Ethanol, produced out of corn, is blended with pure gasoline to produce fuel. We develop, implement, and test a model for the valuation and optimal operation of an ethanol producer. We take into account institutional settings, production capacity and government incentives to obtain closed form solutions in a real option model driven by corn and gasoline prices. Using data between 2000 and 2017 we provide empirical support for the model in its ability to reproduce certain aspects of the nonlinear behavior of ethanol prices, time varying industry output, and ethanol firm valuations.