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By Michael Hirtzer
CHICAGO, July 16 An ethanol plant in Nebraska
corn country is pumping out fuel made from sugar beets, and corn
farmers are suing to stop it - a small-town dispute that offers
an unusual take on the debate over the market-distorting impact
of sugar and corn subsidies.
The dispute in Aurora, population about 4,400, brings into
conflict two of the largest U.S. farm programs, one promoting
sugar production and the other corn-based ethanol. Aventine
Renewable Energy Holdings Inc, a privately held Illinois firm,
is reaping profits producing ethanol with cheap sugar, thanks to
a U.S. Agriculture Department subsidy of beet sugar.
Local corn farmers, who benefit from a government rule that
forces oil companies to blend ethanol into gasoline, say in
court documents that Aventine's action violates an agreement to
use their grain exclusively as a feedstock for the firm's
recently reopened plant in Aurora. Aventine denies any
wrongdoing, saying it has abided by its contract.
The irony of the situation is not lost on George Hohwieler,
president and chief executive of the Aurora Cooperative Elevator
Co. that is at loggerheads with Aventine.
"Hamilton County, Nebraska, by any measure is one of the
most productive corn-producing counties in the world," he said.
"The message being sent to the marketplace is that they're
making ethanol out of sugar."
In fact, Aventine's use of beet sugar is the first
large-scale production of sugar alcohol in Nebraska since
bootleggers used boxcars of sugar to make moonshine during
Prohibition in the 1920s and 1930s.
Aventine chief executive Mark Beemer said the farmers' coop
was being short sighted in suing the company. "We've been very
blunt. This is just a very short-term pathway to get the plant
open and then convert back to corn ethanol," he said.
CORN VS. SUGAR
The rare intersection of the two farm programs in Aurora
illustrates the unintended impact federal farm subsidies can
have on market activity.
One such initiative, the Feedstock Flexibility Program, last
year enabled buyers like Aventine to purchase below-market sugar
at government auctions, then use it as feedstocks in their
ethanol plants, putting the sugar in competition with corn.
Under the federal sugar program, the government guarantees
minimum prices for sugar loans, paying processors 24 cents per
lb for beet sugar, or 19 cents for cane sugar, if sugar prices
fall below those benchmarks. The USDA then must auction the
sugar for non-food purposes.
Aventine was the biggest buyer at USDA auctions last fall,
purchasing some 660 million pounds of beet sugar.
Beemer said the firm earned up to 50 cents a gallon on each
of the 80,000 gallons it churned out daily while burning beet
sugar. If the supplies last through August, as expected, that
could amount to a nearly $4 million profit for Aventine,
according to a Reuters calculation.
Beemer declined to comment on the profitability of the
The company operates ethanol plants in Nebraska and
Illinois. As a publicly traded company, Aventine filed for
bankruptcy in 2009 and emerged as privately held in 2010.
Aventine's sugar-fueled profits have come at the price of
intensifying a long-running dispute with the Nebraska farmers'
When Aventine booked delivery of the sugar to the Nebraska
plant in February, the farmers' cooperative sued. The coop owns
the railroad tracks serving the plant, and Aventine had no right
to use the tracks for any feedstock except corn bought from the
coop, the lawsuit claims.
By that point, the farmers and Aventine were engaged in
multiple lawsuits. In one, the Aurora Cooperative claims that
Aventine did not live up to a commitment to operate the plant at
close to its 110-million-gallons-a-year capacity by July 2012.
The cooperative said Aventine's decision not to purchase
corn in 2012, as prices headed toward a record $8 a bushel, cost
the cooperative $1.7 million. A National Grain and Feed
Association arbitrator denied Aurora's claim for damages on the
corn sale. The coop is appealing the ruling.
In court filings, Aventine maintains it met production
requirements by operating the plant for two weeks in 2012. It
also says it is not required to operate the plant if market
conditions make that unprofitable.
Aventine argues the sugar purchase was good for the Aurora
area. Cost savings arising from use of the subsidized sugar
enabled the company to reopen the plant which, apart from the
two-week period in 2012, had lain idle for nearly five years.
Startup of the plant this spring created 50 new jobs,
Aventine said, and the company has begun bidding to buy corn to
run the plant. But because of the litigation, Aventine is not
negotiating to buy corn from the Aurora Cooperative Elevator Co.
(Additional reporting by Chris Prentice in New York and Nick
Carey in Chicago, editing by David Greising and Ross Colvin)