Germany Delivers Clarity; the U.S. Tries to Catch Up

Europe enters a structurally tighter phase as Berlin prepares to approve the long-delayed RED III transposition, ending months of subdued engagement across physical and paper markets. The expected package — ending double-counting for advanced wastes as we predicted for last 6 months, maintaining the 2027 timetable for phasing out palm by-products, delaying non-EU audit requirements to 2027, excluding aviation and maritime from the obligation, and lifting the GHG reduction target to 16% — recalibrates the European renewable-fuel balance for 2026 and beyond. It removes distortions created by heavily discounted double-countable molecules, restores predictable demand for FAME and HVO, and realigns policy with blend economics. German fundamentals have been signaling this shift for weeks, with rapeseed oil steady in a narrow €1,065–€1,075/mt range, biodiesel incorporation near 7.3%, and no stress despite softer diesel use. The ARAG window finally reflected renewed depth, with RME and UCOME trading in the mid-$1,450s–$1,460s/mt and HVO class 2 and SAF sustaining levels above $2,200/mt and close to $2,400/mt. A firmer ICE gasoil curve into expiry — Dec/Apr around +27.25 as shorts were forced to cover — lifts the energy floor under biodiesel values. Europe is now the only region presenting a fully coherent alignment between legislation, physical markets and diesel structure.

In the Americas the narrative remains disjointed. The U.S. enters 2026 with fundamentally strong demand from renewable diesel and SAF, but without established compliance parameters. The 2026–2027 RVO framework remains unfinished, D4 RIN liquidity is sparse, and producers lack regulatory visibility. A federal appeals court has now ordered EPA to provide, within seven days, a formal update on the status and timeline of the 2026 RVO — a clear sign that the prolonged delay is drawing institutional pressure — yet the rule itself is still months from finality. At the same time, lawmakers are attempting to rebuild the long-term policy foundation under aviation fuels: the new SAF legislation would reinstate the separate SAF calculation track under 45Z, restore the $1.75/gal premium for qualifying SAF, extend the entire credit through 2033, and explicitly exclude PFAD and petroleum-derived pathways. These features materially strengthen long-term SAF economics, expand the structural pull for compliant feedstocks such as soybean oil, tallow, UCO and DCO, and signal Washington’s intent to re-establish SAF as the leading growth segment of the U.S. clean-fuels system. But until regulation and fiscal signals converge, the biodiesel complex in the U.S. remains caught between strong forward fundamentals and near-term policy uncertainty.

The export situation adds another layer of complexity. U.S. soybean inspections look weak on paper, but this is a timing mismatch more than a demand issue. China has booked a significant number of U.S. cargoes in recent weeks, yet these sales have not fully appeared in inspection data. The forward pull is present, but the physical execution lags. As those vessels begin loading, the book will rebalance. Until then, domestic crush and biofuel demand must absorb the slack even as producers navigate rising input costs and unsettled regulatory conditions.

South America, meanwhile, is undergoing the most aggressive repricing cycle — and this is driven almost entirely by China’s procurement shift. With China temporarily prioritizing U.S. origin for political and logistical reasons, Brazilian supply has moved from core to marginal status in the near-term window. Crushers preparing for a large new crop face weak domestic meal margins and reduced export opportunities for oil just as China focuses on rotating internal reserves. Because crushers cannot slow production and meal demand is insufficient to absorb incoming volume, the clearing pressure shifts entirely onto soyoil. Paranaguá new-crop soyoil bids have collapsed to –620 for Apr/May, with later periods similarly discounted. This is not simply a surplus signal — it is the price necessary to push unwanted Brazilian oil into alternative destinations such as India, MENA and Europe. Brazil is now clearing oil at whatever discount finds a home, and these weaker soyoil premiums will persist until China’s reserve rotation completes and Brazilian origin returns to its normal share of exports or Brazil increases its Biodiesel blending ratio significantly.

Asia rounds out the global picture with a distinctly softer tone across both distillates and edible oils. Diesel markets continue to ease as more January barrels surface, cash differentials on 10 ppm material retreat from recent highs, refining margins soften, and the east-west spread widens into a deeper discount. This contrasts sharply with Europe’s current strengthening diesel timespreads and underscores how regionally fragmented the distillate balance has become. Palm oil remains heavy as Malaysian stocks rise to multi-year highs, keeping nearby futures just above the mid-$900s/mt equivalent with no sustained bid. Dalian vegoil and Chicago bean oil reflect the same supply-heavy tone. Asia, in short, is not where the tightness lies — it is the ballast preventing vegoils from following the upward pull of Europe’s diesel structure.

The result is a biofuel market shaped not by a single global force but by regional contradictions. Europe tightens decisively under new rules and stronger diesel structure for the moment; the U.S. tries to catch up through judicial pressure and renewed SAF incentives; South America cheapens aggressively as China temporarily rebalances toward U.S. origin; and Asia remains well supplied in both diesel and vegoils. Price discovery is now defined by the friction between these regional curves. Europe is moving toward scarcity by tightening rules, South America is pricing surplus, and the U.S. sits between them as an island with solid forward fundamentals but no finalized framework. The next major move will come when one of these policy or supply signals breaks and forces the others to realign.