Biofuels Market Update: Trump Administration Sparks BOGO Rally with Industry Reconciliation Plan

The biofuels market experienced a dramatic shift today as the Bean Oil-Gas Oil spread (BOGO) surged 14% to reach +302, primarily driven by soybean oil rallying a full standard deviation. This significant movement can be directly attributed to President Trump's announcement directing the biofuels industry to engage in discussions with oil and gas representatives to develop a new biofuel policy framework. According to Reuters, these talks have already produced two bilateral meetings, with representatives discussing critical issues including future mandated biofuel blending volumes, small refiner exemptions, and tax policy considerations. The ongoing discussions reflect a pragmatic recognition that "the RFS is here to stay," as articulated by API's vice president of downstream policy.

Despite the apparent collaboration, industry observers have likened these discussions to "asking the fox to sit with the chickens," given the historically adversarial relationship between these sectors. The situation is complicated by Renewable Volume Obligations (RVOs) set approximately 2 billion gallons below industry expectations, creating significant market tension. One promising development from the meetings is a preliminary agreement to request the EPA raise renewable diesel and biodiesel mandates from the current 3.35 billion gallons to between 4.75-5.5 billion gallons, acknowledging the substantial gap between current requirements and actual production capacity. Such a request by the biofuels industry is in addition to the existing SRE issues being presented to SCOTUS and also the nesting aspects of RVOs that make it difficult to change one category without having an effect on others. Additionally, the oil & gas industry is currently operating under record screen crack margin with 3:2:1 crack at 24.96/brl. Many in the oil industry prefer to understand that biofuels costs are not included in the crack and actually add significant additional costs.

The European biofuels market presents a stark contrast to the volatile US conditions, with notably subdued trading activity in the FAME 0°C (F0) spot barge market. The lack of trades today continues a pattern seen over the past ten trading sessions, where F0 has traded only during four trading sessions for a total of 11kt, while RME and UCOME have seen relatively more robust activity at 35kt and 17kt respectively. Most F0 spot deliveries are scheduled for after Easter holidays, contributing to this exceptionally quiet period in the market where summer grades should be in demand. European producers, meanwhile, appear set to benefit from continued protectionist measures, with the EU expected to extend the anti-subsidy duties on biodiesel imports from Argentina for another five years.

Feedstock markets continue to evolve in response to both market fundamentals and policy interventions. Indonesia's Ministry of Industry has proposed a six-month moratorium on coconut exports due to domestic scarcity and price increases of up to 50% in recent months. This proposal mirrors earlier restrictions on UCO and POME exports and includes plans to impose export levies on whole coconuts and derivative products. This suggests potential future pressure on lauric oils used in some biofuel applications.

The biofuels industry stands at a critical juncture as policy frameworks evolve across major markets. In the US, the upcoming negotiations between traditionally competing industries represent an unprecedented attempt at collaborative policymaking that could reshape the renewable fuels landscape. There is clearly a choice to be made here to return to BTC (40B) or go ahead with IRA complexities under the 45Z rule. My feeling is that this will not get resolved before summer and may drag into September. While significant challenges remain in reconciling diverse interests, today's BOGO rally demonstrates how sensitively the market responds to policy signals. Despite all the noise, D4 RINs rose higher to 88.5 c/gal, while the negative biodiesel crush margin for producers widened to negative 24 cents/gal. As the industry awaits concrete outcomes from these discussions, volatility is likely to persist, with feedstock prices remaining particularly reactive to both policy developments and fundamental supply-demand factors in the near term.