Biodiesel Production Robust Despite Challenge
The boom in renewable diesel was expected to wipe out biodiesel producers, but they were more profitable than thought and biodiesel production has remained robust. A FarmDoc by University of Illinois Ag Economist Scott Irwin says, “The renewable diesel boom in the U.S. has raised a host of interesting questions about the biofuels sector. A particularly important one is the impact of the boom on FAME biodiesel production and profits.
Previous analysis (farmdoc daily, May 10, 2023) indicates that competition from renewable diesel dramatically squeezed the profitability of biodiesel production starting in 2021. However, despite the severity of the estimated losses, biodiesel production has not systematically declined during the renewable diesel boom and has been quite robust throughout 2023. Since it is highly unlikely that the production data are in error, one is left with the conclusion that something was seriously amiss with the technical assumptions or price data used in the previous article to estimate profitability. The analysis in the present article shows that a single factor is in all likelihood responsible for the over-estimation of production losses. Specifically, the behavior of biodiesel prices reported by the Agricultural Marketing Service (AMS) of the USDA changed dramatically relative to a well-known industry benchmark price from OPIS starting in August 2021.
In sum, the revised profitability estimates show that FAME biodiesel producers in the U.S. have weathered the renewable diesel boom that started in 2021 much better than many expected. The outlook is not entirely rosy, however. Robust FAME production, in combination with surging renewable diesel production, may lead to more D4 RINs being generated than is needed for compliance with RFS mandates. This could lead to D4 RIN prices going even further ‘off the cliff’ than they have in recent months.” Click here to view the full item.
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