The 2026 US biodiesel policy has transitioned from a phase of speculative trading into a stage requiring tangible implementation. The final Set 2 rule has substantially increased the Biomass-Based Diesel (BBD) Renewable Volume Obligation (RVO) and reallocated some obligations from Small Refinery Exemptions (SREs) to the 2026-2027 period. This necessitates a significant acceleration in the generation of D4 Renewable Identification Numbers (RINs) and the production of BBD. Concurrently, declining crude oil prices are compressing the commercial blending margins for palm oil-based biodiesel in Southeast Asia. In contrast, US biodiesel demand remains underpinned by mandatory obligations, leading to a divergence between global commercial demand cooling and expanding US policy-driven demand.
Current profit margins are conducive to expanding US biodiesel production. Based on calculations incorporating D4 RINs prices, the BOHO spread, and the 45Z tax credit, the current comprehensive profit for US soybean oil-based biodiesel is approximately $2.03 to $2.08 per gallon (as of June 23). The elevated RINs price has already offset soybean oil's cost disadvantage relative to petroleum diesel, with the 45Z credit further enhancing production returns. The current challenge lies not merely in whether companies have production profits, but in the sustainability of those profits, and whether capacity utilization and feedstock supply can support the generation of D4 RINs to meet the escalating RVO requirements.
A high RVO does not directly translate into a proportional increase in US soybean oil demand. The feedstock mix for US biodiesel has been diversifying in recent years, with rising shares of canola oil, used cooking oil, and animal fats. High US vegetable oil prices and policy-driven profits are also likely to attract imported feedstocks. Simultaneously, the increasing value of soybean oil is improving soybean crushing margins, incentivizing US crushers to maintain high operational rates. This expanded crushing activity, in turn, generates additional domestic soybean oil supply. The diversion to imported feedstocks and the expansion of domestic crushing could disrupt a linear transmission of RVO mandates into US soybean oil demand. However, the current 45Z incentive policy is expected to maintain soybean oil's share in the feedstock mix around 40%. Using a RINs coefficient of approximately 1.64 for conversion, the implied vegetable oil feedstock demand for 2026 is close to 19.69 million metric tons, an increase of 4.77 million tons year-on-year. Furthermore, the current super-normal crushing margins for US soybeans, driven by biodiesel demand, are poised to test the upper limits of US soybean crushing capacity.
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