinks

government incentives for the renewable fuel need to be re-evaluated. 

“We do need to wean ourselves from

foreign oil, but we’re going too far with

incentives for ethanol,” Grimes says.

“With $70 (per-barrel) crude oil, we

don’t need subsidies to produce ethanol.

With $50 crude, we do.”

Grimes says Middle East instability

points to continued $70 or higher crude

oil prices. 

“There’s no stopping of ethanol

plants with the incentives we have or

the mandates for more ethanol in our

fuel,” he says. “The market system itself

would be more useful now than policy

to promote the use of ethanol.”

Ultimately, the future of corn and

ethanol may be determined by a combination of market forces and government

policy, the system for many crops even

now. “Our crops for export, feed and

food have always been kept in balance

by government programs,” says U.S.

Commodities’ Roose. “It’s been a slow

migration over the years. But with the

new, unprecedented growth in ethanol,

the story is yet to be written.” 

Finding a balance for ethanol in the

see-saw world of agriculture could pose

a big challenge. The escalating pressure

on corn supplies may come down to a

matter of national priorities. At some

point, the crop’s supply and demand

could become inelastic, Roose says. In

that world of corn scarcity, all cornrelated sectors will be fighting to keep

their industries alive. 

“Whether large or small, grain crops

are 80 percent dependent on weather,”

says Roose. “If we ever get a dramatically reduced crop as we did in 1983,

’88, ’93 and ’95, we’re going to have to

ask, ‘What gives?’ or, more to the point,

‘Who gives?’” ■

USDA chief economist’s ethanol outlook 
Alan Borst, Ag Economist

USDA Rural Development, 

Co-op Programs

ood, fiber... and now fuel. In the 21st century,

U.S. farmers are challenged to meet the country’s needs not only for food and fiber, but also

for much-needed renewable energy. An important policy question to be answered is: Who will

have ownership of the facilities

that will produce energy from

rural Americans’ wind and crops?

According to the Renewable

Fuels Association, 46 of 102

U.S. ethanol plants are farmer

owned, with a capacity to produce 1.6 billion gallons of

ethanol. Total U.S. ethanol

capacity is 4.4 billion gallons,

giving producer-owned plants a

39 percent share of the market

(for a complete list, visit:

http://www.ethanolrfa.org/industry/statistics/#EIO). According

to the National Biodiesel Board,

as of April 2006 there were 65

U.S. biodiesel plants in operation with a total production

capacity of 395 million gallons

(for the list, visit:

http://www.biodiesel.org/

buyingbiodiesel/producers_

marketers/ProducersMapExisting.pdf). 

Growers and local residents

have been investing in ethanol

and biodiesel plants across the country to share the market

with larger agribusinesses. Many of these ventures have been

very profitable over the past few years. This has attracted

much outside investment in competing plants.

In 2004, less than 1 percent of installed U.S. wind energy

capacity was owned by farmers. Most farmers with wind turbines on their property have leased their land to larger energy companies. Where farmers own the turbines, they may

expect to double or triple their income over leasing. The

“Windustry” website lists 52 farmer-owned U.S. wind projects, most individual and quite small

(http://www.windustry.com/maps/CommunityDatabaseApril2

72006.pdf).

In the case of both biofuels and wind, greater farmer ownership implies both the

potential for greater profits

and the risks of greater

losses. One challenge that

has confronted rural

Americans considering

such a venture has been the

question of how to organize it — selecting the best

business model to follow.

There is a large matrix of

U.S. public policies and

programs at all levels of

government that acutely

influence the potential and

actual economic performance of farmer-owned

energy ventures. The way

in which these policies and

programs are designed and

implemented can make or

break the best designed

renewable energy ventures.

Why promote local

ownership?

In the European Union,

where a much larger share

of energy is generated from

local renewable sources, the promotion of local energy

investment has been a major policy goal in recent years.

Predac, an EU network of 23 energy organizations from 10

countries, has identified four arguments for favoring local

ownership of renewable energy sources. Here is an adaptation of their list for the American setting:

Rural Cooperatives / September/October 2006 13

Bring It on Home

Local ownership of renewable 

energy helps ‘keep it on the farm’

F

Producer-owned ethanol plants, such as Mid-Missouri Energy,

return an average of 56 percent more income to local communities

then do plants owned by absentee investors, according to a new

National Corn Growers Association study. USDA photo by Dan

Campbell 
• Share the economic benefits of renewables. When project financing comes from a few large investors from outside

the project area, profit flows away. Local investment allows

rural residents to retain a greater share of the earnings. A

September 2004 U.S. Government Accountability Office

report modeled the relative economic impacts of locally

owned and remotely owned wind systems. It found that

locally owned wind systems generated an average of 2.3

times more jobs and 3.1 times more local dollar impact

than do wind systems financed by out-of-area interests.

• Support economic development in rural areas. In

regions where agriculture or traditional industries are

declining, renewable energy source projects offer an opportunity to diversify economic activities by a production that

cannot be transferred elsewhere.

• Improve local acceptance of renewable energy projects. Some renewable energy source projects face local

opposition, including wind

energy, which unavoidably

modifies the landscape.

Local investment is likely to

reduce the risk of a strong

opposition by allocating

more benefits to those people who actually or potentially endure the drawbacks.

• Play an educational role.

Local investment can play a

significant educational role

by increasing the number of

people directly and indirectly involved in projects, and

thus the public awareness of

renewable energy. By creating social links in the framework of a local project, it

can also promote the emergence of new local projects

through exchanges about

the initial one.

Federal policies to 

promote greater local 

energy ownership

There is one major federal

program specifically targeted at

promoting farmer and rural

small business ownership of

renewable fuel facilities through

grants and loan guarantees:

USDA Rural Development’s Renewable Energy Systems and

Energy Efficiency Improvements Program. It was authorized

by Section 9006 of the 2002 Farm Bill. The program authorizes loans, loan guarantees and grants to farmers, ranchers

and rural small businesses to: (1) purchase renewable energy

systems, and (2) make energy efficiency improvements. 

In August 2006, USDA announced the awarding of $17.51

million in Section 9006 Grants to 375 recipients in 36 states.

The grant program complements the Bush Administration’s

overall effort to increase America’s energy independence

through the development of renewable energy resources as

well as improving efficiency of existing systems. 

USDA Rural Development grant funds can be used to pay

up to 25 percent of the eligible project costs. Additionally,

the program provides loan guarantees of up to $10 million to

fund up to 50 percent of eligible projects. Eligible projects

include those that derive energy from a wind, solar, biomass

or geothermal source, or hydrogen derived from biomass or

water using wind, solar or geothermal energy sources. 

14 September/October 2006 / Rural Cooperatives

continued on page 36

Local ownership of ethanol plants keeps more

value-added dollars in rural towns, such as

Marshall, Mo. (also see cover story, page 4).

From top: the Waggin’ Wheel Cafe in Malta Bend

(near Marshall) saw business soar with the construction of the new Mid-Missouri Energy ethanol

plant; the street circling the county courthouse in

Marshall gets a new “overcoat”; new home construction in Marshall. USDA Photos by Dan Campbell
Rural Cooperatives / September/October 2006 15

Two recent reports stress that producer ownership of

biofuels plants does far more to stimulate the rural economy than do plants owned by absentee investors. 

The National Corn Growers Association (NCGA) study —

“Economic Impacts on the Farm Community of Cooperative

Ownership of Ethanol Production” — concludes that:

“Since a farmer-owned cooperative ethanol plant is literally

a member of the community, the full contribution to the

local economy is likely to be as much as 56 percent larger

than the impact of an absentee-owned corporate plant.”

John Urbanchuk of LECG, LLC, conducted the analysis.

The Institute for Local Self-Reliance (ILSR) has also issued

a report that urges the U.S. Department of Energy to change

what it terms a “piecemeal approach” to commercializing

ethanol from cellulose and develop a comprehensive strategy

that emphasizes a local, producer ownership. “The future of

American agriculture may depend on this,” says David Morris, ILSR vice president and author of “Putting the Pieces

Together: Commercializing Cellulosic Ethanol.”

Keeping profits at home 

In many ways, the economic impact of farmer-owned

and absentee-owned ethanol plants on the local community

is similar, the NACG study points out. Yet, there are two

important differences that significantly increase the impact

of a farmer-owned plant:

• The share of expenditures for operations of a farmerowned plant derived in the local community is likely to be

larger than that of an absentee-owned plant. For example,

virtually all accounting, administrative and marketing

functions will be provided locally, while these functions

may be centralized off site for an absentee-owned plant.

• Farmer-owners of a cooperative or limited liability corporation (LLC) ethanol plant will participate in the profits

through dividends. Dividends paid to farmer-owners represent additional income that is spent and invested largely

in the local community, according to the study.

Most absentee-owned facilities are owned by centralized agribusiness corporations.

“By putting money directly into the pockets of local residents, farmer-owned ethanol plants have spurred economic

growth in rural communities across the country,” said Bruce

Noel, chairman of the NCGA Ethanol Committee. “When

farmers and other local investors are given the opportunity to

participate in the ownership of ethanol plants, the economic

benefits to the community are magnified enormously.” 

Nearly half of all ethanol plants are owned and operated

by farmer cooperatives or LLCs and account for 38 percent

of total ethanol production. However, during the past two

years there has been substantial influx of non-farmer capital into the ethanol market. According to the Renewable

Fuels Association, only two of the 43 ethanol plants under

construction are majority farmer owned.

“It’s unfortunate that there currently aren’t more opportunities for farmers and other locals to invest in the plants being

constructed in their communities,” Noel said. “With locally

owned plants, the profits stay in the community and that discretionary income is what truly facilitates rural development.”

“Any ethanol plant — regardless of who owns it — is

good for corn farmers and good for the U.S. economy,”

Noel said. “But if you’re talking about the effects on the

local economy and farm income, ownership matters. Those

plants that are farmer-owned undoubtedly have a more pronounced impact on the local economy.”

ILSR sees gains from farmer ownership 

Congress made clear in the Energy Policy Act (EPAct)

that its focus was on farmers and rural development, Morris stressed, adding that Congress required that projects

“demonstrate outstanding potential for local and regional

economic development.” In addition, EPAct requires that a

priority be given to projects “that include agricultural producers, or cooperatives of agricultural producers, as equity

partners in the ventures; and...have a strategic agreement

in place to fairly reward feedstock suppliers.”

The ILSR report proposes that DOE’s strategy take into

account a key element of the Energy Policy Act: a mandate for 250 million gallons per year of cellulosic ethanol by

2013. ILSR argues that the various incentives contained in

the Act — direct grants, loan guarantees and direct purchasing — will not significantly accelerate that time line.

Therefore, ILSR has urged DOE to use the EPAct’s

resources to achieve its qualitative goals: maximizing the

benefits to the nation’s farmers and rural communities.

“Given the mandate, the country will achieve EPAct’s

quantitative goals regardless of what DOE does,” says Morris. “On the other hand, the future structure and prosperity

of American agriculture may well depend on how DOE and

USDA craft their biofuels strategy.”

“Will we have over 1,000 farmer-owned bio-refineries,

allowing virtually all full- time farmers in the country to

directly benefit from the coming age of biofuels?” Morris

asks. “Or will future agriculture look the same as current

agriculture, with millions of small producers selling to a

handful of dominant processing companies?” ■

Studies: farmer-owned ethanol plants 

contribute more to local economies 
By Anthony Crooks, Ag Economist

USDA Rural Development 

ur nation used more than 140 billion gallons of

gasoline last year and imported about 60 billion

from the Middle East. The 4.3 billion gallons

of fuel ethanol produced largely by our nation’s

farmers was a good start toward extending the

nation’s fuel supply, but really is just a baby step. 

“America is addicted to oil,” President Bush stressed in his

State of the Union Address, during which he outlined the

Advanced Energy Initiative (AEI) to address this serious

problem. “We will increase our research in better batteries

for hybrid and electric cars, and in pollution-free cars that

run on hydrogen. We’ll also fund additional research in cutting-edge methods of producing ethanol, not just from corn,

but from wood chips and stalks, or switchgrass. Our goal is to

make this new kind of ethanol practical and competitive

within six years.” For more on the AEI, visit: http://www.

whitehouse.gov/news/releases/2006/05/20060524-4.html. 

Speaking at a Senate Foreign Relations Committee 

meeting in June, former Federal Reserve Chairman Alan

Greenspan said: “Corn ethanol, though valuable, can play

only a limited role, because its ability to displace gasoline is

modest at best. But cellulosic ethanol, should it fulfill its

promise, would help to wean us off our petroleum dependence.” 

Advocates of cellulosic ethanol have been saying its day

would arrive “within the next five years” since the mid-1990s.

But this time they just may be right. They too were encouraged by President Bush’s remarks. And while everything turns

on oil prices, rising oil prices encourage new technologies by

making them economical — including, perhaps, cellulosic

ethanol within five or six years. 

Is industry heading to cellulose? 

Cellulosic ethanol is fuel ethanol made from cellulose, the

inedible fiber that forms the stems and branches of plants. As

the main component of plant cell walls, cellulose is the most

common organic compound on earth. Crop residue (corn

stover, wheat straw and rice straw), wood waste, and even

municipal solid waste are sources of cellulose. High-biomass

dedicated energy crops — think of President Bush’s reference

to switchgrass in his State of the

Union Address — are also promising cellulose sources that can

be produced in many regions of

the United States. 

Switchgrass is noteworthy for

ethanol production because of its

potential for high fuel yields,

hardiness and ability to be grown

in diverse areas. Trials show current average yields to be about

five dry tons per acre. However,

crop experts say that progressively applied breeding techniques could more than double

that yield. Its long root system

helps to make switchgrass

drought-tolerant, growing well

even on marginal land, and it

requires little to no fertilizing.

Its expected ethanol yield ranges

from 60 to 140 gallons per ton;

with typical yields in the 80-to90 gallon range. 

