Timothy Ramey, senior research analyst at D.A. Davidson & Co., told CNBC’s “Squawk on the Street” that the proposed Tyson Foods-ConocoPhillips venture to produce biodiesel from animal fat will plump Tyson’s bottom line.
Tyson will receive a tax benefit from the deal, and the increased demand for animal fat will boost the price of tallow.
“They have the ability transfer (tallow) at market prices to ConocoPhillips, but aren’t compelled to sell to ConocoPhillips, either,” Ramey said.
Tyson Foods, the world’s largest meat producer, announced Monday that it will team up with ConocoPhillips to produce and market biodiesel fuel for U.S. vehicles using beef, pork and poultry fat. The companies have worked together for about a year to combine Tyson’s knowledge of protein chemistry and production with ConocoPhillips’ processing and marketing skill to introduce a renewable diesel fuel.
The biofuel holds the promise of lower carbon emissions than petroleum-based fuel. ConocoPhillips plans to spend about $100 million in the next few years to produce the new fuel.
“Animal fat has energy in it,” Ramey said. “Tyson produces about 2.3 billion pounds of animal fat and that would convert to about 300 million gallons of tallow. Tyson thinks it can use more than half of that to make diesel fuel.”
Edible tallow also is used in products such as cooking oil and cosmetics.
“(The deal is) not too different from what you’ve seen with corn and ethanol,” Ramey said.