Prospects for soybean oil in US biofuels sector far from certain

Since the U.S. Environmental Protection Agency (EPA) proposed much higher-than-expected Renewable Fuel Standard (RFS) volumes for biomass diesel on June 13, the markets and industry have found uncertainty surrounding the issue.
Following the long-awaited announcement, Chicago soybean oil futures jumped 17% in two days, but the market has since retreated, with the August contract down nearly 6% from its June 16 high.
“The market is going to buy the rumors and sell the facts because it’s still a proposal,” said Erin Nasetta, director of food and agriculture research at Broadview Capital Holdings, highlighting the fact that a final decision won’t be ratified until November.
“We’re very far from certain. There are a lot of proposals out there right now with a long list of items they are asking the market to comment on, which means the government could adjust the numbers before the end of October, so we are a long way from knowing what that will look like, and I think we will have many months between now and November where different ideas will float around, which will cause uncertainty and volatility in the markets.”
Additionally, the continued lack of guidance on small refinery exemptions (SREs) and clarification on what falls under the 45Z Clean Fuel Production Credit, a bill that regulates funding for biodiesel production, continues to add to the uncertainty. There is currently a record backlog of SRE petitions, which the agency has said will be reviewed at a later date. The comment period on the RFS proposal ends July 8.
The 45Z tax credit, which was previously approved by the House to prevent tax revenues from funding the use of imported feedstock, continues to be evaluated in the Senate. But the EPA issued its own recommendation for the first time regarding foreign feedstocks, saying that foreign biofuels and feedstocks would only be given a 50% cost subsidy.
The situation could reignite the debate over the balance of soybean use in food and fuel, or at least help push up prices in both sectors, especially given that the USDA is projecting the U.S. soybean oil ending stocks-to-use ratio to be 5%, the lowest ever, and that U.S. producers have reduced the number of acres planted to soybeans this year.
However, the fog of uncertainty, coupled with concerns about export demand being decimated by recent geopolitical events, appears to be outweighing these optimistic factors.
Earlier, the U.S. Department of Agriculture (USDA) in its new report lowered its estimate for soybean use in biofuel production in the 2024/25 season, but raised it by 6% for the 2025/26 season.
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