The Associated Press

HOPKINSVILLE, Ky. - A farmer-owned ethanol plant, the most expensive project supported by the state's tobacco-settlement money, is emerging as an important market for the region's corn farmers.

The Commonwealth Agri-Energy ethanol plant started last winter but celebrated its grand opening Thursday in this western Kentucky city.

The plant received grants and loans from the Kentucky Agricultural Development Board that covered nearly $10 million of its $32.8 million cost.

Corn growers are counting on ethanol production to increase demand for their crop and bolster their income.

"In the past, most of the corn in this area went to the Southeast for chickens or was exported," said Gary Lester, who raises corn, soybeans and wheat in Christian and Trigg counties. With the addition of the ethanol plant, "there should be more demand for our product."

The root of that demand comes from cities where gasoline must be blended with oxygenate additives such as ethanol to help curb emissions. And the market appears to be ripe in Kentucky. Another additive, MTBE, has been linked to groundwater contamination and will be banned from all reformulated gasoline sold in the state starting in 2006.

Commonwealth Agri-Energy plans to convert more than 7 million bushels of corn into 20 million gallons of ethanol a year.

General manager Mick Henderson said half of the ethanol will go to Louisville, the only Kentucky city requiring gasoline mixed with an oxygenate additive. The rest is headed to markets such as New York and St. Louis.

About 30 percent of all gasoline used in the United States this year will contain some ethanol, according to estimates from the Renewable Fuels Association. Ethanol production is expected to increase to 3.5 billion gallons this year, up from 2.8 billion gallons last year.

Jim Doss, the cooperative's general manager, predicted ethanol sales from the plant to be $26 million to $28 million this year. He said the plant's net income from the first year is expected to be $1.2 million.

Henderson estimates that the plant could expand capacity to handle 50 million gallons of ethanol within three years for "a lot less than it would cost to build another plant."

The plant resembles a city of silver silos rising from the countryside. A 500-foot-long conveyor carries the corn from the elevator to the production plant, where it is cooked and cooled in giant stainless-steel tanks before being converted into alcohol.

The Hopkinsville Elevator Co., a farmer-owned cooperative of 2,300 members, and the Kentucky Corn Growers' Association co-own Commonwealth Agri-Energy.

Farmers will sell corn to the elevator, which in turn will sell to the ethanol plant. Any profits will help reduce the plant's debt and be distributed among farmers in the cooperative, said Philip Garnett, a co-op member who raises grain and livestock on his family's Christian County farm.

The cooperative's ownership in the plant made the project attractive to the tobacco board, said Keith Rogers, executive director of the Governor's Office of Agricultural Policy, said

"It's a strong cooperative," Rogers said. "The members there are active and it was something that you had a lot of farmer involvement in and farmer activity in bringing this project to fruition."