The potential energy from

cellulosic ethanol is significant.

A recent study estimates that a

gallon of ethanol produced from

corn provides about 20,000 Btu

(British thermal units) more

energy than the energy that went

into making it. The net gain

from cellulose, however, from a crop such as switchgrass,

which doesn’t require fertilizer, irrigation, or other energyintensive activities, is triple that of corn, about 60,000 Btu

per gallon. Not only that, but an acre of land planted in

switchgrass can produce four times the cellulosic material as

can land planted to corn.

Cellulose is among the most undervalued and underused

energy assets in the United States. The Natural Resources

Defense Council recently reported that by 2030, cellulosic

ethanol could supply half of U.S. transportation fuel needs

without reducing food and animal feed production.

16 September/October 2006 / Rural Cooperatives

From Grass to Gas

On the road to energy independence,

how soon will cellulosic ethanol be a factor?

O

Painting courtesy Jean Accola, www.accolagallery.com
Moreover, the unrealized potential of

industrial biotech, completely apart from

ethanol, is astonishing. Once plant sugars

become abundantly available, any number

of substances that now contribute to our

“oil addiction” may be replaced with sugar

molecules.

But before dedicated crops such as

switchgrass and miscanthus (a tall grass) are

planted for cellulosic ethanol production,

an abundance of annually generated crop

residue is available for conversion. Right

now, ethanol, blended into gasoline,

accounts for only about 2.5 percent of the

nation’s fuel supply. The potential from

forestland and agricultural land, the two

largest sources for biomass, exceeds an estimated 1.3 billion dry tons per year. That’s a

cellulosic ethanol replacement equivalent of

about 30 percent of the demand for gasoline without affecting food production. 

Ethanol in the United States is made primarily from the

sugar that makes up the starch in corn. Ethanol manufacturers process the corn kernel using enzymes that break down

the starch into simple sugars. Those sugars are then fed into

a fermentation tank, where yeast digests them to produce

ethanol. The corn stalk and leaves, actually about half of the

plant material, is disposed of. 

Ethanol from cellulose is more complicated because cellulose forms a more complex chain of sugar molecules (6-carbon sugar molecules, a.k.a. C6) than those from corn starch

(5-carbon molecules, C5). Breaking down cellulose into fermentable sugars for ethanol production therefore, requires a

“pretreatment” process to open the cellulosic structure in

order for conversion to occur. 

Ready for commercialization?

One of the keys to progress has been to reduce the cost of

converting cellulosic materials into fermentable sugars. The

Department of Energy’s National Renewable Energy

Laboratory (NREL) has partnered with private biotech companies to make important advances in conversion technology. 

Novozymes, a biotech company based in Denmark with

operations in the United States, began collaborative research with NREL in January 2001 to

cut the cost of converting corn stover into sugars

for the production of ethanol. Recently, the two

partners announced a monumental achievement

— a 30-fold reduction in the costs of the

enzymes needed to produce ethanol from cellulosic sources. Now costing between 10 – 18 cents

per gallon in laboratory trials, enzymes are no

longer an economic barrier to the commercialization of cellulosic ethanol.

NREL has also partnered with other firms to

make improvements in pre-treatment technology. But the industry is only at the earliest stages

of commercialization. There are still many technical hurdles to be overcome to make cellulosic

ethanol production commercially competitive.

Recent spikes in oil prices and energy policy initiatives help to encourage the continuation of

research and development. Developments may

have come piecemeal, but at least they are now

in place. The key is to integrate the pieces into

an economically competitive process and commercialize it. 

Iogen Corporation, headquartered in Ottawa, Canada, the

only company in North America operating a stand-alone,

demonstration-scale, 1-million-gallon-per-year (1 MMGY)

plant, is planning its first full-scale facility to produce ethanol

from cellulosic biomass sources. Drawing on its partnership

with Novozymes, Iogen has formulated an enzymatic “cocktail” that can break down wheat straw into sugars that can be

transformed into ethanol.

EcoEthanolTM is the patented name of Iogen’s cellulose

ethanol process which uses enzymatic hydrolysis to convert

the cellulose into sugars. 

Executive Vice President Jeff Passmore said the effort has

been a painstaking exercise in going back and forth between

developing the enzymes and scaling up the process to industrial levels. But with support from its partners — Royal

Dutch Shell, Volkswagen AG, the Canadian government and

a recent commitment of $30 million from Goldman Sachs

(representing a combined investment of more than $130 million) — Iogen hopes to build the world’s first commercialscale cellulosic ethanol plant. 

Rural Cooperatives / September/October 2006 17

Switchgrass (left) may have even more potential than corn as a source for ethanol.

Miscanthus grass (above) is also being researched as a potential cellulosic energy

crop. Photo courtesy Steve Long, University of Illinois 
The company is considering sites for

the facility in Idaho or in Canada, and

has met with Idaho farmers to ensure

they can contract enough wheat and

barley straw to make that location feasible. In Idaho, 320 farmers stand ready

to supply the 500,000 tons of straw for

the proposed plant. (See Rural

Cooperatives, Jan/Feb ‘06.)

Iogen officials say the proposed

plant could produce between 40 million

and 50 million gallons of cellulosebased ethanol annually and would add a

considerable revenue stream to the

local area for the straw feedstock

required. Although the plant’s size is

relatively modest by today’s standards

of 100 – 200 MMGY, its price tag certainly isn’t. Because cellulosic ethanol

requires not one but three processing

facilities — an ethanol distillery, a pretreatment facility and a power generation plant, Iogen’s commercial-scale

enterprise is expected to cost from

$350 to $400 million, or roughly six

times the cost of a corn (dry mill)

ethanol plant of the same scale.

To finance such a formidable undertaking may require a shared risk/investment arrangement among Iogen, its

present partners, and the U.S. federal

government (DOE and USDA). A federal grant of as much as $80 million and

a guaranteed loan to hedge against the

risks associated with unproven technologies were provided specifically for

cellulosic ethanol plant development in

the Energy Policy Act of 2005.

But, despite its substantial upfront

costs, the plant’s day-to-day operating

costs are expected to be about the same

as, or even a bit less, than an equivalent

corn plant. Furthermore, a cellulosic

plant has a number of alternative coproducts and potential revenue streams

that would otherwise be unavailable to a

corn dry mill. In addition to ethanol

and alcohol, fertilizers, acids, ultrahigh-quality sugars, and other products

may also be produced or sold to help

recover the higher capital outlay. The

plant will have its own power generator

fueled by a waste material of the pretreatment processor, called lignin, to

offset its energy costs. 

Technological revolution 

or evolution?

Cellulosic ethanol production may

one day dominate the renewable fuels

industry. A recent study called for CE

to completely replace U.S. oil imports

(around 50 billion gallons) by the year

2050. Until that day, emerging CE

facilities will compete alongside corn

dry mill plants. 

But what if instead of a dichotomous

path of development, CE on one side

and grain-based ethanol on the other,

the industry developed along an integrated path where grain-based plants

included technologies to process the

whole corn plant? 

Three of the larger ethanol companies are betting that the future of cellulosic ethanol will follow this evolutionary path instead of a wholesale revolution. Abengoa Bioenergy, Broin and Co.

and DuPont are developing processes

that will help to integrate cellulose conversion technologies into their existing

dry mill ethanol plants. Each company

is involved in a formalized Research and

Development Agreement with U.S.

DOE to push its respective technologies along.

Abengoa Bioenergy

Abengoa received a $10 million

DOE grant to develop a next-generation dry mill corn ethanol plant. The

$17.7 million project is titled

“Advanced Biorefining of Distillers’

Grain and Corn Stover Blends: PreCommercialization of a BiomassDerived Process Technology.” The

project involves a partnership of

Abengoa-owned High Plains Ethanol in

York, Neb., Novozymes North America

Inc., VTT-Finland and the NREL.

The project goal is to develop and

demonstrate an integrated biorefining

process which includes the fermentation

of both pentose (C5) and glucose sugars

(C6). Such an ambitious undertaking

involves two significant steps: 

• Step 1 — Optimization of the dry

mill technology. Abengoa built a

starch pilot facility in York two years

ago to optimize the production of

ethanol from cereals: corn, wheat,

barley and sorghum. 

• Step 2 — Development of a biomass

fractionation system. Abengoa is

building a second pilot plant (also in

York) which it expects to be up and

running by fall 2006 and will use corn

stover as its feedstock.

The twin York facilities are expected

to mimic what Abengoa is demonstrating with its enzymatic hydrolysis technology on a larger scale in Spain. In a

partnership with Ebro Puleva and the

European Union 5th Framework

Programme, Abengoa’s 2 MMGY biomass commercial demonstration facility

uses wheat straw and is co-located with

a starch plant in Salamanca with the

two sharing utilities and support systems. However, just as with the Iogen

wheat straw demonstration facility in

Canada, the plant in Spain will not ferment the pentose (C5) sugars and glucose (C6) sugars simultaneously. Only

glucose (C6) from the cellulose hydrolysis will be fermented into alcohol. The

pentose-laden residue will be mixed

with animal feed and incorporated into

other studies.

Broin’s efforts

Before this next-generation plant will

be capable of producing ethanol from

the entire corn plant, it must first produce ethanol from the whole kernel —

both starch (the only portion currently

utilized for ethanol) and the residual

fiber (what is now the distillers grains).

Converting the residual fiber requires

processing with cellulose enzymes. The

application of cellulosic technology

could dramatically increase the ethanol

yield of the nation’s more than 100

existing dry-mill ethanol facilities. 

NREL collaborates with Broin and

Associates Inc. of Sioux Falls, S.D., on a

$5.4 million project entitled “A Second

Generation Dry Mill Biorefinery,” to

separate bran, germ and endosperm

from corn kernels prior to making

ethanol from the remaining starch.

Trademarked as BFrac®, the technology is expected to be merged with cellulosic technologies. 

18 September/October 2006 / Rural Cooperatives

continued on page 41
By Stephen Thompson,

Assistant Editor

thanol producers are having little trouble finding

buyers for their product,

but getting it to market

can be another matter. As

the ethanol market matures, the availability of economical transport may

make the difference between long-term

profitability and failure. 

Transportation infrastructure in the

United States is meeting the needs of

the ethanol market, but increasing volumes are creating challenges. Rail companies are scrambling to meet demand,

but until new capital investments are in

place, ethanol shippers may have to deal

with a squeeze in the next few years.

Transport by truck is an economical

option for short hauls — up to about

500 miles from the producer. Trucks

have the advantages of being easy to

obtain, offering operational flexibility

and requiring lower expenditures for

loading facilities than other modes of

transport. 

Currently, for short distances, there

are few problems with using trucks,

aside from possible local infrastructure

deficiencies. However, for long distances, truck transport quickly becomes

too expensive.

Problems with pipelines

Pipelines are by far the most efficient

and cheapest way to move large

amounts of liquid, costing only about a

third of transport by rail or barge.

According to the Association of Oil

Pipe Lines, there are 95,000 miles of

pipelines in the United States for transporting refined petroleum products —

by far the most extensive such network

in the world. About 70 percent of

petroleum in the United States is

moved through pipelines. 

But piping ethanol poses problems.

A typical pipeline carries a number

of different kinds of petroleum products. A pipeline might ship several

thousand gallons of high-octane gasoline, followed by a similar amount of

lower octane gasoline, followed by a

shipment of diesel fuel. 

With nothing between the shipments

to keep them apart, portions of each

mix with the shipment ahead and

behind. When the product reaches its

destination, the mixed high- and lowoctane gasoline can be sold as part of

the lower-grade shipment, but the

mixed diesel and gasoline must be set

aside and re-refined into the discrete

products.

Unfortunately, shipping petroleum

products leaves deposits in the pipes —

deposits that ethanol — with its higher

solvent properties — can dissolve, contaminating the shipment. Water can also

get into pipelines. Petroleum products

don’t mix with it; but ethanol is hydroscopic: it blends with water. As a result,

with ethanol, instead of re-refining only

a small part of the shipment, it may be

necessary to re-refine all of it — or even

discard some as hazardous waste. 

Shipping ethanol in an E-10 blend

with gasoline might seem a solution.

However, water in the line can actually

“strip out” the ethanol, again making it

necessary to re-refine the entire shipment. Ethanol is also said to cause corrosion in pipelines, a problem that is

still being studied. 

Even if these factors are overcome,

there’s still another, more basic problem: most existing pipelines simply

don’t run in the right directions.

Rural Cooperatives / September/October 2006 19

Keep on Truckin’

Ethanol boom creates transportation challenges 

E

Transportation cost — both for procuring grain or

oilseeds and shipping biofuel — is a major factor

influencing the profitability of ethanol and biodiesel.

USDA photo by Ken Hammond 
Wrong direction

Pipelines for refined petroleum

products tend to run from the south —

from refineries on the Gulf Coast — 

to markets in the north, including the

Midwest, where most ethanol is produced. Crude-oil pipelines also supply

Midwest refineries from the Gulf. 

Although gasoline mixed with

ethanol can be shipped from these

refineries to limited regional markets,

there still remains the problem of getting the ethanol to the refineries. 

For shipment to the larger, coastal

markets, the pipelines just aren’t there.

This is particularly true on the West

Coast and the huge California market.

The Pacific coast has a pipeline supply

network separate from the rest of the

country. 

About 55 percent of its supply of

crude oil comes from Alaska — shipped

in tankers from Valdez to ports such as

Los Angeles and Anacortes, Wash. The

rest is produced mostly in California,

which also refines its own petroleum

products.

How about dedicated pipelines? At

the moment, there just isn’t enough

ethanol volume to justify the huge capital expenditures required for a long-distance ethanol pipeline to any market.

However, local pipelines linking ethanol

plants in high-density areas, such as

Iowa and Minnesota, with rail terminals

are a distinct possibility.

