US biodiesel industry walloped in 2021 with potential aggregate loss of nearly $1 billion

According to a new analysis by Scott Irwin at University of Illinois, last year was devastating for U.S. biodiesel producers. Based on several modeling assumptions, an “average” 30-million-gallon-per-year biodiesel plant lost 61 cents per gallon (cpg) or more than $18 million last year, according to Irwin’s analysis in a recent farmdoc daily post by the University of Illinois. That loss means a return to equity of -77.5 percent, according to Irwin.

“Not only was this the third consecutive year of negative annual profits, but the 2021 loss equaled 40 percent of all of the profits earned by the representative plant in previous years,” he writes. “With the addition of 2021 losses, the total cumulative (pre-tax) return to equity holders for the 2007-’21 period stands at only $12.2 million, $11.4 million less than the assumed original equity investment for the plant of $23.6 million. We can also use the average net loss for the representative plant to make a rough estimate of the loss for the entire U.S. biodiesel industry in 2021. Assuming all plants in the industry earned a net profit of -61 cpg and total biodiesel production for the U.S. in 2021 was 1.618 billion gallons, this implies aggregate industry losses of -$987 million.”

The main reason for the devastating losses was skyrocketing soybean oil prices that outpaced biodiesel prices. “All signs point to a policy-driven boom in renewable diesel production as the underlying culprit behind the surging soybean oil prices, and hence, the losses for biodiesel producers,” Irwin concludes. “It is clear that the recent level of losses is unsustainable. In fact, it is not clear why biodiesel production held up as well as it has during 2021. One possibility is that biodiesel producers had a source of revenue we did not account for in the analysis, such as COVID relief funds. The other possibility is that the industry grimly hung on through 2021 in the face of the onslaught from renewable diesel production and it is only a matter of time before more biodiesel plants are forced to shut down.”

For Irwin’s full in-depth analysis, click here.