Increased ethanol production has glutted the market with the corn-based fuel additive, lowering prices and tightening cash flow at plants.
But distiller's grains - an ethanol coproduct - are gaining acceptance as a source of livestock feed.
"I'm fielding calls every day from people wanting to purchase distiller's products," said Rick Heaton, a broker who markets the grains for Quad-County Corn Processors, a farmer-owned startup near Galva.
Prices for distiller's grains are up 20 percent from a year ago, industry experts said last week.
That has had a positive impact at Midwest Grain Processors in Lakota, in north central Iowa, where those sales account for up to 30 percent of total receipts.
"Certainly, it is an important revenue stream," said Scott Swanson, commodity risk and marketing manager at the company, which opened last fall as the largest farmer-owned ethanol plant in Iowa.
The Lakota plant ships distiller's grains to markets as far away as California and Mexico, by truck and rail.
Numerous ethanol plants have opened recently or are being built throughout the Midwest. In Iowa alone, four new plants opened in the past 18 month, doubling the number of ethanol plants in the state. Another Iowa plant is about to open, while two others are being built and three more are being developed.
New and expanded production capacity enabled U.S. ethanol makers to set monthly records from August through January. In February, production totaled 169,000 barrels per day, up 39 percent from a year ago. This year's production is expected to top 2.6 billion gallons, up from 2.13 billion in 2002.
Despite growing use of ethanol, supply increases have outpaced demand, experts said.
One factor contributing to the growing popularity of distiller's grains is its availability, as plants generate large amounts of the moist material. Heaton said hundreds of thousands of tons of the distiller's grains could be sold or marketed annually.
With a large livestock population, the upper Midwest, including northwest Iowa, offers a ready market for distiller's grains, he said.
"The two (industries) are coming together," Heaton said.