Some authorities think that ethanol

pipelines may become feasible if the use

of E-85 becomes widespread. Bob

Reynolds, of ethanol-consulting firm

Downstream Alternatives Inc., thinks

that if E-85 is mandated in the

Northeast, a dedicated ethanol pipeline

from the Midwest to the petroleum hub

in Albany, N.Y., could be built. 

However, the huge capital expenditure — $1 million to $2 million per

mile for a small-diameter pipeline —

could lead to a chicken-or-egg situation,

in which politicians would be unwilling

to establish such a mandate without a

reliable ethanol supply, and investors

would be reluctant to put up the money

without such a requirement.

With pipelines not currently feasible,

there are two practical methods of longdistance shipment: rail and barge. 

Rollin’ on the river

Barges move about 800 million tons

of freight a year, about 15 percent of the

national total. They transport about 70

billion gallons of petroleum annually.

Barges offer cost-effective transportation to refineries on the Gulf Coast and

can be used in “intermodal” service —

combining different modes of transportation to achieve higher efficiencies. 

But there are limitations. The first is

proximity of water transport to the

ethanol source. Ethanol can be transported by rail to barge terminals and

transshipped, but that adds to cost. 

The second obstacle is the need for

modernization of locks on the upper

Mississippi River. Current locks are too

small. That means that barge combinations — called “tows” — from the

upper Midwest must be broken up to

traverse each lock, and then reconstituted below. This can cause bottlenecks,

and industry experts say that if the locks

are not modernized soon, increased

traffic will cause barge transport costs

to rise substantially, also putting upward

pressure on rail prices. 

The availability of sufficient numbers

of barges is a concern also, as is the

freezing of waterways in the winter.

The attractiveness of water transport

will depend on the circumstances facing

each ethanol producer: what markets it

wishes to ship to and the relative costs

of different transportation modes.

Riding the rails

Railroads moved 6 million tons of

ethanol in 2004, the most recent year

for which figures are available. That’s a

tiny fraction of the total rail tonnage of

more than 1.5 billion tons. Rail carriers

are currently meeting the demand for

ethanol transport. 

However, a sharp rise in general rail

traffic over the past six years is straining

capacity. With 37 new ethanol plants

under construction and a 50-percent

increase in production coming in the

next few years, possible bottlenecks

threaten serious delays in the short term. 

Midwest cooperatives requiring

transport for grain have been complaining for years about shortages of hopper

cars and the railroads’ failures to meet

their needs. For their part, the railroads

20 September/October 2006 / Rural Cooperatives

Rail tankers are loaded at the Mid-Missouri Energy ethanol plant, which ships out about half of its

production via rail. USDA photo by Dan Campbell 
Rural Cooperatives / September/October 2006 21

are spending billions of dollars on

upgrading their capacity.

The best way to move bulk cargo by

rail is in dedicated “unit trains,” made

up of a single cargo. This avoids the

delays and costs associated with mixedcargo trains. The quicker a tank car can

reach its destination, be unloaded and

return, the more capacity it can carry

over time and the quicker it can pay for

itself (rail tank cars are usually owned

or leased by the producer). 

An ethanol producer shipping a few

carloads at a time in mixed trains can

expect to see its shipments delayed in

marshalling yards as trains are assembled, and possibly delayed again along

the way as the cars are switched

between trains before reaching their

final destination. 

A unit train avoids such problems.

Made up of about 95 tank cars, it shuttles between terminals. With each car

holding 300,000 gallons, a unit train

can carry 28.5 million gallons of

ethanol. Taking current turn-around

times of about six weeks into account,

this means that a plant producing 120

million gallons per year could keep one

unit train busy. 

Smaller-capacity plants have to share

trains. To make the unit-train system

work efficiently, there must be a system

for consolidating tank cars from various

plants into the unit train, and a dedicated receiving terminal at the far end.

One such terminal is the Lomita Rail

Terminal in Carson, Calif., owned by

U.S. Development Corporation.

Inaugurated in August 2003, Lomita is

a huge facility capable of unloading 95-

car ethanol unit trains in 24 hours. It is

connected by pipeline to a blending

facility that is part of a nearby Shell Oil

receiving station for petroleum tankers,

and is capable of meeting the ethanol

demand for the entire Los Angeles

Basin. Other terminals have been built

in Albany, N.Y., Chicago and other

major transportation hubs.

The Lomita terminal is served by the

Burlington Northern and Santa Fe

Railway Co. (BNSF), which runs unit

trains under the trademark Ethanol

Express. According to BNSF, one

Ethanol Express originates in the

Midwest headed for Lomita every three

days. BNSF recently ordered 30 new

locomotives to meet growing demand. 

Unlike other carriers, BNSF has

reportedly managed to provide a consistently good level of service to ag producers, apparently due in part to early

strategic investments in infrastructure.

Limited options

Like grain co-ops, ethanol cooperatives that find themselves dependent on

a single major rail carrier can find their

options limited. This is true not only if

the carrier is having problems meeting

its obligations, but also in choices of

destination and in negotiating favorable

shipping rates. 

Some short-line railroads, such as

Iowa Northern Railway Co., are seeking to fill a niche market by providing

connections with more than one major

carrier. Northern Iowa is also offering

to consolidate cars on its own lines,

instead of in the switching yards of

major carriers, claiming that it can save

producers time. In addition, the railroad

proposes a new switching yard financed

in part by ethanol producers, to save

even more time.

One bottleneck is a shortage of railcars: the sudden rise in demand has left

manufacturers with a year-and-a-half

backlog of orders for ethanol tank cars.

New manufacturing facilities are being

built, but shortages will persist for the

next few years due to the continuing

steep rise in ethanol production. 

Rail is also an attractive option for

shipping dried distillers grains (DDG).

Because DDG is lighter than corn, larger hopper cars can be used. Some producers are exploring the use of shuttle

systems, with incoming cars carrying

corn and outgoing cars hauling DDG

to feedlots in the same areas in which

the corn originated.

Carriers adapting

It takes time for a new industry to

reach top efficiency, and ethanol transportation is still being developed. Today

it takes 24 to 36 hours for ethanol trains

to offload and turn around — in contrast to coal trains, where operations

have been refined for decades and which

can be emptied in about six hours. 

As carriers adapt, kinks will be ironed

out. Extra rail side lines are being built,

or planned, to deal with increased traffic. Production of rail tank cars should

catch up to demand. And transport costs

should eventually drop as more efficient

methods are discovered. ■

Barges ship about 70 billion gallons of petroleum

annually. Many ethanol producers are also shipping

by barge, but there is a backlog on barge orders,

which may take several years to clear, according to

the Renewable Fuels Association. 
By Anthony Crooks, Ag Economist

USDA Rural Development, Cooperative Programs 

he development of distillers grains as a valuable co-product for animal feed has been

instrumental to the growth of the fuelethanol industry. If ethanol maintains its

current pace of expansion, as much as 17

million tons of distillers grains will be generated annually

by 2012. That level could rise to as high as 25 million

tons by 2016. 

Along with that growth in volume, pressure mounts to

find a home for this co-product of ethanol (see figure 1),

which is largely the protein that remains after the starch

content is removed from corn in the distilling process.

Sheer volume, favorable prices and the growing quality of

distillers grains are expected to encourage nearly every

major livestock producer and feed manufacturer to pursue

ways of further using this feed. 

Revenue from the sale of distillers grains once comprised about one-third of the average ethanol facility’s

total revenue. However, two spikes in the price of oil, the

Energy Bill and soaring ethanol markets have combined

to lift ethanol income so much that those distillers grains

now comprise a significantly smaller percent of their revenue, on average. 

Not that plant managers are complaining about today’s

circumstance. After all, it’s really a reflection of some

exceedingly favorable ethanol market conditions, and no

one truly expects this environment will last forever.

However, if distillers grains are to again return to a greater

portion of the revenue portfolio, an increasing diligence

by plant managers to ensure a consistent, high-value product will be required. There is a real possibility that the

U.S. livestock-feeding industry may ultimately approach

market saturation for consumption of distillers grains. 

From price takers to makers 

In the days when ethanol cost a dollar per gallon, plant

managers would have been proud to receive 10 percent of

their plant’s revenue from distillers grains. Plant managers

were often confronted by livestock feeders whose opening

bid was: “I shouldn’t even have to pay for this stuff; you’re

22 September/October 2006 / Rural Cooperatives

Measuring the gains

for distillers grains

T

Sale of dried distillers grains to the livestock industry is a major component

of ethanol plant profitability. USDA photos by Dan Campbell
making ethanol.” Indeed, frequently the best offer was: “I’ll

pay the freight to haul it off.

And that’s it.” 

The situation was almost dire

in the beginning. Livestock

feeders had the upper hand

because they understood that

wet distillers grains had to be

moved quickly (in less than

three days) or it would spoil.

Feeders recognized the pressure

that plant managers were under

to sell, so they would show up

on “day two” and “graciously”

offer to take the product off the

premises. 

The first real technological

development for distillers grains

was the use of driers to extend

the product’s shelf life and to

improve its consistency. Managers then

set a goal to keep the dryers going and

never make another pound of wet feed

that wasn’t pre-sold. 

A few of the early plants were fortunate enough to have Farmland

Industries as one of their investors.

Farmland’s feed division not only

helped to market the co-products but,

more importantly, sponsored research

and conducted its own studies on how

best to make and use distillers grains.

Farmland’s feed division has since

been merged into Land O’ Lakes

Purina Feeds, which continues the

research in its own facilities and is

working with land-grant universities

in the Corn Belt. 

Co-product research and development by universities and private corporations significantly enhanced the nutritional and market value. Researchers at

the University of Minnesota, Iowa State

University and the University of

Nebraska served not only to expand

existing markets for distillers grains

among ruminants (dairy and feeder cattle), but also performed groundbreaking

work to develop new markets among

single-stomach species such as swine

and poultry.

Feed inclusion rates for distillers

grains are presently as high as 40 percent for cattle, 25 percent for swine and

5 percent for poultry. It is expected that

these levels could increase another 5 to

10 percent. 

Much more than an afterthought

So, far from being an afterthought,

distillers grains grew to become a significant component of a plant’s revenue

stream. And that progress was critical to

the development of the entire industry.

University-trained nutritionists began

working with the plants to help market

the feeds in the early 1990s. Over time,

with more volume and a higher consistency, the plants developed a track

record for the products’ feed value. 

After years of research and a number

of technological developments (and a

lot of education), feeders learned the

nutritional value of distillers grains with

a high level of precision: it equals from

120 to 135 percent of the nutrition of

corn in the feed ration. As the corn’s

starch is removed to manufacture

ethanol, the corn’s protein level is raised

in the co-product. 

Because nutrients are available in

many different ingredients, livestock

producers incorporate distillers grains

into the ration simply as it makes economic sense to do so. As such, distillers

grains compete with all other feeds and

feed ingredients in terms of nutritional

content, energy and cost per unit. And

because distillers grains are discounted

relative to corn (despite having a higher

nutritional value), feeders look for ways

to include (substitute) more of it into

their ration.

The development of linear programming (LP) models and other computer

applications for blending feed rations at

the least-cost (subject to minimum nutritional requirements) contributed greatly

to the inclusion of distillers grains.

These models provide the relative contribution of a particular feed ingredient

— distillers grains, for example — given

its price. Virtually every feed manufacturer and seller has an array of computational tools to determine the optimal

available feed ration, subject to price and

nutritional specifications for the region’s

cattle, swine and poultry. 

With these tools, a marketer or feed

seller can demonstrate to the producer

the true value of including distillers

grains (or any particular feed ingredient) into the ration by how it affects the

bottom line. As the managers of these

models, nutritionists have become the

industry’s gatekeepers of distillers grains

market value. 

The path forward: 

challenges, opportunities

As the ethanol industry grows, sufficient volumes of distillers grains will be

Rural Cooperatives / September/October 2006 23

The DDG-loading area at the Northeast Missouri Grain ethanol plant in Macon, Mo. 
manufactured to develop a consistently reliable supply at the

local, regional and, ultimately, the national and even international levels. Between then and now, however, a few marketlimiting issues must be resolved, including: 

• Flowability — High temperatures and humidity can sometimes cause the most commonly produced distillers grains

product, distillers dried grains with solubles (DDG), to

stick together and harden into something resembling a

fine-grain concrete. The caking problem was so severe that

air hammers were used to extract the DDG from railcars.

Rail carriers — understandably upset to see their cars damaged by the air-hammer unloading — prohibited plants

from using their cars to ship DDG. Having no option but

to purchase or lease railcars dedicated to DDG transport

put an otherwise unnecessary financial and logistical burden on the ethanol plants. It added about $6 per ton to the

cost of shipping, or about $39 million a year industry-wide.

Several preventive products are being developed to improve

DDG flowability, mostly with mixed results. The industry

is still searching for better solutions to this, its biggest

obstacle. Opportunities for expansion into international

markets, such as Mexico and Asia, are compelling reasons

for the industry to resolve these DDG flowability challenges.

• Movement toward standardization — An industry-wide

push for more consistent color, palatability, nutrient content, particle size and flowability of the product is opening

doors to markets previously unimagined. In concert with its

effort for consistency, the industry is developing a set of

standardized definitions for distillers grain products along

with standards for quality and testing. The Renewable

Fuels Association (RFA) and the American Feed Industry

Association (AFIA) have taken the lead and are working

together to reconcile and resolve the numerous ways that

distillers grains are now tested and so that nutritionists may

soon have something that approaches a single standard.

• Export opportunities — There is sufficient domestic

demand to consume the potential 7 million metric tons of

distillers grains that U.S. ethanol plants are expected to

produce in 2006. However, if the corn ethanol industry

grows to 15 billion gallons per year, there is a genuine need

to develop markets beyond our borders. The U.S. Grains

Council (USGC) is working hard to identify new and

emerging opportunities for distillers grains exports. Inroads

into potential growth markets such as Asia, Mexico, Canada

and the European Union are being channeled through the

USGC’s education efforts in its 10 overseas offices. The

council conducts DDG feed trials to demonstrate the quality and benefits of using DDG as an ingredient in feed

rations for swine, poultry and dairy diets.

