Markets Energized by Temporary US-China Tariff Ceasefire Amid Strong Soy Production

Soybean markets kicked off Monday positively, driven by robust global production and a favorable USDA report. Soybean disposals from the top six supplying countries surged 10% year-over-year in March-April, benefiting U.S. crushers due to South America's muted crushing recovery. Record South American crops, especially Brazil at 169 million tons and Argentina revised up to 50 million tons, bolster supplies significantly.

U.S. imports of used cooking oil (UCO) remain resilient, reaching 713,000 tons in the first quarter, a 23% increase from the previous year, highlighting steady feedstock demand despite trade uncertainties. The U.S. notably increased imports from Asian countries excluding China, alongside Australia and New Zealand, indicating a diversification of sourcing amid geopolitical tensions.

Over the weekend, optimism returned as the U.S. and China agreed on a 90-day pause in escalating tariffs after negotiations in Switzerland. Although tariffs remain elevated compared to early March levels, the temporary détente provides a welcomed relief and has buoyed market sentiment. ICE gasoil June contracts are trading near parity at $614.25/mt after May expired at $616/mt, illustrating modest delivery premiums.

Biodiesel markets, however, face headwinds from regulatory discussions around the U.S. 45Z clean fuel production credit. Proposed changes include extending credits through 2031, excluding indirect land use change (ILUC) emissions, limiting feedstocks to domestic sources, and ending credit transferability post-2027. Such revisions could significantly impact feedstock sourcing strategies and market dynamics.

Meanwhile, European biodiesel markets displayed mixed signals. ARAG barge markets were quiet, with FAME 0 (F0) settling slightly lower at $1272/mt and UCOME at $1398/mt, whereas RME experienced a notable drop of $28.50 to $1312/mt. This decline occurred despite rapeseed oil rallying to €1095/mt, narrowing the premium gap with soybean oil to just €5/mt for July contracts.

Finally, D4 RINs have weakened under regulatory uncertainty and market pressures, trading down to 1.137, exacerbating negative gross biodiesel crush margins, which fell to -41 cents per gallon. The interplay of regulatory discussions, robust feedstock availability, and shifting trade policies will keep markets volatile, warranting careful monitoring this week.