Rural boon or corn-doggle?

Some folks are betting the farm on the alternative fuel, but water issues could douse those hopes

Gargi Chakrabarty, Rocky Mountain News

Published May 19, 2007 at midnight

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FIRST IN AN OCCASIONAL SERIES

Call them Yuma's dot-corn guys.

Like the dot-com entrepreneurs of the 1990s, they're gambling big bucks on the next big thing. But these farmers and investors are focused on ethanol, an alternative fuel that uses corn as its base.

They're folks like the Lenz family, who invested in an ethanol plant coming online in July in Yuma, as well as a plant that started production in 2005 in Sterling, 40 miles to the north. Nationally, 86 new ethanol plants are in the works.

The ethanol rush reminds farmer Brett Rutledge of the Internet startups that made millions almost overnight, at least on paper. But many also went bust.

Rutledge wonders how many ethanol businesses can succeed - and how soon they'll start spitting out cash.

"It's funny," Rutledge says. "All of their money appears to be on paper."

For now, the 39-year-old farmer is investing only in his own corn crop. He's happy to take advantage of the rising corn prices the boom has prompted. Agriculture officials forecast corn will average $3.60 a bushel this year, a record high.

For the Lenz family, of Wray, along with dozens of neighboring farmers, friends and acquaintances, much is at stake.

Three generations of Lenzes work together to raise corn, potatoes and cattle. Their strategy: diversify. They're considering wind power to harness the strong gusts that blow over the vast tracts in their northeast corner of Colorado.

They've invested in a half-dozen ethanol plants, including the ones in Sterling and Yuma. Some of the plants are showing a 50 percent return, though most of the profit so far is plowed back into the plants instead of coming to the family in cash.

The Lenzes, like Rutledge, expect the best year ever for their corn crop. Ethanol is golden, strengthened by federal mandates on the use of alternative fuel, a 51-cent-per-gallon subsidy on fuel blending and a 58-cent- per-gallon tariff on imports.

As long as that continues, ethanol's future shines bright, says Jim Lenz, 53, who manages the family's corn and ethanol interests.

But the skies aren't cloudless for Yuma's dot-corners.

Can Colorado, which imports more corn than it grows, support all the planned ethanol plants? Have corn prices peaked?

Most scary, the Lenzes say, is the water supply.

Kansas wants more water from the Republican River that feeds Yuma's aquifer. Other farmers in Colorado have lost wells over questions of river water rights, and the Lenzes fear the same will happen when Kansas' claims are resolved in the next year or so.

Take away water for these heavily irrigated cornfields, and you've got a dot-corn bust.

Family affair

The dusty, single-lane U.S. 385 forking off U.S. 34 north of Wray leads to the Lenz family farm.

Theirs is a high-tech business, depending largely on gadgets and equipment for essential functions. The four Lenz brothers and their father, George, are the original partners. They decided to run a large, single farm together to gain efficiency.

The Lenz brothers' wives run the farm office with the help of mom Betty Lenz. An office computer tracks the ethanol industry via satellite signals. It constantly flashes news updates, analysis, weather patterns and corn prices.

"In the past, agriculture gave us food and fiber," said Rod Lenz, 51, the third of eight Lenz siblings, as he stood in a crusty brown field pockmarked with last year's cornstalks waiting to be tilled for this year's crop.

"Now, it gives us fuel, too. Ethanol is the new opportunity for farmers."

His family first invested in ethanol four years ago in a Nebraska plant.

"Everything went so well that we decided to invest in others," Lenz said.

The family also is eyeing cellulosic ethanol, which is extracted from the sugars in cornstalks, leaves, agricultural and forest wastes, and other crops that are turned into fuel.

But cellulosic technology is at least five years away. For now, the Lenzes are focused on traditional ethanol.

Each adult in the farm has a designated job.

Rod Lenz looks after the potato business, selling 25 million pounds of Yukon Gold each year to grocery stores from Chicago to Houston.

Mike Lenz - the oldest Lenz sibling - manages farm equipment. His wife, Margaret, maintains insurance records and keeps track of their vehicles, including 10 tractors, a planter, a combine, four semis and more than a dozen pickup trucks.

The Lenz men and six hired hands - all clad in jeans and T-shirts - pitch in during planting and harvesting.

On a recent May morning, they work the fields, keeping an eye on the sky. The weather forecast shows a thunderstorm brewing to the southeast over Kansas.

They need to seed corn in 3,200 acres before the middle of the month. Then they'll focus on planting potatoes on 680 acres.

Marty Buoy, 28, jumps into a tractor, pulling the planter behind, intent on making headway before the rains come. The son-in-law of Mike Lenz, Buoy recently became the youngest partner in the farm, a testament to his skills, especially with hydraulics.

A 1 percent partnership in the farm costs about $70,000.

"It's not cheap to buy into farms," said Rod Lenz, pointing to the tractor-planter. "There's money here, but it's all tied up in this stuff."

As the tractor rolls toward the Nebraska border, brother Jim Lenz runs behind to stop Buoy from driving with the wind. The crop should be planted against the wind, he explains, to minimize soil erosion.

