Policy Optionality Dominates While Feedstocks Stay Abundant

Markets continue to price policy optionality while physical signals point to abundance. D4 RINs trade near 1.38 for December 2026. At that level, biodiesel economics improved sharply. The US biodiesel screen margin sits near minus 0.05 dollars per gallon before any 45Z value, versus margins near minus 0.40 dollars per gallon during late 2025. This shift explains why operating rates stabilized rather than falling further.

Options flow shows tight event timing. March soybean oil 55 calls traded solid volume (nearly 2000 contracts today) with only 25 days left to expiration, despite large open interest already in place. That positioning targets an imminent policy outcome. Further out, producers accumulated more May 60 to 65 calls with about 88 days left to expiration, pointing to expectations of a follow through move rather than a single day reaction.

Policy timing stayed central. Section 45Z cleared OMB on January 23, which typically precedes publication by days. Market discussion also focused on a possible POTUS appearance in Iowa tied to RFS messaging. At the same time, prediction markets price roughly a 78 percent probability of a US government shutdown by January 31. A shutdown would slow EPA and IRS activity, yet rules already cleared through OMB stay intact. The risk sits in delay measured in weeks, not in reversal.

Despite these signals, soybean oil spreads continue to price availability. The March July soybean oil spread traded near minus 0.88 cents per pound. At March flat prices near 54 cents per pound, that spread reflects time value and financing rather than scarcity. A market expecting immediate RVO driven tightening would compress this carry quickly. That compression did not occur.

Global supply explains the structure. Brazil is forecast to harvest about 178 million metric tons of soybeans in 25/26, up from about 172 million the prior season. The US crop stands near 116 million metric tons. Argentina produces about 48 to 50 million metric tons. China adds about 21 million metric tons. Combined output across these four producers approaches 360 million metric tons. At a 20 percent oil yield, this equals roughly 72 million metric tons of soy oil.

US soybean exports into Asia stay heavy on top of large Chinese port inventories. Each 100 million bushels of soybeans equals about 2.72 million metric tons of beans and about 544,000 metric tons of soy oil once crushed at a 20 percent yield. A large share of these exports are US origin beans. When crushed in China, the resulting soy oil retains US feedstock origin.

Under the Renewable Fuel Standard, foreign biodiesel and renewable diesel producers qualify to generate D4 RINs when they use qualifying US origin renewable biomass, even though they do not currently qualify for 45Z credits. With D4 RINs valued near 1.38, the US offers the strongest netback for these producers. That value equates to roughly 1.90 to 2.00 dollars per gallon of biodiesel, depending on equivalence value. Even after freight and compliance costs, the US clears incremental barrels more efficiently than other markets. This incentive drives overseas producers in Asia to target the US first when using US origin soy oil, adding effective compliance supply and keeping pressure on US soy oil curves.

Europe shows clearer physical stress. In the ARAG window, RME premiums traded near plus 688 dollars per metric ton with flat prices around 1369 dollars per metric ton. UCOME premiums traded higher near plus 741 dollars per metric ton with flat prices around 1421 dollars per metric ton. The RME FAME 0 spread narrowed to about 50 dollars per metric ton, down from levels above 150 earlier this winter. HVO class 2 traded near a flat price of 2448 dollars per metric ton, which still implies a premium of about 1027 dollars per metric ton versus UCOME. Improved

European weather reduced winter grade demand and weighed on RME relative to UCOME.

Across regions, the numbers align. RINs near 1.38, soybean oil carry near minus 0.88, global soybean output near 360 million metric tons, and continued European margin pressure all point to the same conclusion. Policy drives volatility and optionality, while feedstock availability and substitution keep physical markets heavy. Until spreads flatten and premiums tighten, this market trades policy risk layered on top of abundant global supply.