There is great export potential in Asia because there is a

sizable feed industry that can use DDG (and the Asian

ethanol industry is only just emerging). Asia is also a traditionally significant importer of U.S. grain. Japan, for example, is the top customer for U.S. corn. Education efforts

and feeding trials are currently being conducted in Japan,

Taiwan and China. Other potential markets for U.S. DDG

lie within the European Union, which is already a frequent

buyer and has the appropriate systems to handle DDG

imports. The EU may also prove to be an especially strong

customer during drought years. 

Two significant opportunities for expanding DDG

export markets exist in Mexico. Hog growers there have

expressed a keen interest in importing significant quantities of DDG to blend into their hog feed, and they have

the infrastructure to handle it. The poultry industry, while

having a less advanced infrastructure, is still very promising. The poultry market in the Veracruz region alone has

the potential to displace 60,000 tons of corn per month.

However, because of its infrastructure limitations, the best

way to move DDG into the Mexican poultry market may

be as a complete feed. Importing processed feeds such as

DDG does not require an import certificate and avoids the

quota system that regulates the volume of Mexican corn

imports.

• Educating end-users — From fertilizer to fuel, to plastic

resin replacement, to biomaterials (such as cat litter) and

now to novel human food applications, more and more

unconventional applications are presented for distillers

grains every year. Alternative uses could one day make up 

a significant portion of the global distillers grains market.

Research and education efforts are having an impact to

promote distillers grain use in ever-wider applications here

at home and abroad. 

Figure 1 — U.S. Ethanol and Distillers Grains (DG)

Production Projections Through 2016

For a list of references used for this article, please e-mail

the author at: anthony.crooks@wdc.usda.gov, or call him at

(202) 205-9322. ■

24 September/October 2006 / Rural Cooperatives
By James Jacobs, Ag Economist

USDA Rural Development

ore than half of world ethanol production is produced from

sugar and sugar byproducts, with Brazil being by far the world

leader. Currently, there is no commercial production of

ethanol from sugarcane or sugar beets in the United States,

where 97 percent of ethanol is produced from corn.

Technologically, the process of producing ethanol from sugar is simpler

than converting corn into ethanol. Converting corn into ethanol requires

additional cooking and the application of enzymes, whereas the conversion of

sugar requires only a yeast fermentation process. The energy requirement for

converting sugar into ethanol is about half that for corn. 

However, the technology and direct energy costs are but one of several factors that determine the feasibility of ethanol production. Other factors

include relative production costs (including feedstocks), conversion rates,

proximity to processing facilities, alternative prices and government policies,

facility construction and processing costs. As other countries have shown that

it can be economically feasible to produce ethanol from sugar and other new

feedstocks are researched, interest in the United States in ethanol production

from sugar has increased. 

In response to the growing interest around sugar and ethanol, USDA

released a study in July 2006 titled: “The Economic Feasibility of Ethanol

Production from Sugar in the United States” (on the internet at: www.usda.gov/

oce/). The report found that at the current market prices for ethanol, converting sugarcane, sugar beets and molasses to ethanol would be profitable.

“At this summer’s unusually high price, I can conclude that it’s economically

feasible to produce ethanol from sugarcane and sugar beets,” USDA Chief

Economist Keith Collins said. However, there is not a clear-cut case that

U.S. sugar will be commercially converted to ethanol anytime soon. This

article will explore some of the economic and technological factors for the

potential of sugar-based ethanol production for farmer-owned cooperatives.

U.S. sugar industry

Sugar beets are an annual crop grown in 11 states across a variety of climatic conditions, from the hot climate of the Imperial Valley of California to

the colder climates of Montana and North Dakota. Sugar beet byproducts

include beet pulp, which can be sold for animal feed, and molasses, which is

also sold for animal feed or further processed to extract more sugar. 

Sugarcane is a perennial tropical crop produced in four states: Florida,

Hawaii, Louisiana and Texas. Byproducts of sugarcane processing include

molasses and bagasse, the fibrous material that remains after sugar is

pressed from the sugarcane. Bagasse is often burned as fuel to help power

the sugarcane mills.

Rural Cooperatives / September/October 2006 25

Ethanol from Sugar

What are the prospects for U.S. sugar co-ops?

M

Sugar cane, seen here at the tassel

stage, fuels Brazil’s ethanol industry.

The potential of using sugarcane and

sugar beets for ethanol in the United

States is being studied. USDA

Agricultural Research Service photo
26 September/October 2006 / Rural Cooperatives

Total U.S. sugar production fell by

more than 20 percent from 2000 to

2006 due to low prices and structural

changes in the industry. Production

declined significantly or ceased altogether in five states. 

Sugar beets have gained a greater

share of U.S. sugar production over

the past decade, now accounting for

58.8 percent of the nation’s sugar output while sugarcane fell to 41.2 percent. Sugar producers and the members of farmer-owned cooperatives are

increasingly interested in new technologies and product markets for their

crops, including the growing ethanol

market. 

Cooperatives in the sugar industry

Producer-owned cooperatives now

dominate the sugar beet and sugarcane

processing sectors as market conditions

prompted more farmers to take ownership of their processing facilities to

ensure a market for their beets or cane. 

Sugar beet processing: Beet processing facilities convert raw sugar beets

directly into refined sugar in a 1-step

process. While planted sugar beet

acreage has fallen slightly since the

1990s, sugar production actually

increased due to investments in new processing equipment, the adoption of new

technologies, improved crop varieties

and enhanced technologies for the desugaring of molasses.

Sugar beets are very

bulky and relatively

expensive to transport

and must be processed

fairly quickly before

the sucrose deteriorates. Therefore, all

sugar beet processing

plants are located in

the production areas.

During the past

decade, there was a

steady conversion of

sugar beet processing

plants to cooperative

ownership. All 23 U.S.

sugar beet processing

facilities are now operated by farmer-cooperatives. These

include: Michigan, four facilities;

Minnesota and North Dakota (the

largest sugar beet producing region)

seven facilities; Colorado and Nebraska,

three facilities; Wyoming, two facilities;

Idaho, three facilities; Montana, two

facilities; and California, two facilities.

Sugarcane processing: Sugarcane is

initially processed into raw sugar at

mills near the cane fields. Like beets,

cane is bulky and relatively expensive to

transport and must be processed as soon

as possible to minimize sucrose deterioration. The raw sugar is then shipped to

refineries to produce refined sugar.

Cooperative ownership of sugarcane

mills is not as dominant as with sugar

beets. In some states, there has been a

decline in the number of cooperativeowned mills. Hawaii has gone from 12

mills in 1994 down to two in 2006,

none of which are cooperatives.

Louisiana has gone from 20 mills and

10 cooperatives in 1994 to 12 mills and

4 cooperatives in 2006. However, while

Hawaii sugarcane acreage has declined

significantly, Louisiana’s acreage

increased slightly as the remaining mills

were upgraded and expanded. Florida

sugarcane acreage and mill numbers

have remained relatively constant, with

one cooperative among the six mills.

The lone mill in Texas is cooperatively

owned, and acreage has been fairly stable over the past decade.

Sugarbeets thrive in the rich soil of the Red River Valley of

Minnesota and North Dakota. Photo courtesy American Crystal

Sugar (ACS); A conveyor transports sugar beets from stockpiles

into the ACS processing plant in Moorhead, Minn. USDA photo by

Dan Campbell
Because all sugar beets and a significant portion of sugarcane is processed

at cooperatively owned facilities, there

would be significant cooperative

involvement in any future sugar-toethanol production.

Factors impacting 

sugar to ethanol viability 

Corn is currently the least-cost feedstock available for ethanol production.

Ethanol from sugarcane or sugar beet

feedstocks costs twice as much. USDA’s

recent sugar/ethanol report provides

these comparative production costs

(below).

High oil prices have spurred interest

in ethanol, to put it mildly. But for how

long? (Prices were dropping at press

deadline in September.)

With ethanol prices hovering near

$4 a gallon this summer, the USDA

report concludes that it would be profitable to produce ethanol from sugar

and sugar byproducts. However, if

ethanol prices were to drop below $2.35

a gallon, it would not be profitable to

use raw or refined sugar as a feedstock.

Based on current futures prices, the

price of ethanol is expected to drop.

Alternative market

prices for sugar 

As can be seen above, it is far more

costly to convert U.S. refined sugar to

ethanol than to convert corn. One reason is that recent domestic sugar prices

make it more profitable to convert sugarcane and sugar beets to sugar than to

convert it to ethanol. As Jose Alvarez,

vice president of operations for the

Sugar Cane Growers Cooperative of

Florida, said: “It’s simple economics.

Refined sugar sells at about 18 cents a

pound, and the experts tell us ethanol

from sugar would be close to 10 cents.”

(Florida Sun-Sentinel, May 31, 2006.) 

U.S. policy has long been to protect

domestic producers from unstable

world prices, where sugar is sold below

the cost of production for most countries (often called the “dump” price).

Imports are limited to keep domestic

prices stable, with the current price

support level at 18 cents per pound.

Refined sugar is currently a few cents

above that, and unlikely to ever fall

much below the support price to avoid

forfeitures to the government under the

sugar loan program.

When domestic sugar prices were

very low a few years ago and some

sugar was forfeited to the government,

alternate uses for surplus sugar were

explored. The Minnesota Energy

Cooperative experimented with incorporating beet sugar with corn in a drymilling ethanol plant. They found

some synergy in combining the two

into their fermentation tanks —

increasing ethanol production and

decreasing the fermentation time, and

allowing them to produce an additional

442,800 gallons of ethanol. 

When sugar prices rebounded, the

concept of mixing sugar with corn for

ethanol was put on the back burner.

However, it demonstrated that when

market conditions warrant it, the technology is there to significantly boost

ethanol production by combining sugar

with corn.

Ethanol from molasses 

Molasses was found to be an ethanol

feedstock that was fairly cost competitive with corn. Molasses is typically sold

as food or a livestock-feed ingredient.

However, there are limited supplies to

economically support a new ethanol

facility. 

It is bulky and costly to transport,

limiting the feasibility of drawing supplies from multiple sugar processing

facilities. 

Molasses would be most feasible if

supplying an ethanol facility already colocated at a sugar processing plant.

Plant location & capital costs 

For new facilities, capital costs are

estimated to be higher for those using

sugarcane or sugar beets than for cornbased ethanol plants. Also, the economics of plant location is largely dictated

by proximity to feedstocks for ethanol. 

Most ethanol plants are located in

the Midwest near corn supplies.

Sugarcane and sugar beets cannot be

shipped very far for processing into

any product, be it sugar or ethanol.

However, building an ethanol plant

onto an existing sugarcane or sugar

beet factory would have a much lower

capital expenditure cost and may make

it more comparable to corn-based

facilities. 

In Brazil, nearly all sugar mills have

the capacity to produce both ethanol

and sugar. One advantage of co-locating

an ethanol processing facility is that

sugar producers already bring their

crops to these facilities. Another is that

the front end of the milling process is

the same for ethanol as for sugar, where

beet and cane juices are extracted for

converting into either ethanol or raw or

refined sugar. 

Additional fermentation equipment

would be needed to make ethanol at

existing facilities. 

Additional feedstocks needed 

USDA’s Economic Research Service

(ERS) reported the annual capacity of

ethanol plants could expand from 4.4

billion in 2006 to 7 billion gallons in

2010. ERS also raised a key question:

Rural Cooperatives / September/October 2006 27

Estimated ethanol production costs

Feedstock Total Costs* Processing Costs*

Corn (wet milling/dry milling): $1.03/1.05 $0.63/0.52

Raw Sugarcane 2.40 0.92

Raw Sugar beets 2.35 0.77

Molasses** 1.27 0.36

Raw sugar** 3.48 0.36

Refined sugar** 3.97 0.36 

*Per gallon ** Excludes transportation costs
Where will the corn come from to supply this expansion?

In 2010, the ethanol sector will need

at least 85 percent more corn than in

2005. How the market adapts to this

increased demand will likely play a

major role in the potential demand for

additional ethanol feedstocks and the

incentives for developing new processing technologies, especially around the

cellulosic conversion of biomass into

ethanol (see article on page 22). 

Cellulosic processing technologies: 

The ethanol industry has grown

almost exclusively from grain processing. In the future, ethanol will be produced from other feedstocks, such as

cellulosic materials. Cellulose is the

most common organic compound on

earth. However, it is more difficult to

break down cellulosic materials to convert into usable sugars for ethanol. 

Yet, making ethanol from cellulose

dramatically expands the types and

amount of available material for ethanol

production, including bagasse and sugarcane trash (stalks and leaves). Instead

of having to first convert the sugarcane

to sugar juice, ethanol could be produced by processing the entire plant

material. 

Conversion of sugar byproducts and

waste via cellulosic technologies would

greatly increase the ethanol yields of

sugar feedstocks. Cellulosic ethanol

production will augment, not replace,

grain-based ethanol, but ultimately

expand potential ethanol supplies exponentially. 

Bagasse 

Sugarcane bagasse, the material left

over after sugar juice is squeezed from a

cane stalk during milling, is another

potential feedstock for cellulosic

ethanol. Creating fuel from bagasse and

other biomass materials holds promise

but will require technology development. The Audubon Sugar Institute in

Louisiana has a sugarcane-to-ethanol

research project underway focusing on

bagasse. 

Bagasse is currently burned as fuel in

sugarcane mills, but researchers hope to

increase the value of what is now considered a waste product. The project

received two $500,000 grants from the

U.S. Department of Energy for

research on producing value-added

products from bagasse and molasses. 

Research shows that one dry ton of

sugarcane bagasse can generate 80 gallons of ethanol. This compares favorably with 98 gallons per ton of corn.

