Recent trends in biodiesel prices and production profits
Figure 3 also reveals the key observation that the price of biodiesel has risen substantially in relation to the price of soybean oil during the periods of spiking profits. This has been especially true since the beginning of 2013, when biodiesel prices increased by nearly a dollar and the breakeven price (scaled soybean oil prices) dropped about 30 cents. The figure also helps to explain why biodiesel production profits have only dropped slightly since mid-July in the face of falling biodiesel prices. The sharp drop in soybean oil prices has more than offset the decline in biodiesel prices, thus propping up margins.
The biodiesel market is now playing an important role in determining the price of RINs. Diesel blenders have bid up the price of biodiesel since the beginning of the year substantially in relation to the price of soybean oil, the main feedstock used to make biodiesel in the U.S. In combination with falling soybean oil prices this has driven biodiesel production profits to levels rarely seen in recent years. In a future post we will take a look at the impact of the rising profits on the quantity of biodiesel produced. The response of supply to prices and profits is an important piece of information in light of the potential role of biodiesel in meeting RFS mandates in the future.