What’s Up with Rising Biodiesel Production Profits?06/23/2017
As noted in several previous farmdoc daily articles (e.g., January 28, 2015; February 11, 2016, March 1, 2017) the U.S. biodiesel production industry has a distinct “feast or famine” pattern in terms of profitability. The industry made very large profits in 2011 and 2013 and moderate profits in 2016, but losses in most other years. The feast or famine pattern is closely tied to expiration of the $1 per gallon biodiesel tax credit in the face of binding RFS biodiesel mandates. Diesel blenders can effectively purchase biodiesel at a discount in the year when the credit is scheduled to expire in order to meet mandates in later years. Outside of these “spike” years, losses are the norm because the U.S. biodiesel production industry is over-built and there is ample slack capacity that can be drawn upon as needed. What is interesting about the current situation is that biodiesel production profits turned increasingly positive during 2017; just the opposite of the “famine” tendency for years after the tax credit expires. The purpose of this article is to review biodiesel production profitability so far in 2017 and examine the possible reasons why profits have been much better than expected.