They actually sell their grain to ethanol distillers, who compete with the petroleum industry. Farmers have to make ends meet. If you've got a truck with ten tons of grain to sell and the distillery offers you three cents more per bushel than the mill, you go there and get as much money for your grain as you can. Farmers are not in business just to take one for the team. Sorry, Old MacDonald is a capitalist. Plus you can then buy a truck load of used distillers grain to feed your livestock instead of driving back in an empty truck. If the distillery will take high moisture grain, while the mill will dock you a percentage, or not buy it at all, you sell your high moisture grain to the distillery. Ethanol has provided more competition for farmer's grain, helping farmers by providing more options. In short farmers sell to distillers because they compete for the farmer's business and win it. Furthermore if the farmers sold their grain to the mill for three cents less per bushel the mill would then sell the grain to the distillers and pocket the difference. Often times the distillery is built on the same railroad track as the mill for just that reason.
Actually, I don’t care what farmers are in business for. Distillers ‘competing’ with mills is a government induced fluke for which taxpayers foot the bill. It isn’t free market.
The government in its misdirected energy policy coupled with political influence buying is paying distillers a subsidy with our money that allows them to pay more than mill prices which eventually drives up the going price per bushel OR reduces the available millable supply - rising prices.
It is wrong, just like it is wrong to subsidize dairy or petroleum or any other product. As long as there are subsidies, the ethanol industry will never stand on its own merit.