Peter Rein, director of the Audubon

Sugar Institute, says “The challenge is

economics. We can do it in the lab.

The technology is there, but the economics aren’t there yet to be commercially viable.”

Government policy 

The growing ethanol industry in the

United States can partially be attributed

to government policies promoting the

production and use of ethanol.

Incentives such as the motor fuels excise

tax credits, tax credits for small ethanol

producers, import duties and state government initiatives helped make ethanol

production more cost effective.

Regulations for cleaner air and

increased fuel efficiency significantly

increased demand for ethanol.

The Brazilian ethanol model is often

mentioned when the potential for sugar

as an ethanol feedstock in the United

States is discussed. In the 1970s, Brazil

initiated a program of direct investments, subsidies and incentives to

increase ethanol production from sugarcane and increase the use of ethanol as a

substitute for gasoline. 

Brazil is now world’s largest producer of both sugar and ethanol. However,

the economics — in terms of production, facility costs and government policies — are not directly comparable to

those in the United States. Brazil production costs for ethanol from sugar are

much lower than here. It has a much

longer growing season than U.S. sugarproducing regions and has higher yields

per acre because of better climate and

investment in more-productive strains

of sugar cane. 

Some lawmakers from sugar-producing states have been pushing sugar-toethanol legislation. The Energy Policy

Act of 2005 included $36 million for

sugar-ethanol demonstration grants.

The funds will be used to explore commercialization of sugar cane ethanol,

particularly for small producers with

outputs of under 30 million gallons per

day. 

The Act also included federal loan

guarantees to build plants to produce

ethanol from cellulosic biomass or cane

sugar. Recent proposed legislation to

encourage the use of renewable fuels

included a 100-million-gallon mandate

for sugar-based ethanol beginning in

2008 and each calendar year thereafter.

How this would happen was not stated

in the pending legislation; it is just a

mandate for minimum quantities of

renewable fuel derived from sugar. 

U.S. sugar producers are a little

more tempered in the economic

prospects for sugar-to-ethanol. Selling

refined sugar is still their primary business and the opportunity costs of converting it to ethanol are still such that

the market for sugar is more profitable.

There is a general sentiment that policies to increase ethanol production

from sugar should augment, but not

replace, current U.S. sugar policy. 

The American Sugar Alliance, an

association of beet and cane sugar producers, has stated that the government

would need to step in to stimulate a

sugar-to-ethanol industry. “It would

take a combination of consumption

mandates to ensure that the demand

would be there, and conceivably some

production incentives to use ethanol.”

(CNN.com, June 20, 2006) 

USDA’s sugar/ethanol report concludes that corn certainly has a competitive advantage in the current market

environment, and is helped by the current 51-cent-a-gallon federal tax

exemption. Some people have suggested

that one way to spur sugar-to-ethanol is

to provide an increased credit for sugar.

This was proposed, but not adopted, 

to compensate for more sugar imports

negotiated in the latest Central

American Free Trade Agreement.

Some states are pursuing their own

sugar-to-ethanol policies. With unique

28 September/October 2006 / Rural Cooperatives

continued on page 38
SDA Rural Development’s Value-Added

Producer Grant (VAPG) program is helping to

fund producer-owned businesses all across the

nation, including biofuel projects. The table on

the following pages lists biofuel-related grants

issued the past two years. 

VAPGs may be used for planning activities and for working

capital for marketing value-added agricultural products and

for farm-based renewable energy. Eligible applicants are

independent producers, farmer and rancher cooperatives,

agricultural producer groups and majority-controlled producer-based business ventures. The 2006 funding decisions were

announced in September (after this publication went to press)

for the 2006 award list, visit:

http://www.rurdev.usda.gov/rbs/coops/vadg.htm.

For more information about the program, contact your

USDA Rural Development state office, or visit the above

website. ■

Rural Cooperatives / September/October 2006 29

continued, next page

VAPG program helping 

fuel biofuel growth 

U

Value-Added Producer Grants for Biofuels, 2004–2005

Year Recipient State Amount Type Project Description

2004 Central Iowa Renewable Energy LLC IA $139,986 ethanol Planning associated with starting a 50 milliongallon-per-year ethanol plant.

2004 Empire Biofuels LLC NY $100,000 ethanol Feasibility study and development of a 

business plan for marketing ethanol.

2004 Heartland Corn Products MN $279,000 ethanol Planning associated with adding value to the

by-product stream of ethanol.

2004 Heartland Grain Fuels, LP SD $150,000 ethanol Evaluate the feasibility of expanding the biorefining capabilities of existing ethanol plant.

2004 Nebraska Soybean Association NE $237,300 biodiesel Evaluate the economic feasibility of 

processing soybeans and marketing biodiesel.

2004 New Harvest Ethanol MN $170,000 ethanol Business plan and feasibility study for a 

coal/biomass-fired ethanol plant.

2004 Oklahoma Farmers and OK $235,000 biodiesel Determine the feasibility of marketing bioRanchers Energy Enterprise diesel, bio-based lubricants and hydraulic oil, 

and other products.

2004 Siouxland Energy & Livestock Co-op IA $150,000 ethanol Working capital for marketing E-85 fuel.

2004 Timber Producers Association of WI $120,627 biodiesel Evaluate the feasibility of marketing bio-based 

Michigan and Wisconsin consumer chemicals, bio-based industrial 

chemicals and biofuels made from slash and 

low-value pulpwood.

2004 Whitesides Dairy Inc. ID $28,172 biodiesel Determine the feasibility of processing dairy 

biogas into high-purity pipeline or automotivequality fuel.
30 September/October 2006 / Rural Cooperatives

Year Recipient State Amount Type Project Description

2005 Blackhawk Biofuels LLC IL $100,000 biodiesel Determine the feasibility of operating a 30 

million-gallon-per-year biodiesel plant 

in Freeport.

2005 Bootheel Ethanol LLC MO $150,000 ethanol Purchase 75,000 bushels of corn.

2005 Central Iowa Renewable Fuels LLC IA $150,000 ethanol Funding for employee training, inventory 

acquisition and general plant operations for 

ethanol plant in Goldfield.

2005 Coahoma County Bio-Energy MS $45,000 ethanol Comprehensive marketing and business plans 

Steering Committee for ethanol plant.

2005 Columbia Crush LLC OR $12,500 biodiesel Marketing and business plans for new oilseedcrushing facility in northeast Oregon.

2005 Commodity Enhancement Corp. MO $100,000 biodiesel Feasibility study of proposed biodiesel 

facility in west-central Missouri.

2005 Ethanol Grain Processors TN $150,000 ethanol Operating funds and office construction for an 

ethanol plant is western Tennessee.

2005 Farmers Cooperative IA $100,000 biodiesel Feasibility study for a 30-million-gallon 

biodiesel plant in Marble Rock.

2005 Frontier Equity Exchange KS $41,500 ethanol Feasibility study and possible business and 

marketing plans for ethanol production facility 

in northwest Kansas. 

2005 Golden Grain Energy LLC IA $150,000 ethanol Purchase of feedstock.

2005 Indiana Ethanol LLC IN $100,000 ethanol Feasibility study for dry-mill ethanol plant in

Randolph.

2005 Indiana Renewable Fuels IN $100,000 ethanol Feasibility study for 50-million-gallon ethanol

plant in Fulton County.

2005 Lincolnway Energy LLC IA $150,000 ethanol Operating funds for 50-million-gallon ethanol

plant in Nevada, Iowa.

2005 Mercer Landmark Inc. OH $31,250 biodiesel Feasibility study for marketing biodiesel, refined 

soybean oil, soybean meal and refined glycerin.

2005 Mid-Atlantic Biodiesel Co. LLC DE $150,000 biodiesel Operating funds for 5-million-gallon biodiesel facility.

2005 NEK-SEN Energy Partners KS $100,000 ethanol Feasibility study for 50-million-gallon ethanol plant 

in northeast Kansas.

2005 Ohio Corn Growers Association OH $33,000 ethanol Feasibility study for an identity-preserved corn 

dry milling plant.

2005 Patriot Renewable Fuels IL $100,000 ethanol Feasibility study for 50-million-gallon ethanol plant.

2005 Pulaski Alexander Farm Bureau IL $100,000 ethanol Feasibility study for ethanol plant in Pulaski County.

2005 Southern Iowa Bioenergy LLC IA $100,000 biodiesel Feasibility study for 30-million-gallon biodiesel plant

in southern Iowa.

2005 Unified Soy Products LLC NE $25,000 biodiesel Feasibility study for a combination soybean 

crushing facility/soy biodiesel operation.

2005 Western Wisconsin Energy LLC WI $150,000 ethanol Feasibility study for 40-million-gallon ethanol plant.

2005 Wisconsin Soybean Marketing Board Inc. WI $50,000 biodiesel Feasibility study for biodiesel facility.
Editor’s note: Cooperatives are seeking

innovative structures and strategies to

deliver locally produced food to a host of consumers, from Community Supported

Agriculture and farmers markets to schools,

restaurants and grocery stores. Several of

the new “food co-ops” (including one in

Nebraska discussed below) include producer

and consumer members. Local markets

mean lower transportation costs and better

prices for farmers, plus higher quality products for those who buy their products. In a

world where consumers increasingly want to

know where their food comes from, these coops are turning obstacles into opportunities.

Linking country to city, 

traditional to high-tech

Several Amish and Mennonite farmers of Lancaster County, Pennsylvania,

were already sending fresh products to

Philadelphia, 60 miles away. Still, they

knew they were missing a lot of opportunities. So they approached the Keystone Development Center which

helped them secure the services of a

facilitator uniquely suited to help the

farmers set up Lancaster Farm Fresh

Cooperative.

The facilitator worked well with the

farmers, whose way of life includes living without electricity or phones in

their homes. And she moved easily in

the high-tech world of the buyers. One

of the first things she did was to

upgrade the ordering system, from cell

phones that farmers kept in their delivery truck to on-line ordering. Sales took

an immediate leap forward. 

The co-op also acquired a centrally

located warehouse with the added

advantage of refrigeration. Most co-op

members are certified organic, and

much of what they ship is organic-certified produce. Today, the co-op ships

$16,000 of produce, meat and dairy

products every week. It supplies not

only Philadelphia and other metro markets, but also a rising demand right in

Lancaster County, which means a big

break on transportation costs. 

One of the greatest benefits of starting the co-op has been the way farmers

in the southern part of the county are

getting to know and work with their

counterparts in the northern part. They

Rural Cooperatives / September/October 2006 31

Most members of the Lancaster County Farm Fresh Cooperative in Pennsylvania have certified organic farms. The co-op has acquired a central warehouse to supply customers in

Philadelphia and the co-op’s growing local market. Photos courtesy CooperationWorks! and featured co-ops 

Co-ops connecting 

links in food chain

CO-OP DEVELOPMENT ACTION

Local markets

mean lower

transportation

costs and better

prices for farmers, plus higher

quality products

for those who buy

their products.
32 September/October 2006 / Rural Cooperatives

have coordinated crop cycles, thus

extending the co-op’s product availability into a longer growing season and

turning what could have been a divisive

and competitive situation into one that

enables them to increase market access

and weave a tighter fabric of community. For more information, visit:

www.lancasterfarmfresh.com.

Nebraska co-op links

neighbor to neighbor 

As interest in buying

locally produced food

grows around the country, farmers’ markets are

popping up in rural and

urban settings. Schools

and other institutions

are incorporating local

produce. Restaurants,

even supermarkets, use

the ‘locally grown’ label

to attract consumers. 

All of these trends led a group of

Nebraska farmers, ranchers and consumers to form a “multi-stakeholder”

cooperative to provide not only new

markets for locally produced foods, but

also a distribution system. With technical assistance from the Nebraska

Cooperative Development Center, they

did just that.

Each month continues to bring new

members and new products into the coop. Members volunteer for delivery day,

which includes pre-sorting individual

customer orders. Working together,

producers and consumers are learning

more about one another and sharing a

concern for their state’s future.

Taking advantage of new technology, the co-op offers a Web-based

ordering system. Food is delivered

once a month to members’ homes or

nearby drop points. Depending on

availability and seasonality, orders may

include organic produce, grass-finished

and grain-fed beef and pork, pastured

poultry, eggs, jams and jellies, natural

personal-care products, cheese, artisan

breads and more.

As consumer interest in local food

accelerates and the shipping costs of

non-local food rise, the Nebraska Food

Cooperative may play an increasingly

vital role in the nutritional and economic health of its communities. 

For more information, visit:

www.nebraskafood.org. 

Georgia farmers build peanut plant

Tifton Quality Peanuts has just completed its first year of operation as a

Limited Liability Company doing business as a cooperative. The 146 producers located around the state have not

only avoided disaster in the wake of

federal cuts in the peanut subsidy program, but have built a thriving business.

They’ve even received an offer from an

international company to buy all of

their peanuts.

When several of the farmers

approached the Georgia Cooperative

Development Center to help them figure out how to add value to their commodity crop, they already had a shelling

plant in mind. The Center stepped in

to help them with their business plan. It

took a lot of work and many hours

spent talking to other farmers, but in

the end they raised $6 million in equity

to construct the plant. They also created more than 50 full-time jobs in a

depressed rural area of the

state. 

Tifton Quality Peanuts now

owns one of only two peanut

shelling plants built in the

United States in the past

decade (the other, also in

Georgia, is owned by another

co-op). It uses innovative technology to control the storage

atmosphere that reduces harmful toxins and avoids other problems

common in older facilities. 

Oh, and the deal with the big corporation that wanted to buy all their

peanuts? The farmers declined, choosing to balance their market rather than

sell to one customer. What they essentially said was: “From now on, we’re

going to be in control of our markets —

and our future!” ■

By putting all their produce in one co-op ‘basket,’ farmers may offer more variety, a longer

season, improved quality or other benefits. 

