US BO-HO factor hits fresh two-year high on feedstock strength

Houston — The US biodiesel BO-HO factor ended Friday at a two-year high as feedstock soybean oil resumed its climb while ULSD futures were modestly lower.

The factor climbed 2.44 cents day on day to 59.87 cents/gal, its highest level since November 16, 2017.

Feedstock CBOT soybean oil futures rose 0.32 cent/lb day on day to 33.35 cents/lb, while front-month NYMEX ULSD futures slid 0.08 cent to $1.8592/gal.

The poor blending economics seen over the past several months have hampered trading interest, despite the reinstatement of the $1/gal blender's tax credit.

The first quarter of the year sees the seasonal low for demand, cutting further into producers' bottom lines.

S&P Global Platts assessed Gulf Coast biodiesel's premium over ULSD futures at 75 cents/gal Friday for 100% biodiesel, with producers saying they would not be able to lower offers any further.

The BO-HO is an indicator describing the relationship between feedstock soybean oil and blendstock heating oil pricing used by the biodiesel industry to gauge costs and margins. A higher BO-HO factor signals higher biodiesel production costs and less favorable blending economics.

The BO-HO 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.

Higher BO-HO factors discourage discretionary blending, or additional blending of biodiesel above what is required by federal biofuels mandates.