Biodiesel profitability and linkages to the soybean oil market

This thesis investigates the relationship between soybean oil and biodiesel markets in the US through a structural model and a time-series econometric model. A conceptual link is built based on the theories of market efficiencies and implications of a binding mandate on supply and demand. We hypothesize that a long run zero-profit relationship governs the biodiesel and soybean oil pricing relationships. We test for this using a structural model based on an Iowa biodiesel plant. We additionally use formal time series testing including Johansen Trace test and a vector error correction model and the Kejriwal and Perron test. We find that under certain policy conditions our hypothesis holds but not throughout the sample studied