EU commission introduces ILUC trade barriers as Crush Margins in US Spike

Palm prices continued to firm in outright dollar terms, with soybean oil again leading the vegoil complex. BOPO has moved above +150. BOGO paused at +537, but the forward curve remains steep, with July values indicated near +589, confirming that the market continues to price feedstock tightness beyond the nearby.

Soyoil structure reinforces this message. The Mar Jul carry has narrowed to -0.72 from -0.90. Nearby pressure has eased marginally, but deferred pricing remains elevated, signaling that the market is not comfortable with second half supply. The soybean crush curve is the dominant signal. Crush margins above 200 cents per bushel from September onward equate to roughly $73.49 per metric ton. This is an exceptional margin historically. At these levels, crushers are economically incentivised to defer throughput where operationally possible and load crushing into the final four months of the year. The curve rewards waiting rather than maximizing near term runs.

US vegoil pricing reflects this tone. The March CME soyoil contract settled at 54.60 cents per pound, up 2.04 percent on the day. In palm, the Bursa April CPO contract closed at 4,222 ringgit per tonne, about $1,075 per tonne. Indian benchmarks show the same relative strength. CFR West Coast India CPO spot was near $1,152.5 per tonne, while CFR West Coast India soybean oil spot printed near $1,240 per tonne, leaving soybean oil at an approximate $87.5 per tonne premium on that benchmark.

US compliance values remain supportive. D4 RINs for December 2026 traded near 1.405. This level continues to underpin forward biofuel economics and keeps soybean oil firmly positioned as the marginal feedstock in the US system.

Fuel markets are sending a different signal. Gasoil structure has eased. In Asia, backwardation softened further as inventories rebuilt and refinery maintenance approached. Refining margins slipped toward $20 per barrel. Cash differentials held around a 95 cent per barrel premium, but the directional signal is easing tightness, not escalation. Singapore middle distillate inventories increased to nearly 9 million barrels.

Gasoline (RBOB) remains the clearest warning. The curve has rolled into a deep contango, with March through April near -22 cents per gallon. This is a large structural move and implies excess prompt supply and weaker consumption expectations. Gasoline curves tend to react early to real demand shifts, and this structure points to economic cooling not yet reflected in headline macro data.

Overlaying the price action is a decisive regulatory split on ILUC. In Europe, the Commission has moved to classify soybeans as a high ILUC risk feedstock, placing soy alongside palm. Under the proposed delegated regulation, the contribution of high ILUC crop based fuels to RED compliance is phased down linearly to zero by 2030 based on 2019 consumption. The implied trajectory falls to 57.1 percent in 2026, 42.8 percent in 2027, 28.6 percent in 2028, 14.3 percent in 2029, and zero in 2030. Physical flows remain possible, but compliance value is being engineered out of the system.

EU feedstock data highlights the impact. In 2024, biodiesel and HVO feedstock was approximately 45 percent rapeseed oil, 21 percent UCO, 18 percent palm, 5 percent animal fats, 4 percent sunflower, and only 7 percent soybean oil, on total consumption near 15 million tonnes. The policy therefore directly targets a smaller share, but it sends a powerful forward signal by protecting rapeseed and waste premiums while structurally discounting crop oils.

UFOP has strongly opposed the move, pointing out that soybean oil accounts for only about 7 percent of EU biofuel feedstock while rapeseed accounts for 45 percent. UFOP argues that classifying soybeans rather than soybean oil ignores the role of soymeal in acreage expansion, undermines existing sustainability certification systems, and conflicts with the polluter pays principle.

The US is moving in the opposite direction on ILUC. Under proposed 45Z rules released on February 3, credits extend to fuels produced in the US through December 2029, and ILUC penalties are removed from carbon accounting. This lowers calculated CI scores for crop based biofuels such as soybean oil and expands eligibility for credits. Net effect, the EU is using ILUC to exclude crop based feedstocks from compliance, while the US is adjusting ILUC to allow more crop oil participation.

Looking ahead, the setup increasingly points to a US soyoil island forming, but pushed out in time. Regulatory mechanics are not eliminating the bullish case, they are shifting it down the curve. With crush margins above 200 cents per bushel, equal to $73.49 per metric ton, economics encourage delayed execution and concentrate bullishness into Q4 rather than the front. This timing aligns closely with the US political calendar, with mid term elections in November 2026, increasing the likelihood that policy clarity and support cluster toward year end.

At the same time, global fundamentals remain heavy. South American crops are large, and FOB Paranaguá soyoil differentials are softer again. March LH offers have moved from around -120 to -230 points, April FH from roughly -540 to -630, and May LH from about -660 to -740, confirming continued export pressure out of Brazil. This continues to drag on global vegoil flat price.

RINs remain the biggest distortion. With D4 RINs near 1.40, the cost burden for US obligated parties is significant. Politically this is problematic. Economically it is an incentive. Even with a 50 percent reduction applied to foreign generated RINs, the US remains the best netback market for biodiesel exports. At current RIN levels, foreign producers can discount heavily and still clear stronger margins shipping into the US than selling domestically or into Europe, where crop based compliance value is being phased out.

The implication is circular but important. High RINs attract imports. Imports cap domestic margins but sustain demand for feedstocks. Regulatory uncertainty delays crushing and pushes pricing strength down the curve. The result is continued softness nearby under global supply pressure, combined with a growing risk that the real squeeze arrives late in the year, when policy, politics, and deferred crush economics converge.