19.11.2019 (S&P Global) -  Houston — The BO-HO factor, an indicator describing the relationship between feedstock soybean oil and blendstock heating oil pricing used by the biodiesel industry to gauge costs and margins, finished Tuesday's session at a 20-month high.

The factor rose 5.88 cents day on day to 42.44 cents/gal, marking its highest finish since March 19, 2018, when it finished at 45.58 cents/gal.

The NYMEX ultra low sulfur diesel contract settled at $1.8574/gal, down 4.73 cents day on day, on rising pessimism surrounding prospects for a US-China trade deal.

Earlier in the week, anonymous Chinese government sources said that US's unwillingness to roll back tariffs was putting a possible trade deal in jeopardy. On Tuesday, US President Donald Trump said in a cabinet meeting that in the event a deal is not made, tariffs would be raised, fueling bearish sentiment in ULSD pricing.

The rise in the BO-HO factor comes despite soybean oil prices trimming their recent gains seen during a surge in palm oil pricing, stemming from expectations of increased demand for use in biodiesel and slowing palm oil production in Asia.

The rise in palm oil pricing is bullish for soybean oil prices. Soybean oil is the major feedstock for biodiesel production in the US.

Feedstock soybean oil futures rose 0.32 cent day on day to 30.96 cents/lb, below the 19-month high of 32.34 cents/lb reached April 3, 2018.

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.

-- Jordan Young, jordan.young@spglobal.com

-- Edited by Pankti Mehta, newsdesk@spglobal.com