Everyone is probably overwhelmed with information about the expansion of the U.S. ethanol and biofuels industry. Is the same trend occurring worldwide? Basically, yes.

There are enormous opportunities, as well as challenges, facing the global ethanol market. Some countries are embracing expansion with more vigor than others. As this chart shows, Brazil has been the global leader in ethanol production for many years, and it continues to ramp up the production of ethanol from sugarcane in anticipation of growing worldwide demand for biofuels. The U.S. has caught up with Brazil, relying primarily on corn as the feedstock. But poor profit margins, high construction costs and a lack of infrastructure to blend large amounts of ethanol with gasoline have slowed growth.

The growth of global ethanol industry can be divided into three phases.

Phase 1: The first phase, the one that we've witnessed in the U.S., brings rapid expansion in isolated areas. In the U.S. the production growth has been concentrated in the Midwest, where the vast majority of the corn is grown. The basic problem is that roughly 80% of gasoline use in the U.S. is on the coasts. Some growth in ethanol production is now occurring in other geographic areas, but so far a good corn substitute has not been found.

Phase 2: The second phase has already started to some extent — the globalization of the ethanol market and the switch to multiple and lower-cost feedstocks. The economics are in place to encourage research to find better and cheaper ways to produce and utilize ethanol. Once that happens, the export market will open up — something Brazilis counting on.

Phase 3: In the third phase, advanced technology will kick in and make large-scale, commercial production of cellulosic ethanol possible. Corn-based production of ethanol will not end, but it could be relatively minor compared to total global ethanol production.

But that of course depends on which country you're looking at. It's full speed ahead for ethanol expansion in Brazil. The U.S. is also on a steep growth curve, but it has flattened over the past couple months more than most people realize.

The combination of higher grain prices and lower ethanol prices has halted the construction of a few plants and has forced developers to shelve plans for other facilities. This might just be a temporary slowdown, but economics still win in the long run.

China, India, Europe and a host of developing nations would like to become major ethanol players. Because of strong food demand, China has restricted new construction of ethanol plants to plants that utilize non-food-producing feedstock. This will virtually kill China's plans to produce over 700 million gallons of fuel ethanol per year by 2010.

In October, Australia shelved plans to build two ethanol plants. European expansion continues in biodiesel production, but ethanol growth has been limited by high feed grain prices. India, even with a rapidly growing economy, might not have the resources to quickly build the biofuels industry of its dreams.

The ethanol industry is hereto stay and long-term it will be a booming market worldwide. However, we are likely witnessing the first bump in the road for this emerging industry. These adjustments will be taken care of in time and the industry will stabilize, grow and become more efficient.

Issues Facing Expansion

There are three key issues impacting expansion of ethanol and biofuels — not only domestically, but worldwide.

Transportation and infrastructure. It is more difficult to transport ethanol than it is traditional fuels. The infrastructure has not been expanded as rapidly as production capacity, hurting ethanol demand, which has pulled prices lower.

High grain prices. High grain prices,combined with lower ethanol prices,have given ethanol producers a dose of economic reality.

Anti-ethanol backlash. The political climate has changed in Washington. Livestock and food organizations are lobbying hard to stop Congress from raising the renewable fuel usage mandate. The food vs. fuel debate is intensifying. Also, some environmental groups are now lukewarm, at best, about ethanol production.

Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.