Biodiesel Window Ignites: RME Rally, POGO Bubble, and China’s Coverage Cliff

Sorry about delay today, caught COVID.

Europe’s biodiesel trading window reopened with a surge of activity this Tuesday following the UK holiday. The spotlight was firmly on RME, where NWE gross margins reached an impressive $173/mt, compared with $72/mt for F0 and a remarkable $256/mt for UCOME. The UCOME/F0 spread at +135 remains attractive, and unsurprisingly the bulk of the day’s trades were centered on selling RME.

In the U.S., the EPA’s sweeping decision to grant 63 full and 77 partial SREs has rattled the market. As Scott Irwin highlighted, the move effectively reintroduces “zombie RINs” into the system, raising the risk of dilution in future compliance years. For now, the immediate effect was a drop in D4 RINs to $1.14, while the screen biodiesel crush remains deeply negative at –44¢/gal. U.S. producers are still under pressure, while Europe continues to enjoy record profitability.

On the vegoil side, BOGO is holding firm at +502 for October, while POGO has surged nearly $100/mt in the last month to approach +400. The speed of this move has left many scratching their heads, with chart-watchers pointing to an unfilled gap closer to +200 that suggests correction risk ahead. Meanwhile, Malaysian palm oil futures came under pressure from a stronger ringgit and rising stocks, further highlighting the divergence between fundamentals and speculative moves.

POGO

Adding another layer of complexity, China’s soybean coverage shows a cliff ahead. Crushers are fully covered through October (100–105%), but coverage collapses to 6% in November, 1% in December, and virtually zero into early 2025. That leaves a staggering 44 million tons still uncovered. For now, China is continuing to buy from Brazil rather than switching to U.S. beans, underscoring weak new-crop demand for American soy. This is a looming bearish weight for soybean oil, even if technical charts in Chicago remain broadly constructive.

Chinese Crushers Soybean Coverage

In the broader energy complex, ICE gasoil charts look bearish, but refiners are capturing record incentives as the screen heat crack pushed to new highs at $32.64/bbl. Strong refining margins ensure diesel supply keeps flowing, a factor that could eventually pressure biodiesel values if spreads narrow.

Trader Takeaways

• Europe: Lock in today’s outsized RME and UCOME margins. The UCOME/F0 spread remains compelling, but these levels rarely last—hedging forward makes sense.

• U.S.: Be cautious on RIN exposure. With D4s at $1.14 and SRE fallout unresolved, optionality is safer than outright shorts. Policy risk is high.

• Spreads: POGO at +400 looks stretched; correction risk is real. Reduce long exposure or hedge into strength.

• China: Coverage cliff from November onward is bearish for U.S. beans and soy oil. Expect pressure unless China pivots to U.S. supply.

• Energy: Heat cracks incentivize refiners to keep diesel output strong, meaning biofuel premiums may face resistance downstream.

In short: Sell into strength in Europe, hedge U.S. RIN risk, and beware of a POGO correction while watching China’s uncovered soybean demand as the key swing factor into Q4.