In Nebraska, those who produce food and their customers are forming

cooperative ‘food chains’ to distribute locally. 
Rural Cooperatives / September/October 2006 33

Record earnings, returns 

for Countrymark members 

Regional fuel refiner Countrymark

Co-op, Indianapolis, Ind., announced

record earnings and returns to member

co-ops at its annual meeting in

Indianapolis, delivering on its fundamental promise: to exist to supply the

members it serves. The co-op said

$25.86 million will be distributed back

to its member-owners, with a majority

paid as member patronage refunds and

revolved equity. Of the total, $18.86

million will be returned in cash and $7

million as equity credits. Countrymark

closed fiscal year 2005 with record

after-tax earnings of $40.5 million.

Improved operating efficiency,

changes in production and an emphasis

on positive commercial relationships

helped the refinery, CEO Charlie Smith

said. Referring to the devastating 2005

hurricane season, Smith said:

“Throughout that crisis, not one co-op

customer went without product. Last

fall, nature unleashed circumstances

where local ownership and cooperative

membership immediately differentiated

us from every other supplier. Our operations team, marketing staff and delivery professionals out in the field truly

proved the advantage — and the commitment — they bring

to co-op customers.”

Countrymark has

invested in a $40-million clean-fuel complex

to deliver ultra-low sulfur diesel, and was one

of the first refiners in

the nation to promote

soy biodiesel and

ethanol blends, Smith

said. “Last year, approximately 85 percent of all

biodiesel marketed in this state was

through co-op members. In renewable

fuel leadership, as in all areas, action is

how the co-op adds value for member

owners.”

Countrymark Co-op is owned and

controlled by approximately 60 member

cooperatives, and serves the energy

needs of agricultural, industrial and

commercial customers in Indiana,

Illinois, Michigan and Ohio. It is the

largest buyer of premium American

crude oil from the Illinois Basin, and

“proudly markets co-op-refined fuels

that are 100 percent American made,”

Smith said. 

Ocean Spray, Pepsi 

form strategic alliance 

Ocean Spray and PepsiCo have

announced a long-term strategic

alliance in which Pepsi-Cola North

America will market, bottle and distribute single-serve cranberry juice products in the United States and Canada

under the Ocean Spray name. The

agreement also includes opportunities

for the development of new product

innovations across multiple trade channels in the future.

“As the Ocean Spray cooperative

moves to build its brand, we are seeking

alliances to reach consumers more

broadly and powerfully than ever

before,” says Ocean Spray President

and CEO Randy Papadellis. “We’re

thrilled to re-establish our partnership

with Pepsi and begin a fruitful, longlived relationship.”

Integration of single-serve juices into

the Pepsi system will begin in 2007.

“This is a chance for both PepsiCo

and Ocean Spray to turn up the dialogue on the health benefits of cranberries,” said Dawn Hudson, president and

CEO, Pepsi-Cola North America.

“Over the past several years, we’ve built

successful, mutually beneficial partnerships with strong brands like Lipton

and Starbucks, and now we plan to

work side-by-side with Ocean Spray to

create a major healthy refreshment

business focused on cranberries. When

people think of cranberries, they think

of Ocean Spray.”

Pepsi distributed Ocean Spray prodNEWSLINE

Send items to: dan.campbell@wdc.USDA.gov

Countrymark Co-op in Indianapolis had record earnings of

$40.5 million last year. Photo courtesy Countrymark

Ocean Spray and Pepsi are working

together once again. Above, Ocean

Spray created a berry bog at Rockefeller

Center in New York last year. Photo courtesy Ocean Spray 
ucts during the 1990s, which helped the

co-op gain access to the single-serve,

convenience store market. But that

arrangement began to unravel after

Pepsi bought the Tropicana juice brand

in 1998. In 2004, Ocean Spray members

voted down a proposed joint venture

with Pepsi, under which the soda giant

would have essentially taken over the coop’s beverage business, reducing the coop to the role of raw-product supplier. 

According to the New York Times, at

the high point of their previous relationship, Ocean Spray had $250 million

in annual sales of single-serve products

distributed by Pepsi. Last year, it sold

less than half that amount in the singleserve market. The cranberry market has

been a roller coaster ride for the past

decade, with sales of $60 a barrel in

1996, but falling to $15 a barrel by

1999. This year Ocean Spray expects to

pay about $40 a barrel. Ocean Spray

posted fiscal 2005 gross sales of about

$1.4 billion.

New pension law helps

50,000 co-op workers 

Provisions included in the Pension

Protection Act of 2006 (HR 4), signed

by President Bush in August, will help

preserve retirement benefits for more

than 50,000 workers across the country

employed by farmer-owned cooperative

businesses. 

The National Council of Farmer

Cooperatives (NCFC) says the action

helps to ensure that farmer cooperatives

can continue to meet their obligations

to their employees while not unduly

stressing the financial health of the

cooperative.

Provisions of the law, which were

strongly supported by NCFC, put in

place special transition rules for rural

cooperatives, including farmer cooperatives that are part of multiple-employer

plans. Much like a cooperative allows

farmers to join together to purchase

supplies or market their crops, multipleemployer plans allow individual cooperatives and related associations to pool

their experience and reduce their cost

to offer retirement benefits to their

members.

“I would like to commend the House

and Senate for passing this legislation,

and President Bush for signing it,” says

NCFC President Jean-Mari Peltier.

“Over 750 farmer cooperatives across

the country will be able to keep their

pension costs in check because of this

new law. This is important because, as

farmer-owned businesses, an increase in

costs means a reduction in resources to

allow farmers to capitalize on new marketplace opportunities and derive more

of their income from beyond the farm

gate.”

NCFC is a national association representing America’s farmer cooperatives. There are nearly 3,000 farmer

cooperatives across the United States

whose members include a majority of

the nation’s more than 2 million farmers, ranchers and growers. Additional

information about NCFC can be found

at http://www.ncfc.org.

WLF selects Utah site

for new processing plant 

West Liberty Foods LLC, of which

the Iowa Turkey Growers Cooperative

is the majority owner, has announced

construction of a new facility in

Tremonton, Utah, which will become

the fourth plant for the Iowa-based

meat processor and marketer. The complex will continue to emphasize food

safety through its state-of-the-art

design. WLF is a leading co-packer,

private label manufacturer and food

service supplier of sliced, processed

meat and poultry products.

The new facility is expected to create

more than 500 new jobs in Tremonton

and the Box Elder County area.

Production should begin in July 2007.

The new complex will consist of a

93,000-sqaure-foot fabrication facility

and a 74,000-square-foot slicing facility.

At full capacity, the plant will be able to

further process more than 100 million

pounds of protein products per year, in

addition to 36 million pounds of chicken. These facilities will be the first of

their kind in North America to cook

and slice 120-inch-long slicing logs. No

slaughter will take place on the premises.

“I couldn’t be more pleased about

West Liberty Foods’ decision to make

this very significant investment and

expand its operations in Utah,” said

Utah Governor Jon M. Huntsman, Jr. 

“This is an exciting time for our

company as we branch out to the western marketplace,” said Ed Garrett,

WLF president and CEO. “The readyto-eat chicken line will provide us the

opportunity to introduce and service

new product lines to our current customers.” Garrett praised local and state

leaders for their support of the project.

ACE honors Margaret Bau 

for her work with cooperatives 

The Association of Cooperative

Educators (ACE) has presented

Margaret Bau, cooperative development

specialist with USDA Rural

Development in Wisconsin, with the

ACE Award for Outstanding

Contribution to Cooperative Education

and Training. The award recognizes

long-term or continuing contributions

to cooperative education, such as the

development of training materials, publications or leadership within the coop34 September/October 2006 / Rural Cooperatives

An architectural drawing of a new meat-processing plant West Liberty Foods is building in

Tremonton, Utah. The plant will create 500 new jobs. Artwork courtesy West Liberty Foods 
Rural Cooperatives / September/October 2006 35

erative movement. 

One of her many projects,

Cooperative Care in Waushara

County, Wis., was named the

2003 top rural initiative by

Wisconsin Rural Partners and

was named one of 15 finalists

out of 1,000 in the prestigious,

2004 Innovations in American

Government award, presented

by Harvard University.

Cooperative Care is a workerowned, home-care cooperative

of 88 home-care providers who

help the elderly and disabled

live independently by offering

them dependable and cost-effective care

while at the same time assuring the

workers’ earn living wages and have

access to benefits.

As a USDA cooperative development

specialist for the past six years, Bau has

helped incorporate many other new

cooperative businesses across

Wisconsin. She provides technical assistance statewide to communities interested in organizing new cooperatives.

While working to make individual

cooperatives successful, she has also

focused on developing and promoting

cooperative business models that can be

used across the country. To further this

goal, she has spoken to diverse groups

within Wisconsin and nationally, and

has published numerous articles. 

Prior to joining USDA, Bau was a

research fellow with the Humphrey

Institute of Public Affairs at the

University of Minnesota who examined

regional economies and industry clusters in rural Minnesota. She developed

an interest in cooperatives while organizing a rural women’s income-generating project as a Peace Corps volunteer

in Costa Rica from 1988 to 1992. 

The Association of Cooperative

Educators (ACE) recognized five other

individuals and organizations that have

made significant contributions to cooperative education at its Aug. 4 awards

banquet. The awards program was a

highlight of the ACE Institute, held

August 2–5 in San Juan, Puerto Rico. 

ACE is an international membership

organization that brings together

educators and cooperators across

cooperative sectors and national

boundaries. Additional information about ACE can be found at:

http://www.uwcc.wisc.edu/

ace/ace.html.

Birds Eye to sell 

frozen-food plants 

In order to concentrate more

on its higher margin branded

lines of frozen foods, Birds Eye

Foods Inc. has announced plans

to sell most of its non-branded

frozen foods business. It will sell

or close five food-production facilities

during the next 18 months. The plants

are located in Brockport, Oakfield and

Bergen, N.Y., in Fairwater, Wis., and in

Montezuma, Ga. These five facilities

employ about 740 full-time workers. 

Any facility not sold after its current

production season will be closed

between October 2006 and June 2007.

Birds Eye also announced plans to close

a food facility in Watsonville, Calif.,

which employs 550 workers, at the end

of 2006.

Pro-Fac Cooperative Inc. — an agricultural marketing cooperative of about

500 fruit and vegetable growers — has

been looking for a way to keep the

Bergen and Oakfield operations open.

Pro-Fac is a minority owner of Birds

Margaret Bau, center, deep in thought as she reviews the

financial statements of Cooperative Care, a home healthcare workers co-op in Wisconsin. Bau was recently saluted

by the Association of Cooperative Educators (ACE).

Johanns, Bodman to address renewable energy conference

Agriculture Secretary Mike Johanns and Energy

Secretary Samuel Bodman will be among the speakers at

Advancing Renewable Energy: An American Rural

Renaissance, a conference to be held Oct. 10-12 at

America’s Center in St. Louis. The conference is being

hosted by USDA and the U.S. Department of Energy

(DOE). The conference is designed to help create and

strengthen partnerships and strategies necessary to accelerate commercialization of renewable energy industries

and distribution systems, the crux of the President’s

Advanced Energy Initiative. 

Leaders from government and industry will address

renewable energy topics such as Building Supply and

Distribution, Encouraging Demand, Adapting and

Building Infrastructure and Creating Effective Market

Models and Partnerships. Other speakers will include:

Vinod Khosla, founder of Khosla Ventures and cofounder of Sun Microsystems; Robert W. Lane, chairman

and CEO of Deere and Co.; Patricia A Woertz, president

and CEO of Archer Daniels Midland Co.; James R.

Woolsey, vice president of Booz Allen Hamilton and former director of the Central Intelligence Agency.

Attendance is open to the public. Anyone involved

with renewable energy is encouraged to attend, including transportation, finance and investment officials,

other federal and state government officials and elected

officials. All attendees must register for the conference,

including press, who may attend without charge.

Attendees and press can register online at: 

www.technologyforums.com/6EN/.
36 September/October 2006 / Rural Cooperatives

Eye, and was the majority owner until a

few years ago. 

“Any opportunity must be economically beneficial to growers and consider

the well-being of the communities

where these facilities are located,” said

Batavia, N.Y., resident and Pro-Fac

Board President Peter Call. “Pro-Fac’s

expertise lies in producing raw products, not in operating processing facilities,” Call added. “So a partnership

between the cooperative and an operating entity is an option that will be

actively pursued.”

Steve Wright, Pro-Fac general manager and CEO, added, “Once these

opportunities and business options can

be more fully investigated we will communicate additional details to our member/growers and other stakeholders. We

see this as being a ‘fast track’ discovery

process.”

Birds Eye Foods is the largest company in the branded frozen vegetable category, but is the only remaining branded

manufacturing company having a significant non-branded presence. Birds Eye

Foods says it has received a number of

unsolicited inquiries about the facilities.

The decision to exit the non-branded

business will also affect a number of

administrative positions in offices in

Rochester, N.Y., and Green Bay. 

Awards are made on a competitive

basis for the purchase of renewable

energy systems and to make energy

improvements. Since 2003, when the

program was established, USDA has

provided $87.3 million in grants and

$34.3 million in loan guarantees to 844

applicants. A complete list of the grant

recipients can be viewed at: http://

www.rurdev.usda.gov/.

VAPG program, tax credits

help producer-investors

The Value-Added Producer Grant

program provides grants of up to

$100,000 for business planning or feasibility studies, or up to $300,000 for

working capital for any value-added

agricultural activity, including renewable energy projects. Eligible applicants

are independent producers, farmer and

rancher cooperatives, agricultural producer groups and majority-controlled

producer-based business ventures. In

the past few years, many ethanol,

biodiesel and wind energy projects have

received funding through this program.

Details for this program can be viewed

at: http://www.rurdev.usda.gov/rbs/

coops/vadg.htm. (See page 29.)

Tax credits for small ethanol and

biodiesel producers have also been

instrumental in enabling the expansion

of farmer-owned biofuel facilities.

