The demand was already there. say 30% of the people that actually buys your product every month produces grain alcohol.
now, you give your exceeding production for free. That person that got it for free makes grain alcohol, sells it cheaper than your paying customer. next month your paying customer will either also want it free, or at a much lower price to remain competitive, lowering your next month profit.
The whole problem is people trying to make more money with the grain by creating false scarcity. if they sold way cheaper when they had more production, the original paying customer would have bought twice the grain and made twice the grain alcohol to begin with. and none of that would have been a problem.