Shutdown Paralysis Meets Bearish Funds — UCOME Paper Leads the Way

As the US government edges toward a shutdown at midnight, biofuels policy finds itself again in the crosshairs. Darling Ingredients ($DAR) announced the sale of ~$125M in production tax credits, while Green Plains ($GPRE) struck a deal with Freepoint to monetize 45Z credits — underscoring how Biodiesel/RD in US has become heavily reliant on government handouts. The EPA has already confirmed it would furlough over 13,400 staff, retaining just 1,734 (<12% of total), raising real questions about RFS enforcement continuity. D4 RINs held at 97 c/gal today, but any extended shutdown risks collapsing values once compliance bottlenecks sink in.

USDA’s September stocks report carried few surprises: corn stocks at 2.13 billion bu were up 16% year-on-year, while soybeans at 268 million bu were broadly neutral versus expectations. Yet, despite these burdensome numbers, there seems to be little urgency in Washington to address the lack of soybean export sales — an issue highlighted in a Wall Street Journal editorial yesterday, “Trump’s Tariffs and China Hurt American Soybean Farmers”. Instead, the focus is elsewhere, leaving markets to interpret the data without a clear policy response. Funds didn’t wait: they dumped over 100,000 contracts across the grain and soy complex in the week to Sept 23 — the largest weekly liquidation since March — pushing managed money net short across all grains and oilseeds for the first time since April 2023.

Logistics remain a key pressure point. The Mississippi River at Vicksburg is running just 280,000 ft³/s, less than half of July’s 680,000 ft³/s peak. Despite some heavy rain over the past week, NOAA’s 6–10 day outlook still shows “below to near normal” precipitation across much of the Midwest, leaving harvest logistics in a precarious state.

In Europe, Dec BOGO slipped to +$411/mt, still clinging above the +400 line, with carry to +$450 into March. The ARAG barge market was active, with UCOME/RME spreads steady at +44 and strong flows in FAME 0 at $1,359/mt. But the margin hierarchy is stark: on European replacement values, RME is only $152/mt, FAME 0 is squeezed to $90.5/mt (SBO at €25/mt below RSO), while UCOME still earns $224/mt (UCO ex-works Europe at $1,270/mt). This decisive lead explains why nearly 100kt of UCOME paper traded yesterday on a Monday, an unusually heavy start-of-week volume as traders concentrated liquidity where profitability remains.

On the advanced fuels side, SAF offtake continues to accelerate in Europe, with airlines locking in over 1.5 million mt of forward contracts for 2026–2028. By contrast, US policy is targeting more than 1 billion gallons (~3.1 million mt) of SAF by 2030, but airline uptake so far has been limited — mostly occasional deals framed as marketing pledges rather than firm demand. Feedstock competition is central: HVO Class 2 units already consume ~5.5 million mt/year of UCO and tallow in Europe, nearly double the ester sector’s direct pull. With UCO ex-works Europe at $1,270/mt and UCOME margins at $224/mt, the tug-of-war is clear: HVO/SAF producers can often bid UCO $50–100/mt higher than esters while still clearing positive returns. Adding to the pressure, EU refiners have at least 2–3 million mt/year of co-processing availability, a flexible outlet that diverts waste oils away from biodiesel and into jet/diesel pools. Meanwhile, current SAF prices in Europe should be attracting Asian imports, but the absence of actual transactions suggests that pricing is being propped up more by sentiment than by flow. This lack of physical confirmation underscores how UCOME margins — backed by visible paper and barge activity — provide a more reliable benchmark for waste-based fuel economics than SAF screens at present.

Volatility is the defining theme: US policy at risk of paralysis, speculative funds net short, river flows constraining logistics, and ARAG dynamics shifting decisively toward waste-based esters. As Q4 begins, markets face a mix of structural headwinds and tactical plays that will demand close attention but is generally bearish Soyoil although technically 20 day wdma is still above 200 day.