Carry rebuilds in soyoil as biodiesel timing pulls production forward

Markets closed the week with structure doing more work than flat price. Early volatility gave way to selective positioning, with spreads, carry, and compliance instruments providing clearer signals than outright rallies. Across regions, price action reflects timing and regulatory optionality rather than physical scarcity.

United States pricing continues to hinge on March RVO expectations. D4 RINs finished the week firm, with Dec 26 settling around 1.285. That level held despite intraday swings and supports near term biodiesel production, but it does not repair margins outright. Biodiesel screen crush margins improved to roughly minus 0.26 cents per gallon from levels closer to minus 0.40 earlier in January. Margins remain negative and do not support aggressive run rate expansion without confirmed mandates.

The forward curve carries the more important signal. Biodiesel margins deteriorate further out, implying higher feedstock costs once RVOs are finalized. That outcome is already priced. Producers are incentivized to make barrels now rather than later, while forward economics discourage delaying production.

Soybean oil structure weakened sharply. The Mar Jul spread widened to minus 0.86, a 13 percent move on the day. At the same time, Jul Dec backwardation narrowed to plus 0.77, a roughly 10 percent compression. This rebuilds front end carry while removing scarcity further out the curve. The structure points to fading demand confidence beyond nearby months.

The futures rally failed to transmit into the physical export market. Paranaguá FOB premiums for Apr May weakened to around minus 650. That represents roughly 3 cents per pound of premium erosion for a 2 cent per pound rally in futures. Physical buyers stepped back rather than chased, reinforcing how fragile soyoil rallies remain when driven by policy headlines.

Soybean screen crush margins remain elevated. Front month margins sit near 1.59 dollars per bushel and rise toward 1.90 by September. These levels price in conditions inconsistent with demand uncertainty and rising oil stocks. The pullback seen late in the week fits that mismatch. The curve now offers close to a 20 dollar per metric ton incentive to delay crushing soybeans into late summer rather than executing prompt.

European markets showed activity without stress. ARAG window trading saw RME flat prices rise into the low 700s USD per metric ton, but premiums versus ICE gasoil did not widen and in some cases narrowed. The move was driven by flat price inertia from earlier gasoil strength rather than improving biodiesel economics. FAME0 and UCOME followed the same pattern, with stable to slightly higher flat prices and capped relative value.

HVO Class II dominated activity across both physical and paper markets. Physical window trades clustered around 1,395 to 1,420 over ICE Gasoil, and paper liquidity followed the same direction. This choice carried a clear cost. UCOME flat prices sat closer to the mid 800s to low 900s range, leaving HVO Class II several hundred dollars per metric ton higher on a waste based compliance comparison. The market paid that premium to preserve flexibility around German THG exposure, double counting uncertainty, and cross border compliance.

Germany’s THG surplus did not trigger the aggressive selloff many expected. Despite surplus expectations, RME, UCOME, and HVO flat prices held within recent ranges and premiums versus gasoil did not collapse. The response suggests the surplus is already discounted or expected to be managed through banking, delayed monetization, or cross border flows. Concentrated activity in HVO Class II reinforces that interpretation.

Asia remains weighed down by palm oil fundamentals. Indonesia continues to raise regulatory pressure through levies and enforcement actions, with fines totalling roughly Rp4.76 trillion ($300Mil) already paid by 41 palm oil companies and additional potential penalties cited. These measures add friction but do not address elevated stock levels. Malaysia moved in the opposite direction by lowering export taxes to help clear inventory. That divergence caps palm oil upside and limits spillover support to other vegoils.

China related signals stayed muted. Discussions around easing tariffs on Canadian canola toward 15 percent by early March would reintroduce supply into the Chinese market. That prospect weighs on forward rapeseed and soy oil values and limits upside later in the year.

Energy markets provided limited support. ICE gasoil held near the low 640s after earlier moves toward the mid 650s. Near term structure remains supportive, but backwardation continues to erode further out, reducing tailwinds for biodiesel margins.

U.S. markets are closed on Monday January 19 for Martin Luther King Jr. Day, which may dampen liquidity and exaggerate price moves early next week.

The common thread across regions is timing. Stronger RINs support near term production but rebuild carry by lifting forward feedstock expectations. Physical markets resist futures led rallies. Crushers are paid to wait. Producers are paid to make barrels now. Until regulatory outcomes are fixed, spreads and curve structure remain the most reliable signals.