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Tickers in this Article: BG, ADM, F, GM, DCX, CVX, RDS.A
In the realm of alternative fuels, ethanol may be stealing the headlines, but biodiesel is evolving and gaining the attention of public and private investors.

Biodiesel Ramping Up
Total biodiesel production in the United States jumped from 75 million gallons in 2005 to 300 million gallons in 2006, according to the EPA and the National Biodiesel Board.

Larger Agribusiness firms and biodiesel startups capable of producing hundreds of millions of gallons of biodiesel with venture capital and oil company dollars behind them are investing their time, energy and sweat in an effort to save planet earth from carbon dioxide emissions.

ADM and BG
Large biodiesel production firms in the Agribusiness include Archer Daniels Midland (NYSE: ADM), privately held Cargill and Bunge Limited (NYSE: BG).

In 2006, Archer Daniels Midland announced the opening of a biodiesel plant in Brazil that should be operational by the end of this year. ADM continues to be the largest biodiesel producer in Europe and the largest ethanol producer in the United States.

Bunge North America is building a 45 million gallons-per-year biodiesel plant near its own soybean processing plant in Illinois. The Bunge biodiesel plant is expected to be operational by 2008. Bunge Iberica, the Spanish operating arm of Bunge Limited, is also building a biodiesel plant in Spain. Cargill operates biodiesel plants in the United States as well as in Europe. The companies mentioned above are likely to benefit from their exposure to markets outside of the United States that are already heavily pursuing biodiesel as an alternative fuel. (For further reading, see Taking Global Macro Trends To The Bank.)

Biodiesel feedstock is essentially oil which can come from cooking oils from restaurants, school cafeterias and even the cooking oil used in your kitchen. The largest feedstock currently for biodiesel is soybean oil which comes from large agribusinesses like Cargill and ADM. Regional biodiesel producers often have their own farmland which is used to grow canola plants used in the creation of biodiesel. Biodiesel experts have begun to note that the future of biodiesel may be in algae since it has a high (50%) oil content.

The Benefits of Biodiesel
Biodiesel is a cleaner alternative to petroleum, emitting 50% less carbon monoxide and 78% less carbon dioxide than petroleum diesel. Carbon dioxide is the main culprit linked to global warming. While biodiesel only works in diesel-engine cars that have been slightly altered, automakers including Volkswagen, Ford (NYSE: F), General Motors (NYSE: GM) and DaimlerChrysler (NYSE: DCX) are setting there sites on developing more hybrid and diesel powered vehicles.

Seattle Biodiesel raised $2 million in 2005 to begin construction of a plant that today produces 5 million gallons of biodiesel. Big U.S. oil companies awash with cash, such as Chevron (NYSE: CVX), are also getting in on the ground level. Chevron invested $3.5 million in a Texas-based startup company named Galveston Bay Biodiesel that has a goal of producing 100 million gallons of biodiesel per year. Shell Oil, an operating unit of Royal Dutch Shell (NYSE: RDS.A), has shown its commitment to alternative energy by becoming one of the world's largest distributors of biofuels.


With the average selling price of biodiesel set at $3.50 a gallon, drivers may still avoid this alternative if it can't compete with the price of a gallon of regular gasoline. While the price of biodiesel is very close to the true cost of production, there is not much producers can do to limit the expense except to petition lawmakers for subsidies that will drop production costs.

Paying for biodiesel is one issue, while actually finding it is another. Out of the roughly 170,000 gas stations in the United States there are only 1,100 E85 pumps and 1,000 biodiesel pumps, according to the top executives of Detroit's big three automobile manufactures. Congressional mandates for increased usage of alternative fuels will benefit both the environment and the producers who have a vision of a cleaner emissions future.

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