The planter will run late through the night, covering 150 acres each day. It will drop about 30,000 seeds plus fertilizer per acre, following a computerized "soil prescription map" in the tractor cab.

The Lenzes bought truckloads of seed stock from local dealers. Some of the magenta-colored seed corn is genetically modified, making it resistant to drought and bugs and producing better yield per acre. Those seeds are not used to grow sweet corn for human consumption.

The Lenzes expect to sell about 600,000 bushels. If the average price is $3.60 a bushel, sales will total $2.16 million, up from last year's $1.62 million.

Costs have gone up, too. Rent for land has jumped 40 percent, as has the cost of fertilizer. Fuel is up 45 percent.

Still, the Lenzes expect healthy profits this year. Most of it will pay for more land and newer equipment, Rod Lenz said. That's just as well, since there's hardly any time to spend it on anything else.

He bought a boat two years ago. It's still waiting to sail. A set of golf clubs bought last year is collecting dust.

What about jewelry or new cars?

"None of the wives are high-maintenance at all," he said. "And why would we want to spend on expensive cars?"

But water, or lack of it, could spoil this rosy future.

Yuma is among seven Colorado counties in the Republican River basin that may have to shut off 4,000 wells next year to fulfill the state's obligation to send water to Kansas.

If that happens, the Colorado Corn Growers Association estimates a loss of 530,000 acres of agricultural production, worth about $3 billion a year.

Farmers pay an irrigation fee of $5.50 per acre, and the river district uses the money to reduce water consumption. Since 2002, the district has stopped pumping from 214 wells and retired 29,430 irrigated acres from cultivation. Agriculture officials say they can raise those fees and retire more acres, but that might not be enough.

"If they shut down wells here, it would catastrophically hurt corn production," Rod Lenz said. "We'd have to go back to grass. This area is too sandy for other crops.

"Northeast Colorado would dry up, and we'd have ghost towns all over."

Hog wild over ethanol

Drivers filling up with E-85 ethanol in early May at a Conoco station in Denver were in for a treat.

The fuel, a blend of 85 percent ethanol and 15 percent gasoline, was about a dollar less per gallon than gasoline, which set a record Tuesday at $3.249 a gallon. The ethanol came from corn grown in northeast Colorado, Nebraska and in the Midwest. One bushel of corn produces 2.8 gallons of pure ethanol, and that's further blended into E-85.

Pump prices for ethanol have remained more or less flat in the past year, while corn prices have nearly doubled. Buoyed by the price rally, farmers are devoting more acres to the crop.

Yuma County officials estimate farmers will plant corn in 40 percent more dry-land acres and 10 percent more irrigated acres than in previous years. Those extra acres will be pried mostly from wheat and dry beans.

The trend is the same nationally, with farmers planting the most corn in the United States since World War II. Ethanol production is expected to double from the year before and jump eightfold from seven years earlier.

By 2012, ethanol production is projected to use up one-third of the nation's corn crop. Colorado will need to import 30 million to 40 million bushels of corn from Nebraska, Iowa and Kansas to feed the state's ethanol plants.

"Ethanol is a bit of a tough sell in a corn-deficit state like Colorado," said Trent Bushner, Yuma's newly elected commissioner. "On the other hand, it is a lucrative market, and the demand for corn drives up the local price of corn."

Bushner himself is planting 1,050 acres of corn this year, a couple of hundred more than last year.

If corn acreage and yield in Colorado stay the same this year and prices go up by $1 a bushel, $134 million more will be earned in corn sales, based on data from U.S. Department of Agriculture.

Tractor, planter and other farm equipment sales already are up 25 percent in the Yuma area, putting a smile on the faces of local dealers. Never mind the new jobs, roughly 40 full-time positions, that will be offered at each ethanol plant.

Young people are coming back to live near their families, making Yuma County, population 9,829, one of those rare rural areas that not only stemmed its brain drain but is growing.

Ethanol's benefit for the nation is that it will reduce dependence on foreign oil, especially from unstable nations.

Ethanol detractors argue that it takes more energy to grow corn and extract ethanol than the energy it produces. They worry the corn rush may drive up the price of other food products, as farmers grow fewer other crops.

Cattle, hog and poultry farmers are paying more for feed, and hog farmers may have to sell 15 percent fewer head this year to drive up wholesale prices. Dry-distiller grain, an ethanol byproduct, makes reasonably priced cattle feed, but the supply is limited.

"As corn prices went up, so did the cost of feeding cattle," complains George Seward, 55, a corn and cattle farmer in Yuma and an ethanol investor. "It has been a stressful situation."

80 hours a week

Rutledge, the Yuma farmer who hasn't invested in ethanol, knows about stress, too. He worries about water. He worries about fuel and fertilizer prices.

He, too, pours most of his income back into the farm.

But he has some indulgences.

On weekends, he likes to golf at Yuma's velvety nine-hole course.

He and wife Kristy, 38, a track and field coach for Yuma High School, live in a ranch-style house in a residential neighborhood in Yuma.

