Soybean oil gains ground over canola oil in US biofuel market on tax advantages

Soybean oil is strengthening its position in the US biofuel market, supported by expanding crushing capacity and more favorable tax incentives, intensifying competition with canola oil. According to the US Energy Information Administration (EIA), soybean oil consumption in biofuel production continues to rise, while canola oil use remains relatively stable. CoBank lead economist Jacqui Fatka estimates that soybean oil has become the main beneficiary of growing demand for feedstocks used in biodiesel and renewable diesel production.

One of soybean oil’s main competitive advantages is more favorable government support under the US 45Z production tax credit program. Renewable diesel producers using soybean oil as feedstock can receive approximately $0.55 per gallon in tax credits, compared with around $0.20–0.22 per gallon for canola oil. This gives soybean oil a tax advantage of $0.33–0.35 per gallon. Its lower market price compared with canola oil provides an additional competitive benefit.

Soybean oil’s growing competitiveness is also supported by the rapid expansion of US soybean crushing capacity. Over the past five years, processing capacity has increased by 25%, with further investments underway. Louis Dreyfus Company plans to launch a new plant in Ohio capable of processing 1.5 mln tons of soybeans annually, while CHS is building a facility in Wisconsin that will process 2.18 mln tons per year once it opens in 2028. Increasing domestic soybean oil supplies are expected to intensify competition with imported canola oil.

Meanwhile, the United States is also expanding its own canola production and processing. American farmers planted around 3 mln acres of canola in 2026, while domestic canola oil production is forecast at 5.3 bln pounds, or approximately 2.4 mln tons, in the 2026/27 marketing year. Expanding domestic crushing capacity could reduce demand for imports from Canada, for which the US remains the largest export market for canola oil. A significant share of Canadian shipments traditionally serves the American biofuel industry.

Despite intensifying competition, the outlook for canola oil demand in the US remains relatively favorable. The US Environmental Protection Agency (EPA) has set biomass-based diesel volume requirements for 2026–2027 at 67% above the 2025 level, creating additional demand for vegetable oils and other feedstocks. Representatives of the Canadian Canola Growers Association note that canola oil demand has improved in recent months, while shipment volumes in 2026 could exceed last year’s levels. As a result, expansion of the US biofuel sector is expected to support consumption of both oils, although soybean oil will retain its competitive advantages.

Tags: biofuel, soybean oil, rapeseed oil