Under current law, small ethanol producers (defined as those producing 60

million gallons per year or less) receive a

10-cents-per-gallon production-income

tax credit on up to 15 million gallons of

production annually. The credit is

capped at $1.5 million per year per producer. The small ethanol producer tax

credit promotes local ownership. 

In 2004, the incentive was strengthened by allowing the credit to be passed

through to the farmer owners of a

cooperative. The legislation also allows

the credit to be offset against the alternative minimum tax. In 2005, a similar

tax credit was created for small producers of agri-biodiesel.

Wind energy projects have not

enjoyed the same small producer benefit. Since 1999, farmer-owned ethanol

facilities have more than doubled their

share of total ethanol production, from

17 to 39 percent while only a very small

fraction of wind energy projects are

farmer-owned.

The Producer Tax Credit and accelerated depreciation are two general taxbased incentives that can only be used

by wind project developers with a sufficiently large tax liability. Farmers and

other local investors generally lack

enough tax liability to get the full benefit of the PTC. This also means that

forms of business organization that

involve lower taxation, such as nonprofits and cooperatives, are less able to take

full advantage of these tax-based incentives.

State policies for local 

energy ownership

The following two recent examples

are some of the more aggressive policies

for promoting local ownership of

renewable energy facilities. 

• Missouri restriction of biofuel tax

incentives to farmer-owned facilities. In August 2006, Missouri

Governor Matt Blunt announced that

only majority farmer-owned ethanol

and biodiesel production facilities

would receive discretionary state tax

incentives. “I am firmly committed to

helping Missouri’s farm families take

advantage of the burgeoning ethanol

and biodiesel industries,” Blunt said.

“Companies that are not farmerowned are more than welcome to

locate in Missouri, but I want to make

clear that our state’s commitment is

primarily to our farm families who

have been the bedrock of our state’s

economy for generations.”

• Minnesota Community Based

Energy Development (C-BED) tariff. For several years, Minnesota

offered an incentive payment to locally owned wind energy facilities under

a certain size. In 2005, the legislature

enacted a new program known as the

Community Based Energy Development (C-BED) tariff. C-BED allows

for a unique electric utility payment

structure that helps Minnesota community wind projects receive a higher

tariff in early debt years in exchange

for a lower tariff in later years. The

Minnesota-based Institute for Local

Self-Reliance (ILSR) explains in a

report that the new C-BED tariff will

allow project developers to profit and

pay off their capital costs within the

first 10 years of their contract withBring it on Home continued from page 14
Rural Cooperatives / September/October 2006 37

CHS to invest in 

Brazilian grain firm 

CHS Inc. announced it is investing

in a newly created Brazilian grain handling and merchandising company,

Multigrain S.A. The new company will

be jointly owned with Multigrain

Comercio, a Sao Paulo, Brazil-based

agricultural commodities business.

“We have continually increased our

working partnership with Multigrain

ever since opening our own marketing

offices in Brazil three years ago,” said

John Johnson, CHS president and

chief executive officer. “We are excited

to formalize our business relationship

even further with this knowledgeable

and experienced Brazilian agribusiness.

Our investment in Multigrain S.A. will

bring CHS valuable competitive

advantages and a significant opportunity for growth in our South American

grain operations.”

Founded in 1998, Multigrain

Comercio’s core business is origination

of commodities in the central and

northern regions of Brazil, the country’s fastest growing agricultural areas.

The company has some 390 employees

at 18 locations. With a majority focus

on exporting soybeans sourced from

Brazil cooperatives and producers,

Multigrain is also a leading importer of

out the need for the state incentive

payment. 

To qualify, a C-BED project must

be locally owned by Minnesota residents and projects must have support

of the county board in which the project is located. All utilities are required

to negotiate C-BED proposals, but no

utility is required to purchase power

from C-BED projects. With the availability of the new C-BED tariff structure, the ILSR concludes that locally

owned, community-based wind projects could constitute more than 60

percent of all new renewable electricity coming on-line between 2005 and

2010. Xcel Energy, the largest

Minnesota electric utility, recently

announced its commitment to secure

wind resources of up to 500

megawatts of C-BED energy by 2010.

Other Minnesota utilities are currently pursuing C-BED projects.

While Minnesota is a leader in promoting community wind and Missouri

is pushing the envelope in promoting

local ownership of biofuel facilities,

there is a whole array of federal and

state renewable energy incentives that

have an influence on the promotion of

local ownership. A website with an

inventory of federal and state renewable energy incentives can be found at:

http://www.dsireusa.org/. An inventory of federal and state biofuel incentives and laws can be found separately

at: http://www.eere.energy.gov/afdc/

laws/incen_laws.html.

Business models for local ownership

According to the Renewable Fuels

Association website, 25 of the 46 farmerowned ethanol plants are organized as

Limited Liability Companies (LLCs).

The others are organized as partnerships or cooperatives. Some are organized as combinations. Many of the

plants have non-farm investors. The

National Biodiesel Board list shows that

nine biodiesel facilities are organized as

LLCs. Several soybean cooperatives

also own plants.

The business model of choice in the

U.S. ethanol industry has been the ‘franchise’ model. A few specialized engineering firms have standardized ethanol plant

design and the project development

process. These engineering firms guide

farmer-investors through every aspect of

plant development—from feasibility to

plant opening and beyond, including

financing, contracting, marketing, procurement and management.

A very small percentage of U.S.

wind-generated electricity comes from

farmer-owned turbines. However, as

noted above, this is rapidly changing in

Minnesota. Mark Bolinger, a research

associate with the Lawrence Berkeley

National Laboratory, has analyzed

community wind business models in

the Energy Journal article “A comparative analysis of business structures suitable for farmer-owned wind power

projects in the United States.” 

High stakes

With a farm bill due next year and

many pieces of energy legislation in

different stages of consideration, this

is now a high-stakes issue. A message

from the website of Iowa

Congressman Steve King nicely

encapsulates some of the tone many

rural legislators are taking:

“We have long lamented the small portion farmers receive of the value-added food

dollars, a few cents of a $3 box of corn

flakes, for example. However, we can give

ourselves the chance to hold onto the value

of turning our grain, wind and biomass

into energy if we act now. Securing a commitment to ensure as much local ownership

as possible is the key. 

“We have great companies which have

partnered with our communities and farmers to build many of our current facilities. 

It is the perfect model. We have the raw

products and capital, and they have the

expertise for design engineering, construction, management and marketing. We will

continue to work together as ownership

partners. Since the passage of the Energy

Policy Act, all of Iowa has been abuzz with

discussions of ethanol, biodiesel and wind

energy facilities. 

“When that discussion is going on in

your community, you should ask how much

local ownership is part of the proposal. If

local farmers and local investors will not

have a viable opportunity to become owners,

you should consider a different business

model that is in the best long-term interest

of your community. If this isn’t considered

now, we will look back and again lament

receiving a small portion of the end dollars

generated by our labors, while others reap

the real financial rewards.

“Without a doubt, just as our agrarian

forefathers met this country’s needs for food,

present day farmers will meet this country’s

need for renewable energy. The question

hanging in the balance is: “Who will share

the real profits?” We have now hitched

agriculture’s wagon to an energy future.

Let’s keep our hands on the reins.” ■
wheat and operates a small flour mill

in Jundiai, Brazil.

Canada funding biofuels;

supports role of co-ops

Canada is providing $11 million in

initiatives designed to ensure farmers

and rural communities have opportunities to participate in and benefit from

increased Canadian biofuels production. The Biofuels Opportunities for

Producers Initiative (BOPI) provides

$10 million this fiscal year to help

agricultural producers develop sound

business proposals, as well as undertake feasibility or other studies to support the creation and expansion of biofuel production. The industry councils

in each province and territory that

administer Advancing Canadian

Agriculture and Agri-Food (ACAAF)

will be invited to deliver this new federal funding. 

The government is also supporting

biofuels opportunities through a onetime, $1 million addition to the existing

Cooperative Development Initiative

(CDI). This funding will provide support to individuals, groups and communities wishing to develop cooperatives

as a way to take advantage of opportunities associated with biofuels and other

value-added activities. 

These initiatives flow from the 2006

budget, in which Canada invested an

additional $1.5 billion in Canada’s agriculture sector, tripling original commitments to the agriculture sector. Canada

is committed to requiring an average of

5 percent renewable fuel content in

transport fuel by 2010. AAFC wants to

ensure that the 5-percent target is

implemented in ways that result in the

greatest possible benefit to the agriculture sector, including ownership of biofuels production facilities by agricultural producers. 

Co-op leader Elroy Webster dies

Nationally recognized cooperative

and agricultural leader Elroy Webster, a

Minnesota

farmer who

helped drive

historic joint

ventures and

mergers of

U.S. agricultural cooperatives, died

July 18 in

Mankato,

Minn., at age

72 following a

lengthy illness. Webster, of Nicollet,

Minn., retired as a director and former

chairman of CHS Inc., in 2003 after

five decades of involvement in cooperatives on the local, regional, national and

global levels. 

In 1998, he was instrumental in

uniting the former Cenex Inc. and

Harvest States Cooperatives to form

today’s CHS Inc., the nation’s largest

cooperative and a Fortune 200 company. Webster also helped lead the 1987

establishment of a landmark joint venture involving the agricultural supply

businesses of Cenex and Land

O’Lakes, Inc.

“Agriculture, cooperatives and rural

America have lost a visionary, an unparalleled leader and a tireless advocate,”

said CHS Chairman Michael Toelle.

“Elroy Webster clearly stands out as

one of the most influential figures in

these sectors over the last half century.”

GROWMARK sales, income climb;

record patronage going to members 

GROWMARK Inc. had sales of $3.4

billion for the 2005-06 fiscal year, up

more than $700 million from the previous year. The co-op had net income of

$73.5 million, compared to $73.2 million in 2004-05. “While volume

increases in seed and fuels have

increased sales, energy price inflation

drove much of the increase,” Vice

President of Finance Jeff Solberg said. 

More than $49 million in patronage and refunds will be returned to

38 September/October 2006 / Rural Cooperatives

transportation circumstances and a

declining sugarcane industry, Hawaii is

aiming to become the first state with a

sizeable sugar ethanol industry. In 2007,

Hawaii state law will require that at

least 10 percent of all gasoline sold in

the state be blended with ethanol. 

Co-ops would play major role 

While the recent USDA report concludes that at current prices sugarcaneand sugar beets-to-ethanol would be

profitable in the United States, many

factors — especially the domestic price

of sugar and the government’s energy

policies — will affect the future commercialization of sugar-to-ethanol in the

U.S. USDA Chief Economist Keith

Collins said at the release of the USDA

report: “At some point in the future it

may be worthy of commercial development. Technologically, it’s possible. The

question is: is it economically feasible?” 

As pointed out by panelists at the

recent International Sweetener

Symposium, cost is the major hurdle

and new technologies and government

investment will be needed to overcome

that barrier. Says Steve Williams, president of the American Sugar Beet

Growers Association and member of

the American Crystal Sugar Co. cooperative: “We’re always open to new uses

of sugar and will look very hard at

ethanol. The question is: Will it be

economical in the long term?” 

The most promising scenario for

sugar-to-ethanol appears to be linked to

advances in cellulosic and “mixed

stream” technologies, especially for sugarcane because of its broader cellulosic

properties. In any scenario, it appears to

be clear that if ethanol is to be produced from sugar, the facilities must be

located at existing sugarcane or sugar

beet plants because of transit cost limitations. This means that cooperatives

will likely have a significant role in any

commercialization of sugar-to-ethanol

because of their dominance at the initial

processing stages. ■

Ethanol from Sugar continued from page 28

Elroy Webster
Rural Cooperatives / September/October 2006 39

GROWMARK member-cooperatives.

In addition, a special redemption of

preferred stock has been authorized. In

total, more than $60 million in cash will

be distributed to members. This will be

the largest amount of cash returned to

members in the history of the GROWMARK System. 

The Energy Division had a record

year, with 1 billion gallons of refined

fuel sold as a result of new supply

sources, an expanded customer base and

improved distribution. Propane volume

in 2006 was hurt by another warm winter, but margins improved, with timely

purchasing decisions and good pricerisk management.

The co-op revamped its lubricants

business with the acquisition of

McCollister & Co., a lubricant-blending facility in Council Bluffs, Iowa,

which will now blend the FS line of

lubricants. Also acquired were the

Archer and United lubricant brands.

“The GROWMARK System will now

go to market with three quality brands

in a greatly expanded geography,”

Solberg says.

UPI Inc., the Ontario-based energy

company jointly owned by GROWMARK and Suncor Energy Products

Inc., is a major fuel supplier in the

province. GROWMARK projects a dividend from UPI of $1 million for 2006,

according to Solberg.

Plant food experienced a very difficult year, with historically high prices

affecting demand and significant price

depreciation adversely affecting inventory values. The Seed Division had an

excellent year, topping $130 million in

sales, an increase of $20 million from

last year. “

Organic Valley reaches milestone

With the addition of its 800th

organic farmer-member, the Organic

Valley/CROPP cooperative now represents 10 percent of the nation’s organic

farmers, and 40 percent of the U.S.

organic milk supply. Of its 800 members, 600 are dairy farmers. “Our

steady growth shows that the marriage

of organic agriculture and the cooperative model is a winning formula for

family farmers who want to stay on the

land, consumers who want delicious

organic food and future generations

who want a healthy environment,” said

George Siemon, CEO and founder of

the co-op.

USDA announces $9.4 million

in development loans, grants 

Agriculture Secretary Mike Johanns

has announced 25 loans and grants

totaling more than $9.4 million to

assist rural communities and businesses

in 11 states. “These funds will help

stimulate the economy, support renewable energy, promote business development and improve medical services in

rural communities,” said Johanns.

