The policy disconnect: why a summer of US biofuel exemption uncertainty barely moved physical UCO prices

Fastmarkets09-24

For most of August, the US biofuel market was gripped by a single question: how many small refineries would the Environmental Protection Agency (EPA) let off the hook from blending renewable fuel into...

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Plus, would any of those lost gallons come back?   \nThe uncertainty sent Renewable Identification Number (RIN) values – the credits that underpin biofuel economics – swinging by double-digit percentages some days. Yet on the physical side of the market, US Gulf used cooking oil (UCO) moved comparatively little. And as renewable diesel production economics strengthened into September, physical feedstock prices still failed to follow. That gap between a chaotic paper market and a calm physical one is the story of the US UCO market this summer and it is still not fully closed.  \nA summer of policy whiplash  \nThe trouble started on Friday August 21, when the EPA said it intended to rule on all outstanding 2025 small refinery exemption (SRE) requests by the end of the month. Almost immediately, analysts began circulating estimates that the total exemptions could come in far larger than the EPA had planned for – potentially 1.8 billion RINs’ worth, against the roughly 990 million RINs the agency had projected. Bigger exemptions would reduce renewable fuel obligations and therefore demand for RINs, so traders sold hard. \nRIN prices swung significantly through the week that followed – tumbling to a two-week low by midweek, then rebounding to close the following Friday about 3% higher than where the whole episode started, despite having traded more than 16% below that same level just two days earlier.  \n\nPhysical UCO barely reacted. Over the same stretch, UCO delivered into the US Gulf slipped from 78-80 cents per lb on the Monday to 77-78 cents on Tuesday, then to 75 cents by Thursday. Averaged across the whole week, Gulf UCO was down just 2.78%, to 76.80 cents per lb. Tallow, a related feedstock, barely moved at all – Gulf values were unchanged, and Chicago tallow actually rose slightly.  \nTrading itself was thin. With so much uncertainty in the air, buyers and sellers on the physical side mostly sat on their hands, waiting to see what Washington would decide before committing to new positions.  \nThe EPA rules, but doesn’t settle everything  \nOn August 31, the EPA finally granted 1.76 billion RINs of exemptions for the 2025 compliance year – close to the higher end of what the market had feared. But it paired that with a concession: it said it would propose reallocating 100% of the difference between projected and actual 2025 exempted volumes into the 2026 and 2027 renewable volume obligations (RVOs), potentially restoring biofuel demand that otherwise would have been lost through the larger-than-expected exemptions. RIN values jumped to around 236 cents on the news.  \nThat was progress, but not resolution. What remained unclear and still matters most for fats and oils demand, was how that additional reallocated volume would be split between 2026 and 2027, and how much of it would fall into the category that actually drives biodiesel and renewable diesel feedstock buying, rather than the broader category that can be satisfied with ordinary ethanol instead.   \nAs one market participant put it, they did not think the 100% reallocation figure, or the 2026-versus-2027 split, was fully decided, and expected “more horse trading to do.”  \nThe gap persists into September  \nA day after the EPA’s decision, on September 1, the market was still working out what it meant. RIN values eased slightly to 229.25 cents, but remained close to 15% above where they had been a week earlier. Soybean oil and diesel futures both jumped, and the overall renewable fuel backdrop looked increasingly favorable for producers.  \nPhysical UCO, again, did not follow. Gulf UCO was bid only a shade higher, at 76 cents per lb for October delivery. One trader said offers had crept back up toward mid-August levels, but bids were still hard to find given ongoing logistics problems. Buyers were largely well covered for September already, with little urgency to chase new material. Conditions in the Midwest FOB market, where Choice white grease and yellow grease both eased further, were described by one participant as simply “sloppy.”  \nThe disconnect was also becoming broader than UCO alone. Weakness extended into several animal fats and grease markets, suggesting that near-term physical fundamentals were outweighing the signals coming from the renewable fuel complex.\n\nBy September 15, the disconnect was still visible. RIN values had eased again, down 5.4% from the week before, even as diesel futures rallied and renewable diesel margins improved sharply. Physical animal fats and UCO stayed under pressure regardless. Fastmarkets’ reporting pointed to a combination of factors: August turnarounds and heavy imports had left many buyers well covered, while Gulf operational and logistics constraints, including slow-returning railcars and extended turnaround times, contributed to material backing up and limited plants’ ability to absorb additional prompt supply. \nSome participants expected those constraints to persist through September and into October, with inventories needing to be worked down before backed-up material could fully clear. \nBy this point, the disconnect had become increasingly difficult to reconcile with the economics on paper. Stronger renewable diesel margins suggested producers should have greater incentive to secure feedstock, yet that incentive was still not translating into aggressive prompt physical buying. \nOutlook: What to watch next  \nTwo things will decide whether this gap between paper and physical markets closes before year-end. First, EPA still needs to propose how the difference between projected and actual 2025 exempted volumes will be reallocated between 2026 and 2027, and more importantly for feedstock buyers, how much of that volume falls into the biomass-based diesel and advanced biofuel categories most directly tied to biodiesel and renewable diesel production versus the broader one that ethanol alone can satisfy. That proposal is expected before the end of October.  \nSecond, the physical constraints weighing on prompt Gulf demand need to ease before stronger renewable diesel economics are likely to translate into renewed feedstock buying. \nAt the same time, the market is moving into the heavier fall livestock slaughter season, potentially adding domestic animal-fat supply before demand has fully recovered. Cattle slaughter remains below year-earlier levels, while hog processing is expected to increase seasonally into the fourth quarter. \nTaken together, the market remains caught between increasingly supportive renewable fuel economics and near-term physical fundamentals that have yet to respond. Whether that gap closes will depend on how quickly those physical pressures ease heading into the fourth quarter.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":false,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"isVideo":false,"video":null,"symbols":[],"gpt_button":0,"need_auth":false,"need_login_tip":false,"code":"91000000","status":"200"},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"isLaohu8Offline":false,"tenantId":"TBGLOBAL","deviceId":"web-server-community-laohu8-v3","version":"4.50.1","shortVersion":"4.50.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2669469746","isCrawlerRequest":true}