Biodiesel margins improve while feedstock prices remain under pressure

Volatility likely to remain within the soybean oil market

At the beginning of March 2023, the average weekly upper Midwest price edged fractionally lower relative to pricing from the week prior. Prices did not fall as fast as feedstock values, which remain under pressure due to softer than anticipated demand from the renewable diesel sector. The average upper Midwest biodiesel price of $5.848 per gallon last week was 0.5 percent below the previous week and 1.9 percent under month-ago levels. Soybean oil prices fell more than two percent during the week.

The price spread between RBD soybean oil and crude degummed soybean oil (CDSO) narrowed, with RBD pricing falling 1.8 cents per pound to 71.642 for the week, compared to CDSO’s average price slipping 1.4 cents to 62.742 cents per pound in Central IL. Feedstock cost fell more rapidly than biodiesel prices allowing the weekly production margin to improve. Glycerin, a co-product of biodiesel production, had prices edge fractionally higher. Natural gas prices, reported in arrears by the Energy Information Administration (EIA), also moved higher, while the cost of methanol held steady.

Biodiesel margins over soy oil variable cost

Biodiesel revenue of $5.91 per gallon was mostly unchanged from the week prior, showing a 0.4 percent decline, while variable costs for RBD soybean oil users fell 2.4 percent to $5.81 per gallon. The margin over variable cost for RBD soybean oil improved from negative one cent per gallon to nine cents.

Variable costs include a 25 cents per gallon estimate for “other variables” beyond soybean oil, natural gas, and methanol. Total costs include an assumption of 35 cents a gallon, which may not pertain to all facilities; actual costs could be significantly lower.

Variable cost for CDSO users fell two percent to $5.15 per gallon, exceeding the 0.4 percent decline in biodiesel revenue, allowing margins to push higher. The margin above variable cost and total cost for crude degummed soybean oil users was 12 percent and 25 percent over the margin indication from the week before.

Biodiesel prices have been trending lower, but improved weather and the possibility of stronger RVOs could swing momentum. Less feedstock demand from the renewable diesel sector has helped to keep feedstock values lower than expected.

The premium being paid for RBD soybean oil relative to crude degummed fell nearly four percent last week to 8.9 cents per pound. The spread between RBD and CDSO has remained in a downward trend since last June.

Prior to April 2021, RBD soybean oil averaged a price premium to crude-gummed soybean oil of nearly three cents per pound. Increasing renewable diesel capacity has lifted demand for RBD soybean oil relative to crude-degummed due to limited crushing capacity. This enabled the RBD/CDSO spread to widen. The spread has been as high as 25 cents but narrowed in recent months following a projected increase in refining capacity and several renewable diesel projects either delaying or placing production plans on hold.

Volatility is likely to remain within the soybean oil market due to additional demand projections from renewable diesel producers. Renewable diesel demand is forecast to more than double over the next two years. Geo-political tensions continue to impact commodity market volatility in general.

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