A leading meat company, Tyson Foods, plans to team up with oil giant
ConocoPhillips to turn its greasy animal fat waste into biodiesel fuel.
Tyson has struck deals with oil giant ConocoPhillips and Syntroleum, a
small company that develops synthetic fuel technology. Together they will
process millions of gallons of animal grease each year.
In the US, one third of all animal fat comes as a result of the production
at Tyson's slaughterhouses. In terms of biodiesel, it does not matter where the
fat comes from, whether it be from beef, chicken or pork.
Impact on market price
Analyst Timothy Ramey, brokerage D.A. Davidson & Co., says the biggest
benefit of the biodiesel deals for Tyson will be their impact on the market
price of the fatty by-products, known as tallow.
Also, there is no way to produce more tallow efficiently since it is a
by-product of the meat industry. Converting animal fat into biodiesel can take
place in existing refineries using the same chemical processes employed to
refine crude oil. "This is a huge advantage over other renewable fuels, like
ethanol, that require large capital outlays," says Ramey, adding that he expects
tallow prices "to rise significantly, just as the price of corn rose in response
to demand for ethanol."
Operational in 2007
Ramey says he doesn't expect the bump in tallow prices will affect Tyson's
earnings in the current fiscal year. Tyson expects its joint venture with
ConocoPhillips to begin production in late 2007 and hit its stride by
Tyson forcasts that once fully operational, the venture will boost earnings
by 4-16 cents per share annually, depending on tallow and energy prices.
As for the venture with Syntroleum, both companies plan to split the costs
of a $150 million synthetic fuel plant over the next 2Â½ years. The plant is
expected to begin operations in 2010. Tyson forecasts that the plant will
generate between $35 million and $60 million in operating profits annually but
doesn't have specific earnings-per-share projections.
Tyson also aims to become an animal-fat broker. In addition to the ventures
with ConocoPhillips and Syntroleum, Tyson will use its pull in the meat industry
to collect fat drippings from other livestock processors and funnel tallow to
its biofuel projects.
latest pig news, subcribe here