BOPO Risks a Repeat Downturn as Soybean Oil Crumbles

Soybean oil’s deteriorating position continues to weigh on BOPO, though a repeat of Q4 2024’s collapse to –200 versus palm oil does look likely at this time. Palm itself is under heavy pressure, with export demand slowing more quickly than domestic consumption can absorb with increasing soft oil competition. Still, a slide towards less than –200 by December is now a real risk unless soybean oil finds a buyer of last resort. The U.S. export picture remains dire, with trade flows to China non-existent and record carries forcing beans either into storage — if space is available — or into the hands of crushers. Nearby bean spreads are already deeply discounted (Nov/Jul is –60 c/bushels), while U.S. soy crush margins are collapsing, leading crushers to wait for basis to give way. The impact is already felt in RINs today, with D4s falling to 0.971 $/gal and Dec-26 at 1.02.

Dec Soybean Crush Margins

On the fuel side, gasoil and diesel remain supportive, though both eased from record crack margins and backwardation levels. Even so, biodiesel screen crush improved slightly, now at –40 c/gal. In Europe, ARAG window activity was concentrated in physical RME, with trades reported around $1,453 FOB. No physical UCOME changed hands, but it was marked at +52/mt over RME, a clear disconnect from the +30/mt area where UCOME had been trading over the past two weeks. Paper activity remained separate, with liquidity focused further down the curve. The bigger headline was political: the European Commission announced it will appeal the WTO ruling against its palm oil countervailing duties, sending the case to an appellate process that is not even functional.

Palm oil fundamentals remain conflicted. Indonesia’s domestic biodiesel mandate already absorbs nearly half of its total crude palm oil production — 23.8 million tonnes in 2024 — while production slipped to 52.7 million tonnes. With exports slowing and external buyers turning to cheaper soy and sunflower oil, the likelihood of Jakarta pushing ahead with B50 in 2026 is rising, not falling. What began as a staged program may now accelerate as a way to soak up surplus and stabilize grower incomes. If B50 is enforced on time, domestic consumption could climb to 28 million tonnes, further reducing exports and leaving global balances even tighter.

Meanwhile, Malaysia is maneuvering hard to secure preferential access to the U.S. market. Washington currently imposes a 19% tariff on Indonesian palm oil as part of a reciprocal trade arrangement, though Jakarta has claimed exemptions are under discussion. Malaysia, however, is pressing for an outright exemption, aiming to undercut Indonesia by arguing that U.S. buyers should receive zero-tariff treatment on commodities not produced domestically. Kuala Lumpur has bundled palm oil alongside cocoa, furniture, automotive parts, and aerospace components in its request. If successful, Malaysia could leapfrog Indonesia in the U.S. market just as its neighbor wrestles with WTO disputes over EU countervailing duties.

At the same time, Canadian crushers are increasingly vocal about the underutilization of their canola crop for biofuel. In 2024, canola oil accounted for just 21% of biodiesel and 24% of renewable diesel consumed in Canada, while nearly two-thirds of renewable diesel was supplied by tallow and UCO. The imbalance has raised concerns that Canada is failing to leverage its own crop at a time when EU rapeseed balances are tight and Asian mandates are absorbing more palm. More troubling still, Canadian canola faces policy headwinds south of the border. Under EPA’s “Set II” rule, biofuels produced from imported feedstocks could generate only 50% RINs, putting Canadian oil at a structural disadvantage. At the same time, eligibility for the U.S. 45Z tax credit remains uncertain, as the credit prioritizes domestic feedstocks and may exclude or restrict Canadian flows. That effectively leaves Canada with one outlet: exports to Europe, where rapeseed deficits and anti-palm sentiment create a natural opening for canola to fill the gap.

The tug of war between collapsing soybean oil margins, increasingly domesticated palm oil demand to support palm prices, and Canadian canola forced toward Europe will define the balance into year-end. Without fresh U.S. export outlets or policy relief, the pressure on BOPO remains squarely downward, with -200 the likely target by December.

BOPO