Two years ago, Randall Doyal couldn't turn around without another Wall Street investor making a pitch to buy his ethanol plant. Now the investors are gone -- or bankrupt -- thanks to low-priced oil, high-priced corn and the ethanol market crash.

"This year is going to suck pondwater," said Doyal, CEO of Al-Corn, an ethanol co-op in Claremont, Minn. "I'm not seeing anything that tells me were going to get much beyond the value of corn."

But Doyal will survive, as will dozens of other farmer-owned plants in the state's $6 billion ethanol industry, thanks to low or no debts, cautious investing and a federal push for more ethanol. Though not flush with profit, most of Minnesota's farmer-owned plants are brimming with confidence after winning their most recent showdown with Wall Street investors.

Some 15 percent of the industry won't produce ethanol this year because of the weak economy, the chief economist for the U.S. Department of Agriculture (USDA) said at an economic forum last month. The ethanol plants open for business will burn just over a third of the nation's 12 billion-bushel corn crop to produce about 11.5 billion gallons of ethanol this year.

Losses will keep coming, though, thanks to the forward contracting arrangements many plants use to lock in prices months ahead of delivery. A contract for November 2009 corn struck last year at Granite Falls Energy, a plant based in Granite Falls, Minn., will cost $5.4 million, far more than its market value, the plant said in a recent report to the Securities and Exchange Commission (SEC).

Some co-ops were nailed by poorly timed purchases, buying corn at the height of the market last year as a perfect storm of demand, exports and speculators drove prices three to four times higher than historic averages.

"They were not hedging their purchases and literally gambling, gambling that corn would stay at the same prices ...," said Jeff Broin, CEO of POET, the Sioux Falls, S.D., owner of 25 plants. "A lot of them had significant losses."

Economic forces toppled some of the biggest players in ethanol, among them VeraSun, the Sioux Falls owner of 16 plants and at one time the largest publicly traded ethanol player in the nation. Founded in 2001, the company claimed a production capacity of about 1.64 billion gallons of ethanol a year, or about 15 percent of the U.S. industry's 9 billion gallons last year.

A bankruptcy judge last month allowed sale of VeraSun assets by auction, and deals continue to close that'll see all the plants end up in hands of the company's creditors or with Valero Renewable Fuels, a subsidiary of the largest U.S. petroleum refiner, San Antonio, Texas-based Valero Energy Corp.

A former VeraSun plant in Welcome, Minn., will go to Valero, while the former VeraSun plant in Janesville, Minn., goes to a group of creditors lead by AgStar Financial Services, which paid $324 million for the plant and five others.

The corporate offices of VeraSun are slated to shut down once the deals close, according to a spokesman.

When will things turn around for the industry? It depends on gasoline and corn. A plant will break even when gas prices are 90 percent or more of corn prices, according to a study by the Congressional Budget Office. With gas selling at $2 a gallon today, corn prices would have to sink to $1.80 a bushel for plants to break even, far less than the $4 a bushel that corn fetched this week on the Chicago Board of Trade.

Some Minnesota ethanol plant operators welcomed the bust of Wall Street speculators.

"Those weren't long-term investments," Doyal said. "It was, 'Can I get in, make a buck, and get out?'"

He shudders while recalling the ethanol industry's annual meeting in 2006, when white-collar money clamored to get a piece of the action. Doyal said a stranger introduced himself and two minutes later made an offer to buy his plant. "Guys were grabbing me," he said. "If you had a stake in the ground and wanted to build, you'd get $4 million."

Doyal said he returned home to Claremont and told his board members he was "scared to death" by the speculators. He urged fiscal restraint. The board paid off the debt from the plant's latest expansion, built up cash reserves and planned to hold on.

Ethanol's rise over the past decade has been dramatic, a sevenfold increase in production. Ethanol reduced the nation's consumption of gasoline last year by almost 5 percent, according to a recent study by the Congressional Budget Office (CBO). It cut greenhouse gas emissions by less than 1 percent, the same study said.

Food prices, meanwhile, rose 5.1 percent between April 2007 and April 2008, according to the Bureau of Labor Statistics. It was the largest one-year jump in decades.

According to the CBO, ethanol pushed food prices up enough that consumers spent 50 cents to 80 cents more for each $100 of groceries. The effect on corn prices has been much more dramatic, accounting for some 20 to 40 percent of the increase, several studies say.

A government mandate for more ethanol will see annual consumption hit 15 billion gallons by 2015, and 36 billion gallons of both corn-based ethanol and cellulosic ethanol -- made from grasses and other fast-growing plants -- by 2022 if technology allows it. Ethanol mandates cost $3 billion in 2007, money given to fuel blenders who get a tax credit of 45 cents a gallon.

Although federal mandates call for more ethanol, support for the industry could be fading. A blunt report last month from the Minnesota Legislative Auditor said it's time to stop subsidizing the industry. Taxpayer funds went to ethanol plants even as they made large profits, the report said, adding that the payments would have little effect on future ethanol production.

The report concluded that corn ethanol plants should be cut off from the state's "producer payment" program, and the money redirected to programs that cut more greenhouse gas emissions or reliance on fossil fuels.

Sale of the state's 10 percent ethanol blend in gasoline raised some $59 million in state excise taxes last year, because drivers in Minnesota burned 2.6 billion gallons of fuel and paid excise taxes of 20 to 25 cents on every gallon. But a calculation of ethanol's contribution to state tax collections at the pump would factor in the lower energy in a gallon of E10 compared with straight gasoline. E10 requires drivers to buy perhaps 2 percent to 3.5 percent more fuel to drive the same distance, according to a state agriculture official. At that rate, retailers sold up to 52 million extra gallons of fuel last year, enough to swell state tax coffers by some $11 million.

Ron Fagen, the contractor who built more ethanol plants than any other as CEO of Fagen Inc., in Granite Falls, said the industry still has a promising future. There's potential for more flex-fuel vehicles on the road, he said. And if the U.S. Environmental Protection Agency (EPA) allows 15 percent ethanol blended into gasoline, it'd immediately add billions of gallons of ethanol to the nation's demand. Minnesota will push the ethanol blend to 20 percent by 2013, pending EPA approvals.

Meantime, Fagen said he's building power plants that use natural gas, turkey manure, chicken manure and biomass as fuel sources. He's also contracted to build the largest biomass plant in the nation, a 100 megawatt wood-fueled plant in Texas.

"Corn ethanol plants will probably take a break for two to three years in order to get the market to straighten out or whatever," Fagen said. "Ethanol is the only thing that can replace gasoline today."

Matt McKinney • 612-673-7329