Current Status of the U.S. Biodiesel Market: Supply, Demand, and Producers' Profit Margin
Abstract
The U.S. biodiesel production industry has experienced slow growth despite receiving
federal subsidies to produce. The U.S. has fallen below the Renewable Fuel Standard
(RFS) in 2010, and it remains questionable if the U.S. can meet the one billion gallon
RFS mandate in the coming year. The U.S. biodiesel industry encounters the challenge
of feedstock price volatility, high feedstock price diminishes biodiesel producers’
profit margin, reducing producers’ incentive to produce.
Soybean oil is the most prominent feedstock in the U.S. biodiesel industry. Investigating
the main drivers of soybean oil price will be useful for policy and business suggestions
aiming to buffer biodiesel producers’ profit margin. This study analyzes soybean price
through supply and demand factors namely: (1) energy cost of producing soybeans, (2)
land use competition, (3) demand of soybean oil from export, (4) demand of soybean
oil from the U.S. food industry and (5) demand of soybean oil from the U.S. biodiesel
industry. The relative importance of the above mentioned factors are evaluated with
Principle Component Analysis and multiple regression analysis using monthly data obtained
from the U.S. Census Bureau. Analyses results suggest while supply factors do not
significantly affect soybean oil price, soybean oil demand from the biodiesel industry
and crude oil price are the main drivers of soybean oil price. Policy solutions should
target to protect biodiesel producers’ profit margin by paying attention to crude
oil price and feedstock demand from the biodiesel industry. Some possible policy solutions
include diversifying feedstock, setting a national demand mandate, and implementing
a variable subsidy in addition to the RFS mandate.
Type
Master's projectPermalink
https://hdl.handle.net/10161/3671Citation
Lee, Angie (2011). Current Status of the U.S. Biodiesel Market: Supply, Demand, and Producers' Profit
Margin. Master's project, Duke University. Retrieved from https://hdl.handle.net/10161/3671.Collections
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