Animal grease and fats have long been used by people as a source of fuel, soaps, candles and more. Darling International is one of the largest providers of rendering services to the nation's food industry. Now, they may become one of the leading sources of biodiesel. Currently, Darling International is taking steps to incorporate animal leftovers into profitable renewable fuels. 

Darlington International, based in Irving, Texas, picks up grease and animal carcasses at 116,000 restaurants and slaughterhouses across the country. They even take the grease from 10 percent of McDonalds’ locations. 

Steve Scruggs is a portfolio manager of the $30 million Queens Road Small Cap Value Fund, where Darling is a top holding. "They're the biggest in their industry, as much of an oddball industry as it is,” he told Fortune magazine. "Look, restaurants are going to have to get rid of their grease, and slaughterhouses are going to have to get rid of their carcasses." Scruggs puns: "They're in an industry that is not going to be rendered obsolete."

Founded in 1882, Darling is a company that is used to following trends. Their fortunes have risen and fallen with animal feed prices. Fortune magazine reports that “Farmers use its tallow, yellow grease, and meat and bone-meal products as alternatives to corn and soybeans, accounting for 95 percent of Darling's sales.”

And so, the industrial giant Honeywell approached Darling two and a half years ago offering to license technology to make biodiesel using animal waste products. Eager to get into the renewable fuel market, Darling jumped on board. 

Biodiesel is a $60 billion-gallon-a-year field that has grown over the past 30 years. It is produced by combining vegetable oil and diesel. Apparently, this combination makes the fuel gum up engines and performs poorly in cold weather. Therefore, researchers have been studying a more efficient formula using animal fats.

The time has never been better to explore this new source of renewable energy. The U.S. Department of Energy is offering loans for up to 80 percent of the cost to build a renewable-fuel factory. Partnered with Valero Energy, Darling recently announced a proposed $270 million green diesel plant in Louisiana. They are hoping that the government's final loan decision may come early next year.

In the meantime, Darling has posted impressive sales in this economy.  Sales were up last year by 25 percent to $807 million, with profits hitting $55 million, to rank No. 13 on Fortune magazine’s 2009 Fastest-Growing Companies list.

But in the end, will Darling be able to turn grease into gold? Apparently, raw material volumes are down as Americans and Asians are eating less red meat and visiting fewer restaurants in the currently economic downturn. As the USDA doesn't forecast a recovery in consumption this year, sales may be affected, but Darling shareholders aren’t worried. As long as people are eating meat, there will be a need for renderers. And soon, it is possible that this byproduct may even help to solve the energy crisis.

Biodiesel gets a boost from animal fat
Darling International hopes to convert animal byproducts into renewable energy.