Rutledge used to work 100 hours a week, but he cut back to about 80 hours after he got married and had two sons. Forest is 2 1/2 years old. Miles was born 10 months ago.

Kristy's family lives in California, so the Rutledges fly to visit them at least once a year.

A Colorado State University graduate, Rutledge returned to Yuma in 1992, trading a sales job in a tractor company for farming his family land. Since then, the farm has added about 1,500 acres for a total of 7,500, but much of it is unirrigated land.

His father, Don, helps out, while brother Roc manages pig and cattle operations.

Rutledge employs three hired hands, but manages most of the work on his own.

Two years ago, when Yuma was abuzz with ethanol, he held out. A tightknit group that promoted the plants in Sterling and Yuma raised capital from local farmers.

The group didn't ask him for money; he didn't offer any.

"The way I understood it, people were jumping over each other to invest in the plant. I heard some did more than $300,000," Rutledge recalled, turning his tractor at the periphery of a circular field on a May morning.

With gasoline above $3 a gallon, ethanol is making money, he reasons.

"But what happens if gas falls back under $2?"

He darts a quick look over his shoulder to make sure the planter drops the kernels in V-shaped rows cleaved in the moist, fluffy soil.

The planter, a pickup truck and other equipment parked at the edge of the field gleam in the sunlight. Rutledge plunked down thousands of dollars on those machines in past months, figuring it's better to invest in his own farm rather than ethanol plants.

Rutledge will plant corn on 400 more acres this year. If he averages 210 bushels per acre, this year's crop should help pay down 20 percent of his debt.

"I don't invest in the stock market," he said. "The money goes to pay off equipment debt. I'll put some in savings and my kids' education."

Farming families

Brett Rutledge of Yuma

WHO: Brett Rutledge, born and raised in Yuma, and his wife,Kristy, a track and field coach at Yuma High School. Two boys,Forest, 2, and Miles, 10 months.

WHAT: 7,500 acres, with 1,200 planted in corn.

HISTORY: Rutledge graduated from Colorado State University in 1992 and came back to the family farm. He manages crop cultivation, with the help of his father, Don, and hired hands, while his brother, Roc, runs cattle operations. His mother, Judy, usually makes lunch for the men, and his wife frequently visits him at workwith the boys.

The Lenz family of Wray

WHO: George and Betty Lenz, four adult sons - Mike, Jim, Rod and George - and Mike's son-in-law, Marty Buoy.

WHAT: 8,500-acre Lenz Farms, half of it irrigated. 3,200 acres planted in corn.

HISTORY: George and Betty first bought 640 acres of grassland in Yuma County in 1973 and later developed it into irrigatedfarmland. Four years later, three sons joined them to form LenzFarms. George came aboard in 1982. Buoy is the youngest partner. Nearly half is irrigated land. The men work the fields, while the women run the farm office.

About the series

• This is the first of an occasional series on the boom in ethanol, a corn-based fuel, and its effects on communities in northeastern Colorado. Today, meet two families who plant corn in Yuma County, one of whom is investing heavily in ethanol. The Rocky Mountain News will follow them through the fall harvest.

Ethanol expanding

Corn crop: 90.5 million acres this year in the U.S., the most since World War II and 15 percent more than last year. In Colorado, 1.25 million acres this year, up 25 percent from last year.

Production: 8.8 billion gallons for the 2007-2008 crop year, accounting for an estimated 27 percent of this year's corn crop. That's double from last year and eightfold from seven years ago. Colorado is producing 100 million gallons a year.

Imports: Colorado will need to import 30 million to 40 million bushels of corn a year to keep up with expected demand when all eight plants are in production.

Colorado rank: 15th among 22 ethanol-producing states. The top state is Iowa.

Plants: 119 active ethanol plants in the U.S., with 86 new ones or expansions under construction. Colorado has four plants, with four more in the pipeline.

Ratio: One bushel of corn produces 2.8 gallons of ethanol.

t. of Agriculture, Renewable Fuels Association, Colorado Dept. of Agriculture

Evolution of corn-based ethanol

1826: Samuel Morey invents an engine that runs on a blend of ethanol and turpentine.

1908: Ethanol becomes popular when Henry Ford's Model T is modified to run on gasoline or pure alcohol - what Ford called the "fuel of the future."

1930s: Ethanol fuels cars until the Prohibition years, when the sale of alcoholic liquids is banned.

1970s: Interest in ethanol revives with the energy crisis resulting from the Arab oil embargo and environmental concerns about lead as a gasoline octane booster.

1988: Denver becomes the first U.S. city to mandate the use of cleaner-burning fuel to reduce smog pollution during winter.

1980-1998: U.S. ethanol output grows from 175 million to 1.4 billion gallons, buoyed by federal and state subsidies and the mandated use of high-oxygen gasolines.

2007: The Bush administration calls for the use of 35 billion gallons of ethanol and other biofuels each year beginning in 2017.

chakrabartyg@RockyMountainNews.com or 303-954-2976

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