North Dakota's ethanol production subsidy fund, which has gone untouched since it was established four years ago, may begin making its first payments within a few months, state officials say.

"Looking at what the trends are, it is possible you could see some money coming out of the fund during this quarter," said Bill Huether, an energy engineer in the state Department of Commerce. "Ethanol prices have been dropping, and corn prices have been pretty strong."

Subsidy payments are triggered according to the average prices of ethanol and corn, which is used to make the renewable fuel. They are compared every three months using a formula in North Dakota law, to determine whether any money is owed to North Dakota's two newest ethanol plants.

The $3.7 million fund is financed by a share of North Dakota's tax on agricultural fuel and part of registration fee collections for farm vehicles. It was set up by the 2003 Legislature to benefit newly built ethanol plants.

Subsidy payments depend on whether North Dakota's average ethanol price is below $1.30 a gallon during any one calendar quarter, and whether the price of a bushel of corn averages more than $1.80 during the same three-month period.

When ethanol and corn prices are both well above their benchmarks, the formula does not trigger subsidy payments. However, in recent months, ethanol prices have been falling while the price of a bushel of corn has stayed relatively strong.

On Friday, the average North Dakota "rack price" for ethanol was $1.70 a gallon, or 40 cents above the benchmark in state law, according to data collected by Axxis Inc. of St. Paul, Minn.

North Dakota average rack prices were more than $2.50 a gallon as recently as January. The rack price is charged at a distribution terminal's loading rack when tanker trucks take on their fuel loads.

A bushel of corn makes about three gallons of ethanol. Corn prices have has averaged more than $3 a bushel in recent months, or at least $1.20 greater than the target price.

North Dakota Agricultural Statistics Service data show average monthly corn prices ranging from $2.92 a bushel in January to $3.33 in June. Last month, the average price was $3 a bushel.

In other words, the cost of buying corn to make ethanol has stayed relatively high in recent months, while the price of ethanol has declined. North Dakota's ethanol subsidy law is designed to provide industry support if those prices get too far out of balance.

Two new ethanol plants, Red Trail Energy, at Richardton, and Blue Flint Ethanol, which is a neighbor to the Coal Creek electric power station near Underwood, have begun operating in the past year. Red Trail started up in December 2006, while Blue Flint began last February.

Factories at Walhalla and Grafton, both of which have been running for more than 20 years, are not eligible for the subsidies.

Both factories earlier got millions of dollars in state support, including $1.35 million in subsidies during North Dakota's 2005-07 budget period. The Legislature ordered a subsidy cutoff for the two plants last July 1.

The new fund sets a $1.6 million annual payment limit to any one ethanol factory. Subsidies are cut off once a plant has gotten $10 million in state support.

Tom Lilja, executive director of the North Dakota Corn Growers Association, said he expects the future corn market to be volatile. "I think we'll still have a trading range," Lilja said. "It's just that the range is probably going to be much higher than average."

Strong corn prices have cut into ethanol makers' profits, Lilja said.

"The corn market had to slow down the rapid expansion of ethanol," he said. "There is still money to be made in ethanol, it's just that it's not as much money as it was last year at this time."