RFS creates Soyoil Island With Open Edges

EPA is advancing the 2026 and 2027 Renewable Volume Obligations at political speed. A working midpoint near 7.5 billion physical gallons of biomass based diesel for 2026 translates into roughly 28.4 million cubic meters. Applying a blended density of 0.835 metric tons per cubic meter, assuming an even split between renewable diesel and FAME biodiesel, yields approximately 23.7 million metric tons.

That is the scale. Nearly 24 million metric tons of BBD equivalent is not a compliance abstraction. It is a number that intersects directly with global vegetable oil trade flows. This does not mean it will be all Soyoil because 45z is in place and will affect feedstock choices by producers who optimize their incentives.

The RFS does create a form of soyoil island. Eligible renewable biomass for soybean oil must originate from qualifying agricultural land in the United States, Canada, or Mexico. The geographic restriction applies to where the feedstocks/soybeans are grown/made, not necessarily where they are crushed. US soybeans grown on qualifying land remain eligible renewable biomass even if exported and crushed abroad. If crushed and converted into biodiesel at an EPA registered foreign facility under an approved pathway with full chain of custody documentation, that fuel can generate D4 RINs when imported into the US.

So the island is defined by land origin, not strictly by processing geography.

At the same time, the island is not sealed. Soybean oil is also an edible and industrial commodity. If US soyoil prices were to spike excessively due to RFS driven demand, US edible users could import soybean oil from Brazil or Argentina for food, industrial, or exchange delivery purposes. Imported soyoil that does not qualify under RFS could still serve non RFS demand and displace domestic soyoil toward biofuel use.

In other words, the RFS pulls on North American origin biomass for RIN generation, but global soy oil remains fungible for non RFS consumption. If domestic soyoil diverges too far from global benchmarks, basis arbitrage opens through imports. Brazilian or Argentine soyoil could flow into the US to satisfy edible demand, indirectly freeing US origin soyoil for biofuel production. That mechanism acts as a cap on extreme price spikes.

SRE reallocation remains a critical tightening lever. If waived gallons are redistributed to non exempt refiners, effective compliance demand increases even without a higher printed RVO. A 1 billion gallon reallocation equates to roughly 3.2 million metric tons at the same 0.835 density. That volume alone can materially tighten balance sheets and support D4 RIN values.

December 2026 D4 traded near 1.64 with intraday movement between 1.62 and 1.68. At 1.64 dollars per RIN, compliance value embeds 1.64 dollars per gallon into biodiesel economics. High RINs can support domestic producers but also discourage certain import arbitrage loops if compliance cost outweighs feedstock advantage.

Forward biodiesel screen margins remain constrained. March shows roughly 8 cents per gallon positive. May is near negative 12 cents. July approaches negative 17 cents. These figures exclude LCFS and 45Z. LCFS adds roughly 20 cents per gallon in California. 45Z at a 40 CI pathway adds around 20 to 26 cents per gallon. Even with those credits, forward signals show caution rather than expansion.

In ARAG, physical spreads continue to show no acute scarcity. RME traded at 1,396 dollars per metric ton and UCOME at 1,412 dollars per metric ton. A 16 dollar premium for UCOME is narrow given its higher GHG savings profile. HVO Class II was assessed at 2,661 dollars per metric ton, a 1,249 dollar premium to UCOME, with no trades reported. SAF was assessed near 2,270 dollars per metric ton, almost 400 dollars below HVO2. These relationships suggest supply adequacy rather than scramble.

The RFS/RVO does create structural demand for North American origin biomass. But the broader soy complex remains globally integrated. Nearly 24 million metric tons of BBD equivalent will influence world trade flows depending on US ability to originate better CI feedstocks.Yet edible and industrial substitution, foreign crush of US beans, and the possibility of imported soyoil for non RFS purposes prevent the US market from becoming completely isolated.

Policy can tighten the island. Global trade prevents it from floating too far from the mainland.