High cost of technology is seen as the primary barrier to full commercialization of cellulosic biofuels. There is broad expectation that once conversion technology breakthroughs occur, policy support is only needed to accelerate cost reductions through “learning by doing” effects. In this study, we show that droughts pose a significant economic risk to biofuel producers and consumers regardless of the rate at which technology costs fall. We model a future switchgrass derived cellulosic biorefinery industry in Kansas based on spatially resolute historic (1996–2005) weather data, representing a rainfall regime that could reflect drought events predicted to occur throughout the U.S. Midwest by climatologists (Karl et al. (2009) U.S. Global Change Research Program USA). We find that droughts reduced modeled biorefinery capacity factors, on average, by 47%, raising biofuel production costs by 35% between a modeled dry and wet year. Interestingly, we find that two logical strategies to plan for drought; (1) building large biorefineries to source feedstock from a larger area and, (2) Storing switchgrass in good production years for use in drought years; are not very effective in reducing drought risks. Our findings should be of particular concern to low carbon fuel policies like California's Low Carbon Fuel Standard and the U.S. Second Renewable Fuel Standards (RFS2) whose costs of compliance may be much higher than expected.