Biodiesel hedging under binding renewable fuel standard mandates

Jason R.V. Franken, Scott H. Irwin, Philip Garcia

Research output: Contribution to journalArticlepeer-review

Abstract

We apply an encompassing framework to assess the viability of hedging spot biodiesel price risk for four U.S. markets with a conventionally used heating oil futures contract and a soybean oil futures contract based on the logic that supply shifts (i.e., price of soybean oil as an input) drive biodiesel prices when binding blending mandates are in place. Results indicate that soybean oil futures should in fact be part of a composite hedge, and that in some instances greater hedging weight should be placed on the soybean oil futures contract than the conventionally used heating oil futures contract.

Original languageEnglish (US)
Article number105160
JournalEnergy Economics
Volume96
DOIs
StatePublished - Apr 2021

Keywords

  • Biodiesel
  • Composite hedge
  • Cross-hedge
  • Encompassing
  • Hedging effectiveness

ASJC Scopus subject areas

  • Economics and Econometrics
  • Energy(all)

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