It's no secret that Archer Daniels Midland (NYSE: ADM ) has long benefited from federal government agricultural subsidies. But the company also profits handsomely from certain government regulations -- something I encouraged investors to keep on an eye on in this article.
Last year, fellow fool Brian Gorman noted that ADM was placing a large bet on biodiesel. Specifically, he pointed out that the company was planning to build a large production facility that would have the capacity to produce 50 million gallons of biodiesel -- more than double the estimated amount sold in the United States in 2005.
Well, it now appears that bet is about to be rewarded. On Sunday, a new Environmental Protection Agency (EPA) regulation mandating ultra-low-sulfur diesel fuel took effect. The rule immediately lowers by 97% the amount of sulfur content permitted in diesel fuel. Biodiesel, which is nearly sulfur-free, is well-positioned to meet the requirements of the new diesel regulations.
Furthermore, the new regulations will dramatically reduce soot emissions, which should help us all breathe a little easier. It'll also go a long way toward alleviating the perception that diesel engines are dirty and smelly, a factor that has prevented a great many Americans from embracing diesel technology.
As this negative perception of diesel fades, its superior fuel economy -- estimated between 20% and 40% better than gasoline -- should begin to shine ever brighter. Growing consumer demand should encourage many automobile manufacturers to produce more diesel vehicles, which presently represent only 3.2% of the vehicles manufactured in America.
In fact, DaimlerChrysler (NYSE: DCX ) is introducing a new Mercedes diesel vehicle next week, and a Jeep Grand Cherokee next year. After that, Honda (NYSE: HMC ) is expected to have a diesel Accord on the U.S. market by 2009, while GM (NYSE: GM ) has announced that it will have a diesel-powered light truck by 2010.
As a result of this increased production, diesel vehicles are expected to represent 10% of all the vehicles sold in the U.S. by 2015. This is great news for ADM; thanks to its new plant, it will be one the leading suppliers of the biodiesel fueling these vehicles.
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The new diesel regulations have Fool contributor Jack Uldrich breathing easier already. He does not own stock in any of the companies mentioned in this article. The Fool has a strict disclosure policy.
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