How much biodiesel cost

Profits quickly slid during the onset of the pandemic and fell all the way back to breakeven by the end of the summer. The bottom fell out starting in August, and losses by the end of the year were among the worst over the entire sample period.

What makes this episode even more remarkable is that the losses were severe enough to drive the representative biodiesel plant into shutdown territory for an extended period of time. We define the shutdown price to be a biodiesel price net of marketing costs that is not high enough to cover variable costs of production. In fact, biodiesel prices were below the estimated shutdown price for 15 consecutive weeks from October 16, through January 22, This is by a very wide margin the longest period that biodiesel prices have been below the shutdown price since The rollercoaster ride for the U.

Further insight into the drivers of biodiesel profits is provided in Figure 4. Here, the biodiesel price at Iowa plants is plotted versus a simplified breakeven profit relationship between soybean oil and biodiesel prices.

Since soybean oil represents over 80 percent of the variable operating costs of the representative plant, all other costs are lumped into the constant term of 0.

The 7. This is changed to 7. The breakeven relationship tracks the biodiesel price reasonably closely in 10 of the 14 years in the sample. The exceptions are , , , and Outside of these years, the market generally priced biodiesel based on the cost of soybean oil, a partial markup for other variable and fixed costs, and small profits or losses. Implicit in this formulation is the idea that soybean oil prices lead or cause biodiesel prices at the weekly time horizon farmdoc daily , September 10, The key is that blenders face a binding RFS biodiesel mandate, and it is rational to effectively purchase biodiesel at a discount in the current year, due to the tax credit, in order to meet mandates in later years.

Once the tax credit expires, the incentive to push up prices, profits, and production disappears and the biodiesel industry in the past returned to a norm of losses. This cycle, of course, depends on blenders perceiving there is substantial uncertainty whether the tax credit will be reinstated or not for the following year. Since the biodiesel tax credit was in place for all of , the movement of biodiesel prices and profits for cannot be explained by anything to do with the tax credit.

Instead, the key is the large rise in soybean oil prices that began in April This is an increase of 60 percent in feedstock costs. Biodiesel prices also increased over this time period, but just not as fast as soybean oil prices.

This is highlighted in Figure 5, which shows the weekly ratio of biodiesel and soybean oil prices at Iowa plants over January 26, through January 22, At the end of , that ratio was just a bit more than eight, right at the lows for the ratio since It should now be clear that the large losses of biodiesel producers in the latter part of can be traced to surging feedstock prices that outpaced the gains in biodiesel prices.

This was unusual behavior that is not easy to explain. In the past, increases in soybean oil prices have generally lead to increases in biodiesel prices that at least allow producers to breakeven. Home Costs Transportation Biodiesel. Show Hide Quick Links.

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