RVO Delivered, Market Shrugs as Soyoil Weakness Collides with Record Diesel Strength

The EPA has now finalized the 2026 and 2027 RVOs and the numbers are strong on paper. Biomass-based diesel rises to 8.86B gallons in 2026 and 8.95B in 2027, with SRE reallocation adding 0.21B and 0.25B respectively, bringing total applicable volumes to 9.07B and 9.20B. Advanced biofuels reach 11.10B in 2026 and 11.32B in 2027, while total renewable fuel moves to 26.81B and 27.02B. This is well above the proposed 7.12B and 7.50B levels for BBD, but the market had already priced it.

The key signal is structural. The EPA delays the 50% RIN haircut on foreign producers until 2028. That keeps imported biodiesel and RD fully eligible under the RFS. With D4 RINs trading around 1.50 to 1.70, foreign producers can capture meaningful value per gallon even without access to 45Z. This keeps import arbitrage open and limits upside in RINs.

This creates a global feedback loop. Tight US soybean oil stocks support high RINs. High RINs incentivize foreign production. Foreign producers source from the global vegoil pool (US soyoil from US soybean crushed) and ship finished fuel into the US. That places a bid under soyoil globally. But this is not a hard cap. It is conditional and delayed. It depends on RIN levels and logistics. It limits upside over time, but it does not prevent near term weakness.

Price action reflects that clearly. Soyoil trades at 66.80 c/lb for May, around 1,473 dollars per metric ton. The May/Jul spread is now -0.10, a full shift from +0.30 to +0.50 backwardation last summer. The front of the curve is now in contango and paying for carry. BOGO has fallen to 280.94 dollars per metric ton, down more than 200 dollars from levels above 500 three months ago. Bean oil relative to gasoil has dropped to around 1.22 from above 1.60 late last year.

At the same time, the back of the curve remains elevated. Jul/Dec is near +3.00 c/lb, or about 66 dollars per metric ton backwardation. This implies forward tightness that is not yet visible in flows. Crush margins are above 280 dollars per metric ton on the front and still above 220 dollars into 2027. At these levels, crushers will run hard, increasing oil output into the second half of the year. That supply aligns directly with Jul onward. Combined with import optionality, this creates downside risk for Jul/Dec, which still carries a policy premium not reflected in physical balances.

In Europe, physical vegoil remains soft and window activity confirms it. RME traded today at +120 to +140 over gasoil. With ICE gasoil around 1,370 dollars per metric ton, this implies flat prices near 1,490 to 1,510. FAME traded at +80, implying around 1,450 flat. UCOME traded at +245, implying around 1,615. SAF traded at +1,090, implying flat prices above 2,450. The market is active but not tight. Premiums are stable and reflect replacement economics rather than scarcity.

What stands out is the disconnect between margins and feedstock demand in NWE. At current levels, RME implies flat prices around 1,490 to 1,510 dollars per metric ton against rapeseed oil at roughly 1,240 dollars per metric ton. This gives a gross replacement margin in the range of 250 to 270 dollars per metric ton before methanol and processing costs. These are strong economics, yet there is no corresponding urgency in feedstock buying. Dutch soyoil remains at 1,150 eur per ton and rapeseed oil at 1,115 to 1,135 eur with little movement, while window activity shows stable premiums rather than tightening. This suggests that producers are not chasing feedstock despite positive margins, either because of coverage already in place, operational constraints, or uncertainty on forward demand.

Feedstock pricing in Europe remains anchored. Dutch soyoil is quoted at 1,150 eur per metric ton FOB, roughly 1,240 dollars. Rapeseed oil trades at 1,135 eur for April and 1,115 eur for May/Jul. These levels have not moved materially despite strength in diesel, confirming weak demand for feedstock.

The global vegoil tone is still driven by energy. Palm oil rebounded with June CPO at 4,581 ringgit per ton, about 1,148 dollars, supported by crude strength and a weaker ringgit. Production in Malaysia is down 5.94% month on month for March 1-20. At the same time, soyoil flows remain heavy, with offers into India at 1,310 to 1,335 dollars CFR for May and 1,300 to 1,310 for June/July. This confirms that supply is available despite stronger energy.

Distillates continue to tighten sharply. Asian diesel cracks are above 76 dollars per barrel, with 10 ppm gasoil around 236 dollars per barrel. This is up more than 60 dollars from earlier levels near 175. Backwardation remains steep, supporting prompt pricing. The barrel is clearly short middle distillates, and this continues to support biodiesel flat price.

In the US, biodiesel crush margins are around 1.20 dollars per gallon equivalent on the prompt and fall to around 0.40 forward. This shows that margins depend heavily on RIN support. High RINs attract foreign supply, which limits further upside.

Flows continue to weigh on feedstock. Argentina soybean export margins are around -32 dollars per metric ton, forcing local crushing and increasing oil supply. At the same time, Argentina has increased biodiesel blending mandates to 20%, which will redirect a larger share of domestic soyoil into the local fuel pool and reduce export availability. This is an important signal. With diesel cracks above 76 dollars per barrel and global supply tightness, Brazil is likely to follow with higher blending targets, reinforcing the structural pull on vegoil.

China soybean demand remains the key uncertainty. Brazil shipments are at 22.3 million tons year to date, flat year on year, but China participation has dropped from 77% to 72%. Total Chinese buying has fallen from 70.3 million tons last year to around 61 million tons this year, with roughly 26 million tons still to be covered. There is no urgency in buying behavior.

If China delays purchases, global soybean availability stays high, supporting crush and increasing soyoil output into the second half of the year. That reinforces pressure on Jul/Dec. If China steps in and covers the remaining 20 to 30 million tons quickly, the balance tightens and supports the back of the curve. Today, spreads are pricing tightening while flows show the opposite.

At the same time, structural tightening is building. US feedstock demand is projected at 38 billion pounds in 2026 and 43 billion in 2027, while available supply ex food and feed is closer to 37 to 38 billion. Imports are down 16% year on year but remain viable due to RIN economics.

Fertilizer adds another layer. Urea has moved from 508 to 750 dollars per ton, DAP from 650 to 800, and MOP from 290 to 385. Higher input costs will reduce yields and tighten future supply.

The market is split. Near term is driven by excess soyoil and weak demand, reflected in May/Jul at -0.10 and BOGO at 280. Medium term is tightening due to policy and supply constraints, now reinforced by rising global blending mandates. The RIN system links the two by pulling global feedstocks into the US, but with enough friction to allow volatility.

My view is unchanged. Distillate strength supports biodiesel pricing, but margins compress as feedstock weakens and imports remain competitive. The front of the curve of Soyoil reflects oversupply, while Jul/Dec at +3.00 continues to price forward tightness. Without a shift in Chinese demand, the downside risk remains in the back of the curve as rising crush, import flows, and policy-driven supply responses will increase available supply.