Pity the poor soybean. In the wake of the magazine covers and the (saints preserve us) USA Today headlines about the ethanol boom, corn's gotten all the love. CNN runs stories about the poor folks of Mexico having to negotiate for their white-corn tortilla subsidies. Pundits roll across CNBC faster than the ticker opining about Iowa cropland and the millions to be made by scarecrow wildcatters.

And yet the lowly soybean -- and its brother biodiesel -- remains largely unsung.

And biodiesel, too, is small potatoes. 2006 was a big year for French-fried-fuel, with online capacity ramping up to 200 million gallons. That sounds like a lot, but really, it’s just 2 percent of ethanol's 5 billion gallon industrial machine.

What Is Biodiesel?

When Rudy Diesel invented the Diesel engine in the late 1800s, he had no idea we'd be powering the thing with stuff pumped out of the ground. His first near-lethal contraption ran on powdered coal, and his stated vision was to build an engine that ran on vegetable oil. If only he'd survived to see today.

Biodiesel is less glamorous than ethanol because it requires more chemistry to make. Basically, you take fat -- waste grease from your local McDonalds, raw soybean oil, whathaveyou -- and chemically torture it under a bit of heat and pressure until you get biodiesel. And you can use anything. Soybeans get expensive? Start floating algae on sewage ponds. Grey water getting hard to find? Order some palm kernel oil from South America. In other countries, the options are even more diverse: in India, where biodiesel is all the rage, the main feedstock is the Jatropha plant, an inedible nut which, sadly, won't grow in Iowa ... but is hugely efficient in throwing off veggie oil.

As a fuel, biodiesel shares many of ethanol's disadvantages: it stinks in cold weather; it makes regular engines less efficient (per mile); and at around $50-to-$60 bucks per barrel, it's too expensive. It's got a lock on ease-of-use, however: unlike ethanol, you can just use the existing infrastructure, and pump it at existing stations. It's also better for most engines: unlike ethanol, it happily sits in a tank throwing off water and lubricating anything it touches. It's a mechanical engineer's dream, unlike ethanol, which eats things.

The Farmer's Dilemma

That Iowa farmer is just like you: he wants to make money. Every year, he looks at his land, looks at the market, and decides where to invest.

Corn prices have risen because of the demand -- real and perceived -- for corn as a feedstock for ethanol. Farmers see the high prices (perhaps locking them in through the futures market) and plant more corn, ultimately increasing the supply and bringing down the price. Those same high prices make it more expensive to make ethanol, thus curbing demand, and driving prices down.

Now here's the tricky part. If you're a farmer and you want to plant more corn, you need to not plant something else. And that something else is most likely soybeans. Farmers plant fewer soybeans, and the price of soy goes up.

Both crops share food-use and fuel-use demand. Both crops need similar growing conditions. With corn ethanol, the market's mature. (Nothing says you've arrived as much as having your own futures contract traded on the NYMEX.) The soybean biodiesel market, by comparison, is much less established. While there are standards, there's nothing approaching the liquidity of ethanol, and there's no way to lock in prices.

Still, biodiesel is white hot. So hot, in fact, that the Associated Press published an article on February 14 titled “Biodiesel Hot On Ethanol’s Trail” (http://www.businessweek.com/ap/financialnews/D8N9MU600.htm). The article laid out a number of convincing facts:

• Venture Capital investors sunk $261 million into biodiesel last year, almost matching the $291 million invested in ethanol.
• Goldman Sachs recently made its first investment in the biodiesel industry.
• The nation had 105 commercial biodiesel plants under operation as of January 31, with another 77 under construction.

Buying The Boom?

So if biodiesel is the new ethanol, should you just go buy soybean futures?

It's tempting. The big attraction is that biodiesel remains under-hyped. Buying contracts deep into the future could give you exposure to a potential media blitz, although it would leave you exposed (as always) to the whims of OPEC and other market vagaries.

A more sensible approach for the seasoned (perhaps disillusioned) commodities investor is to break from the underlying and move to the enabling; that is, to look to the intellectual property instead of the finished goods. The simplest and most traditional commodity-stock play -- buying the producer -- is tough in the U.S. market. While the big boys (Chevron, Dupont) are making investments in biodiesel, it's barely a diversifier against their ponderous reliance on traditional markets. Food companies like Bunge (NYSE:BG) have their feet in the door for traditional production systems, and are clearly focused on making the most of any investment uptick. Specialty chemistry companies like Diversa (NASDAQ: DVSA) play a big role in the future of biodiesel, as well, providing the enzymes needed to produce the stuff (as they do in ethanol). And, as with most emerging technologies, the pure plays are down in the penny stocks, from producers like NewGen (OTCBB:NWGN) and Earth Biofuels (OTCBB:EBOF).

In the end, the VC folks may have it right: biodiesel may be so early stage, that there’s no mature investment worth your dollars: no contract, no market standard, no nothing. Investors are left with three, mostly poor choices:

Not a great line up. So perhaps the best strategy may be to sit tight, pay attention, and understand what will move when Time Magazine does run the "Soybean Boom" cover, complete with a little bowl full of edamame.

And believe us, they will.