The relationship between feedstock soybean oil and blendstock heating oil that the biodiesel industry uses to gauge costs and margins dropped below zero for the first time in more than 3 1/2 years on Wednesday.
The "boho" factor, as the relationship is also called, fell 5.92 cents to minus 1.47 cents/gal, the lowest level since reaching minus 4.3 cents/gal on November 14, 2014.
That means that biodiesel producers can generate a gallon of the biofuel for a lower cost than the price of a barrel of diesel fuel.
Wednesday's drop came as the NYMEX ultra-low sulfur diesel contract settled at $2.2692/gal, the highest settle for the front-month contract since February 27, 2015. The surge in price followed the US Energy Information Administration's weekly report showing a 92,000-barrel draw on US ULSD stocks in the week ended May 11.
On the other hand, feedstock soybean oil prices slumped on Wednesday. Soybean oil futures dropped 53 points on the day to settle at 30.59 cents/lb.
A lower boho factor signals lower biodiesel production costs and better blending economics. The boho factor is calculated by multiplying the cost of a pound of soybean oil by 7.37 -- which is the industry standard for the yield for soy methyl ester biodiesel -- minus the cost of a gallon of blendstock heating oil.
Lower boho factors encourage discretionary blending, or additional blending of biodiesel above what is required by federal biofuels mandates.
