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.

Analyst Timothy Ramey, 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."

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 2009.

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 2½ 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.