“The projects funded will help to create or save an estimated 1,400 jobs,

than $17 million. “We felt that we were

so close to having it all that we decided

to keep pushing to raise the entire $24

million,” Utlaut recalls. Another 20 or

so meetings later, they had it. The other

$35 million needed was borrowed from

AgStar, a Farm Credit System bank

based in Minnesota. 

A $500,000 Value-Added Producer

Grant from USDA Rural Development

was awarded in June 2004 — a crucial

time when the co-op was low on operating funds and badly needed a cash infusion to buy corn and enzymes. “Not only

was the money a great help, but it really

helped our credibility by showing that

we had the support of USDA, as well as

the state of Missouri,” Utlaut says. 

The plant was running at full capacity

within five days of start-up, and although

rated as a 45-million-gallon plant, it has

been averaging 53 million gallons.

Utlaut credits plant Manger Billy

Gualtney, who has a degree in chemical

engineering and who formerly worked

for Cargill, and his team for maximizing

the plant’s output. Having most of the

key employees on site for two months

before operations began was also well

worth the extra cost, Utlaut stresses. 

The plant has one mile of Union

Pacific rail frontage, and 50 percent of

its ethanol is shipped out by rail. The

ethanol is sold through the Renewable

Products Marketing Group, a cooperative of a dozen or so ethanol plants. 

Perfect timing 

MidMo’s feasibility study estimated

the early return on investment (ROI)

would be about 15 percent annually. But

with the opening coinciding with the

run-up in ethanol prices, ROI for the

first seven months was 31 percent. It

will be even better this year, Utlaut says.

It’s not hard to understand why the

co-op board recently voted to double

plant capacity. The board looked at several builders, but ultimately decided to

hire Fagan again, even though it meant

waiting until mid-2007 before the project could commence. The co-op will

largely self-finance the expansion, using

profits from the plant operations, which

should continue unabated during the

construction. 

MFA Oil in Columbia, Mo., another

farmer-owned cooperative, is working

in partnership with MidMo to promote

ethanol (see sidebar, page 8). Tom May,

MFA marketing director, thinks the

industry is still in its infancy. “We’re

just at the front gate. There has not

always been a lot of good news for

Rural America in recent years, but biofuel is good news.” 

Back on his combine outside

Marshall, Brian Miles has no doubt of

what May says. “We just bought this

combine last year, and the list price [over

$250,000] had gone up 25 percent since

we bought the last one four or five years

ago. The corn head was another $48,000

and the platform [for soybean harvesting] was $25,000. Our production costs

just keep climbing. Yet corn prices still

hover around $2 a bushel. We need

something. I hope it’s ethanol.” ■

Fuel Farming continued from page 7
underscoring the Bush administration’s

commitment to strengthening our

nation’s economy.” 

The funds are being provided

through USDA Rural Development’s

Rural Economic Development loan

and grant program. Under the program, Rural Development provides

loans and grants to USDA Rural

Utilities Program borrowers, usually

rural telephone or electrical cooperatives, which in turn provide loans to

rural businesses and communities in

their service areas. Rural Development

will provide $4.1 million in grants and

$5.32 million in loans to the successful

applicants. 

Projects being funded include a

$450,000 loan to help construct and

operate a farmer-owned, 40-milliongallon fuel-grade ethanol plant in Dunn

County, Wis., which will create 35 new

jobs. Another $300,000 will be provided

to an electric association to provide a

loan to Eden Valley, Minn., for construction of a new fire and rescue hall. 

A complete list of the loan and grant

recipients is available by going to:

http://www.rurdev.usda.gov.

Co-ops & renewable energy

theme of Minnesota conference 

Development of bioenergy and other

renewable energy resources, and the

adoption of new environmental management practices, create tremendous

opportunities — and challenges — in

agriculture. What do these developments mean for new and existing farmer

cooperatives? How can cooperatives

better position themselves for future

success in these key areas?

To explore and promote an understanding of these issues, the 9th annual

Farmer Cooperatives Conference has

been organized around the theme:

Opportunities for Cooperatives:

Renewable Energy and Environmental

Management. The conference will be

held Nov. 1–2 at the Sheraton/

Minneapolis South in Bloomington,

Minn. Conference attendees will hear

presentations address such issues as: 

• the impact of federal and state policies in agriculture and energy, including the 2007 Farm Bill; 

• cooperative issues and opportunities

in sourcing grain and marketing

ethanol and bio-diesel;

• prospects for renewable energy

resources such as wind, sucrose,

switchgrass and whey;

• the Canadian experience with biofuels, and potential partnership opportunities; financing new business

development;

• potential new member services in the

areas of environmental management. 

Updates on the conference and registration information will be posted at:

www.uwcc.wisc.edu/farmercoops06. ■

40 September/October 2006 / Rural Cooperatives

Farm Credit System

celebrates 90th 

Rural America’s customer-owned

financial partner, the Farm Credit

System, celebrated its 90th anniversary of service on July 17, the date

when President Woodrow Wilson

signed the Federal Farm Loan Act in

1916. Today, with more than $106

billion in loans financing agriculture

and its related cooperatives, rural

homebuyers, small community infrastructure and the export of U.S. farm

commodities, the Farm Credit System

is the oldest and largest financial

cooperative in the nation.

“For 90 years, the Farm Credit

System has been rural America’s customer-owned partner, and we look

forward to a bright future for U.S.

agriculture and America’s rural communities,” said Wayne Lambertson, a

Maryland farmer who currently

serves as Chairman of the Farm

Credit Council, the System’s trade

association.

The legislation President Wilson

signed into law in 1916 created a system of 12 regional Farm Loan Banks

that would grant loans to farm cooperative associations, allowing farmers

to borrow from their local institution,

using their land and improvements as

collateral. 

Today, the Farm Credit System is a

network of 101 borrower-owned

lending institutions and related service organizations serving U.S. agriculture and rural America. These institutions specialize in providing credit

and related services to farmers, ranchers and producers or harvesters of

aquatic products. In addition, the

Farm Credit System provides financing for the processing and marketing

activities of these borrowers as well as

to rural homeowners, certain farmrelated businesses and agricultural,

aquatic and public utility cooperatives.

Unlike commercial banks, Farm

Credit institutions do not take

deposits. The System raises its funds

through the sale of bonds in the

nation’s securities markets. As the

System’s customer-owners repay their

loans, the bonds are retired and Farm

Credit investors are repaid. The

System’s lending institutions are subject to full examination and regulation

by an independent federal agency, the

Farm Credit Administration.

“America’s farmers, ranchers and

rural communities have benefited

greatly from the vision and foresight

that went into establishing the customer-owned Farm Credit System,”

Lambertson said. 
Rural Cooperatives / September/October 2006 41

Broin’s progress on this frontier has

been encumbered by the same difficulties shared by Iogen and Abengoa.

The conversion of the BFrac fiber

fraction into ethanol has been hindered by the absence of an organism

that will ferment C5 and C6 sugars

simultaneously. The optimum pretreatment process will require the development (discovery) of an elusive multitasking ethanologen (fermentationinducing agent). 

Broin has already experienced some

success in integrating other technologies into its plants. Broin’s Project X

(BPX), the company’s own raw starch

hydrolysis technology, has been successfully implemented on a commercial

scale in 10 plants and the BFrac technology has been integrated into two.

Given that BPX and BFrac are complementary processes, Broin’s experience in

technological integration could very

well give it an edge in the integration of

cellulosic ethanol.

DuPont takes a different approach

The $18.2 million equity investment

DuPont project is titled: “Integrated

Corn-Based Biorefinery.” With help

from Diversa, NREL, Michigan State

University and Deere & Co., DuPont

has taken a decidedly different approach

in its cellulosic research-developmentcommercialization. DuPont expects to

lead the way in developing a bio-refinery concept that converts both starch

and lignocellulose to fermentable sugars

for production of value-added chemicals

and fuel ethanol.

DuPont has bio-engineered an

organism to produce enzymes that

break C6 sugars into a compound called

Bio-PDO (a bio polymer, 1,3 propanediol), which is used to produce its

Sorona-brand apparel fabric. Sorona

was once made from a petroleum-based

polymer. Bio-PDO is now expected to

be the first of many future purified

sugar products. 

Exploiting the idea that “the cell is a

factory” unleashes a seemingly boundless

array of possibilities. This is essentially

what happens in the fermentation stage

of ethanol production. But just because

the sugar is the feedstock doesn’t necessarily mean that ethanol is the final

product. DuPont uses both processes to

make its cellulosic ethanol plant work —

polymers, where the value lies, and

ethanol as the plant’s ‘cash cow’. And just

as with Iogen and Abengoa, DuPont will

also build a power plant to burn the

high-energy lignin generated in the pretreatment facility.

Don’t ignore the synergies

The integration of cellulose process

technology within existing dry mill

(grain based) ethanol facilities seems to

be the most practical approach to commercialization. It just makes sense to

make use of the whole corn plant and

get all the sugar from stalk and all, not

just the starch. 

From Grass to Gas continued from page 18

Cooperatives. 

Owned by Our Members,

Committed to Our Communities. 

Economic Impact. 

From Main Street storefronts to Fortune 500 companies, cooperative business creates jobs and economic growth. 

We generate over $229 billion in revenues annually.

We employ more than half a million Americans. 

Our payrolls top $15 billion a year. 

And because cooperatives are owned by their customers, what’s

spent there stays there, benefiting our communities again and again. 

continued on page 42
42 September/October 2006 / Rural Cooperatives

The primary differences between the

dry mill fuel ethanol processing system

and the cellulosic processes are the

required pretreatment (hydrolysis). An

ideal integrated facility would integrate

the three key unit operations: hydrolysis

(pretreatment), fermentation and distillation and share utilities and support

systems, wherever possible. The glucose

from starch and biomass processes

would, of course, require bigger fermentation tanks. And a separate process

would be required to use/preserve the

recombinant organism necessary to ferment the pentose. 

Perhaps the most practical approach

at this moment would be to follow

Broin’s lead in recovering the corn fiber

through the waste stream and produce

ethanol from the lignocellulosic material. Processing the corn-fiber stream

into ethanol will become increasingly

attractive as excess supply continues to

put downward pressure on distillers

grain prices. Corn-fiber streams are

typically comprised of 20 percent

starch, 20 percent cellulose, and 25–30

percent hemi-cellulose — and priced

below distillers grains. 

Editor’s note: For article references, email anthony.crooks@wdc.usda.gov.

■

From Grass to Gas continued from page 41
By Greg Branum,

Missouri State Director 

USDA Rural Development 

s related in the cover

story of this issue of Rural

Cooperatives, we in

Missouri are certainly

excited about the developing biofuels industry in our state. We

believe that overall it is having a strong,

positive impact on our rural economy,

and will provide even more benefits as

more biofuel facilities are constructed.

USDA Rural Development is pleased

that we were able to help support projects such as the Mid-Missouri Energy

(MidMo) ethanol plant in Malta Bend

with a timely Value Added Producer

Grant (VAPG) of $500,000. That is just

one of many awards made nationwide

under this program to support producer-owned biofuels projects (see page

29). USDA Rural Development’s

Renewable Energy Systems and Energy

Efficiency Program also provided more

than $17 million this year to support

375 renewable energy efforts in 36

states.

But strong rural communities not

only need ways to add value to their

agricultural products, they also need

good schools, medical facilities and so

much more. USDA Rural Development

promotes these types of essential public

facilities through our Community

Facilities Loan and Grant (CF) Program. 

One example in the mid-Missouri

area of how the CF program helps rural

America is the I-70 Medical Center,

about one hour east of Kansas City, in

Sweet Springs, about 15 miles from the

new MidMo ethanol plant. This medical center was the recipient of an $8

million CF grant, and one of four medical centers or hospitals financed in

Missouri with USDA Rural Development CF funds during the last two

years. The others are the Excelsior

Springs Medical Center (northeast of

Kansas City), the General John J.

Pershing Hospital in Brookfield (in

north-central Missouri) and Iron

County Hospital in Ironton (about 100

miles southwest of St. Louis).

Nationwide, during fiscal 2005, $729

million in CF Direct Loans, $194

million in CF Guaranteed Loans, and

$55 million in CF grants was provided

to construct more than 1,200 essential

community facilities in rural America. 

The I-70 Medical Center is a

28,333-square-foot, state-of-the-art

facility that provides acute-care and

emergency-care services to area residents. The 15 licensed acute-care beds

provide health-care services to adult

and senior in-patients. 

The hospital also provides a variety

of out-patient services, including surgery and diagnostic services. It also provides out-patient therapies, including

physical, cardiac rehabilitation and

emergency care. While not a trauma

center, the I-70 Center provides muchneeded medical services to both the

area’s senior population and the young. 

The Community Facilities program

has benefited more than 75 Missouri

communities in the past year alone, with

installation of more than 60 first-responder and early-warning systems. The CF

program has also helped 10 Missouri

cities acquire police, ambulance and fire

or rescue vehicles. It has also helped

fund the building of: a community center; two shelters for women suffering

from domestic violence; a Head Start

program building; a sheltered workshop

and a 911 dispatch center.

For more information on the

Community Facilities program, visit:

www.rurdev.usda.gov/rhs/cf/cp.htm, or

call (202) 720-4323, and see how it can

help your community. ■

Rural Cooperatives / September/October 2006 43

INSIDE RURAL DEVELOPMENT

A

Community facilities essential

for strong rural communities 

An $8 million Community Facilities grant from USDA Rural Development was used to build

the new I-70 Medical Center in Sweet Springs, Mo. USDA photo by Dan Campbell 
44 September/October 2006 / Rural Cooperatives

United States

Department of Agriculture

Washington, DC 20250

OFFICIAL BUSINESS

Penalty for private use, $300

NOTICE:

❏ Check here to stop receiving this publication,

and mail this sheet to the address below.

❏ NEW ADDRESS. Send mailing label

on this page and changes to:

USDA/Rural Business–Cooperative Service

Stop 0705

Washington, D. C. 20250-3255

Periodicals Postage Paid

U.S. Department of Agriculture