Margins Buckle Under Vegoil Strength as Gasoil Curve Flashes Warning

Biodiesel margins tightened further today as vegetable oils continued climbing across all major regions. Soybean oil, rapeseed oil, and palm-based feedstocks all moved higher, while front-month gasoil again failed to follow. The widening disconnect between rising feedstock costs and stagnant distillate prices pushed biodiesel economics deeper into strain, with ARAG margins reflecting some of the weakest producer conditions seen in recent weeks.

The soy complex set the tone early. U.S. export inspections for soybeans remained sharply below seasonal norms, confirming persistent demand softness, yet soybean oil rose again as domestic crushing maintained exceptional momentum. NOPA’s October crush hit a record 227.6 million bushels (+14% year-on-year), lifting soy oil stocks to 1.305 billion pounds (+21.5% year-on-year).

Despite the larger stock position, forward values firmed: the ZLZ/ZLN spread tightened to –1.40, a notable narrowing of the carry that reflects refiners’ ongoing demand and rising feedstock replacement costs. This combination pushed BOGO sharply higher—up 5% today to +377 for December and +416 for January—as bean oil decisively outperformed gasoil. With BOHO still deeply negative, U.S. biodiesel producers remain under significant pressure.

Vegoil strength fed directly into ARAG economics. Dutch-origin soybean oil traded around €1,100/t (≈$1,280/t), reducing the FAME 0 gross margin to only $57–59/t, essentially below break-even once methanol, catalyst, and energy are included. RME margins held near $213/t with rapeseed oil at €1,086/t, but remain tight by historical standards. UCOME continued to outperform: UCO ex-works ARA around $1,231/t against UCOME flat prices near $1,534/t produced gross margins of roughly $303/t, by far the strongest in the basket. Window indications reflected this pressure clearly—FAME traded around $1,336–1,337/t, RME near $1,475/t, and UCOME above $1,530/t—entirely driven by rising feedstocks rather than any underlying shift in biodiesel demand.

Energy markets added an important layer to today’s picture. While front-month gasoil continues to trade heavily, the forward curve tightened violently. The DEC/APR backwardation blew out to +76.50 today, its highest level of the year and a clear signal of tightening physical availability into Q1. In the immediate term, weak prompt gasoil continues to compress biodiesel margins, but the sharp backwardation suggests that gasoil may be on the verge of a move higher—potentially narrowing the extreme imbalance between feedstocks and energy. For now, the mismatch remains severe, but the curve is flashing a structural warning that traders are beginning to notice.

Vegetable oils remained firm across Asia as well. Malaysian Nov 1–15 exports fell sharply from early October, yet CPO held steady near 4,108 ringgit. The forward outlook remains supportive: Indonesia continues to face structural issues—reduced fertilizer usage, aging plantations, and land constraints—that point to lower exportable availability into 2026. POME stayed stubbornly above $1,150/t, offering no relief to waste-based producers. Even downstream indicators reflected feedstock stress: Singapore reported higher overall marine fuel sales in October, but bio-bunker volumes fell as shipowners retreated from B24 and B30 purchases when biodiesel blendstock costs surged relative to VLSFO.

Across all regions, the market delivered a consistent message: vegetable oils rose materially while gasoil once again lagged, leaving biodiesel economics deeply compressed. ARAG gross margins now stand near $57/t for FAME, $213/t for RME, and $303/t for UCOME. With BOGO accelerating and feedstocks showing no signs of easing, the margin squeeze is intensifying—and unless gasoil begins to move higher, the pressure on producers is set to deepen into year-end.