Thousands of Iowa's Corn Farmers See the Future in Fuel

The farmers have their own incentives to find cheaper sources of fuel. To plant their crop this year, the Horans will use 10,000 gallons of diesel. The fuel costs continue through the summer to harvest season, powering the engines that sow, tend, reap and transport beans and corn.

"There's all kinds of things that inspire us. We think it's going to be here for the long term," said Dave Hoffman, owner of a farm supply store in Merrill, about 20 miles northeast of Sioux City, who is assembling a new investor group. He pointed to environmental gains, profit margins, legislative support, the spiraling cost of oil and sorrow over the war in oil-rich Iraq.

"We hate to see our soldiers go over and die for this," Hoffman said.

In June 2005, ethanol was going for $1.20 a gallon on the Chicago commodities exchange. At the end of April, it was $2.68. And, after two successive bumper crops, the price of corn is low, which adds up to substantial profits for the ethanol pioneers.

But suppose the price of oil declines -- if, for example, the economies in China and India slip, the global oil market grows calm and a booming ethanol supply outstrips demand. Suppose Congress supports President Bush's recent call to eliminate the tariff of 54 cents a gallon on plentiful Brazilian ethanol.

"This is a cyclical business. There are going to be ups and downs," said Monte Shaw, executive director of the Iowa Renewable Fuels Association, the biofuel trade organization. "But demand for these fuels is going to grow. Of that I'm absolutely certain."

Beyond Brazil's product, a potential competitor now in development is cellulosic ethanol, a far more potent biofuel that can come from switch grass and farm waste. Production is not yet cost effective, however, and Iowa's biofuel believers say they can convert their plants and their business model if things change.

"No threat. It's an opportunity," Shaw said. "We are in Iowa. All you see is cellulose."

From their home at the intersection of two gravel roads in central Iowa's Rockwell City, Keith Sexton and his wife have invested in four biofuel plants. The oldest of the investments is already giving them an annual return of 15 to 20 percent. But being a farmer, vulnerable to unpredictable acts of nature that deliver glut and scarcity alike, Sexton carefully guards his hopes.

"History tells us that when there's an industry that's very profitable, there's going to be such an influx of people wanting to participate that it's going to be oversaturated," he said. "But it appears that the demand potential can sustain all the plants being built right now."

Bill Horan put it another way.

"We're 3, 4 percent of the country's liquid fuel now," he said. "We've got a long ways to go."

Staff writer Kari Lydersen in Chicago contributed to this report.