Revisiting biodiesel hedging

Previous research found that both soybean oil and heating oil futures should be used to hedge biodiesel price risk. This was sensible because blending mandates caused biodiesel prices to be driven by that of its primary input—soybean oil. Much has changed in recent years, with plummeting demand during the coronavirus disease (COVID) pandemic, biodiesel plants struggling to break-even in 2020, and then incurring losses in 2021 as soybean oil prices skyrocketed with the rise of renewable diesel—a relatively new biomass-based diesel fuel in high demand largely due to green policies in California. This study revisits the appropriate strategies for hedging biodiesel production risk and finds that soybean oil has become a less important hedging vehicle. [EconLit Citations: Q420, Q410, Q480, Q160, Q110, Q130].