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 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 Aurora
operation.
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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' coop.
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)
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