What was once hyped as a regional ethanol boom could be headed for bust. After much fanfare about a regional piece of the ethanol pie, the industry is struggling to get off the ground in southern Idaho. Crop experts are downplaying the significance of a corn surge on the valley's ag sector. Politicians are asking questions about the industry's effects on trade and the environment. Local contractors have walked off the job site at one of the plants near Heyburn, where construction has halted.

The future seemed much brighter just a year ago, when plans for two Cassia County ethanol plants were announced by Renova Energy, a London-based company with offices in Boise, and Pacific Ethanol, a California business. The facilities would be the state's first commercial fuel-grade ethanol facilities, and company officials lauded the economic surge that would come from 70 new jobs. They touted the environmental benefits of 70 million gallons of environmentally friendly fuel that could be produced at the plants each year. Agriculture specialists were excited about diversifying the southern Idaho ag market to include more corn, which is not a traditionally popular southern Idaho crop.

Kernels to cash

Ethanol producers prefer corn, which is a cheaper source for ethanol than potatoes or barley. As a result, corn is being grown in record numbers in states not known for their corn production.

In 2007, U.S. farmers planted the most corn in a season since 1944, up 12 percent from just the year before, according to the U.S. Department of Agriculture. In Idaho, farmers planted more corn than ever: an estimated 300,000 acres - almost 100,000 acres more than just four years ago.

But much of that Idaho corn won't reach an ethanol plant: It winds up in the stomachs of cows.

Ethanol production from Idaho-raised corn may simply not be economical, because livestock producers are willing to pay more for corn than ethanol plants can afford.

In Iowa, a state that leads the nation in corn and ethanol production, corn sold last year for about $3.15 a bushel. In Idaho, corn cost 60 cents more, at $3.75 a bushel.

Corn prices in both states have increased significantly in the past two years, but nowhere near the economic growth seen in Idaho's dairy industry.

In just one year, dairy industry revenue nearly doubled, from $1.28 billion in 2006 to just over $2 billion in 2007, according to University of Idaho economists.

"The guys in the livestock industry are going to pay what they're going to pay," said Steve Hines, a crop specialist with the University of Idaho, who recently finished a report on biofuels in the Magic Valley. "There are just not a lot of incentives for farmers to change what they're doing now."

Traditional Magic Valley crops such as wheat and barley are selling for near record prices, which also keeps farmers from switching to corn that could support the ethanol plants, he said.

Corn is also a water-intense crop, Hines said, which isn't attractive to farmers who are struggling through a drought and water crisis or have money invested in equipment for other crops.

Hines predicts the Magic Valley ethanol plants will have to import most of their corn from Midwestern states, where, despite record harvests, farmers are struggling to produce enough corn to meet ethanol plants' demands.

Ethanol company officials say they'll import most of their corn at first but that local farmers could sell to the plants once they're up and running.

Hines isn't so sure.

"As more ethanol plants come on line, I don't think we'll be able to grow enough corn to meet their needs," Hines said.

The ethanol explosion

There were just 50 ethanol plants in 17 states in 1999, according to the Renewable Fuels Association, a biofuels advocacy group. Eight years later, 134 plants are scattered across 26 states, with 77 more facilities under expansion or construction, including the two in southern Idaho.

Much of the growth can be credited to heavy government subsidies for ethanol producers, which are expected to be extended in the farm bill currently before Congress, and to oil companies' willingness to form long-term deals with ethanol producers.

In fact, most ethanol sold in the U.S. is through long-term, fixed price contracts with oil companies, according to the ethanol industry's trade association. The means the price an oil company pays for ethanol doesn't fluctuate, even when the market does. Some contracts are tied to a gasoline benchmark, so that when gas prices fluctuate, the oil company pays. The smallest amount of contracts is sold on the "spot" market. Last week, ethanol was selling for about $2.35 a gallon.

Producing ethanol from corn costs between $1 and $2 per gallon, depending on who you ask.

The potential for profits has increased competition in the market, which has hurt some companies, including Pacific and Renova. In the past year, stocks in both companies have plummeted. Pacific halted construction of an ethanol plant in December near Calipatria, Calif. Renova recently stopped trading its stock on the London stock exchange for three weeks, prompting local contractors to walk off the job site near Heyburn.

The company resumed trading this month, but workers haven't returned.

"I'm worried I won't get paid," said John Kloepfer, part-owner of a paving company that was working on the plant. Renova owes his business almost $250,000 and as much as $1 million to other contractors.

Kloepfer said the hit to local contractors and the regional economy could be tremendous should the plans collapse. But even if the plans are successful, some worry the ethanol plants will harm existing local businesses, such as the Scoular Co., which sells distillers grain, a byproduct from ethanol production that producers feed to livestock.

An earful for dairies

Nearly every dairy in the area feeds distillers grains, much of it bought from Scoular, said Todd Strayer, a business manager in the company's Jerome office.

Ranchers and dairymen are in an unusual position in the ethanol picture: They're forced to pay higher prices for corn, a staple for their livestock, but they're paying less for distillers grain, which has become more popular as a feed supplement.

Both Renova and Pacific have said they'll sell distillers grain to livestock producers in the area.

Globally, it's not just dairymen feeling the pinch. Speculative demand for corn has driven prices so high, countries dependent on U.S. imports can't afford to feed their poorest residents. In Mexico, for example, tortilla prices tripled and prompted President Felipe Calderon to cap tortilla prices last January at 77 cents per kilogram - about half their peak value. Tens of thousands of protestors marched in Mexico City in February when the cap was largely ignored. At the time, Mexico's Economy Minister Eduardo Sojo blamed ethanol, saying food corn supplies had dwindled.

U.S. politicians are still trying to sort out the repercussions of the ethanol boom. U.S. Rep. Mike Simpson, R-Idaho, is one of them. An ethanol advocate, Simpson said he's now concerned with the effects of ethanol on trade, including the so-called Mexican tortilla riots, and the environmental consequences of ethanol.

Some environmentalists have blamed the ethanol industry for a large "dead zone" at the mouth of the Mississippi River, where scientists suspect nitrogen fertilizer runoff from increased corn production is killing aquatic life.

A federal report released in the fall warns that increased nitrogen application could threaten groundwater quality. The Idaho Department of Environmental Quality lists the Magic Valley as a high priority area for current groundwater pollution due to nitrogen that could be from fertilizer runoff.

Ethanol supporters say more corn takes greenhouse gases out of the atmosphere, but skeptics say the fuel it takes to grow and ship more corn negates the deductions.

It depends on how you do the math, Simpson said.

Despite these concerns, Simpson still sees a bright future for ethanol in Idaho. "I've been a supporter of ethanol, and I think it should be used more widely," he said. "And Idaho could be a center of production for it."

Neil Koehler, Pacific's president and CEO, agrees. His company's plant is scheduled to be finished before the end of summer, and workers for the plant have already been hired. He's not concerned Renova's problems are an indication of a limping industry.

"We're still really excited about ethanol in Idaho," he said. "We're on the final lap of finishing the plant, and we're still going strong."

That remains to be seen for the industry at large, here in the Magic Valley.

Renova needs to renew investor interest in the Heyburn plant. Company officials have indicated, through the company's Web site, they would tour the plant site with investors this month. Calls to the company's Boise office were not returned for this story.

In the meantime, Magic Valley contractors, businessmen and farmers will wait, hoping to find the gold at the end of the ethanol rainbow before it collapses.

Matt Christensen may be reached at 735-3243 or at matt.christensen@lee.net.