Soybean Oil Pricing Pushes Back as Biodiesel Margins Turn Negative Beyond March

Energy markets staged only a modest rebound as negotiations with Iran continue, with the next round scheduled for Friday. The recovery lacked depth. Far term volatility remains elevated, with the VIX Far Term Index up nearly 14 percent week over week and more than 25 percent year to date. This confirms that geopolitical risk remains embedded in energy pricing rather than fading. Equity markets reflected this uncertainty, with limited risk appetite.

On the Russia front, signals remain comparatively constructive. USD/RUB is still down close to 3 percent year to date, suggesting expectations of stabilization. This contrast reinforces that Middle East risk, not Russia, is the dominant geopolitical driver across energy and biofuels.

Gasoil and heating oil futures moved higher, with heating oil posting gains close to 2 percent across nearby contracts. Brent rose roughly $1 per barrel and WTI gained about $0.75 per barrel. Despite the price increase, backwardation continued to compress, signaling easing prompt tightness but persistent uncertainty further out the curve.

Vegetable oil markets followed energy higher. CME soybean oil advanced between 2.0 and 2.2 percent across nearby and forward contracts, adding roughly $25 per metric ton. Bean oil expressed as a percentage of gasoil increased toward 1.75 in the front months and close to 1.90 further out. BOGO strengthened materially, with March BOGO now trading around +514 dollars per metric ton. Soybeans gained less than 0.5 percent, confirming that oil continues to drive the complex. Oil contribution to the soybean crush remains close to 48 percent.

The structure of biodiesel economics is now pushing back. Screen biodiesel crush margins show that beyond March, margins turn decisively negative even with elevated D4 RINs near 1.38. For May, the screen indicates a loss of roughly 22 cents per gallon. By July, the loss widens toward 29 cents per gallon. These values already include current RIN pricing but excludes 45z, confirming that soybean oil pricing is cutting off biodiesel and renewable diesel margins rather than supporting incremental production.

Options activity reinforces this signal. Soybean oil call option volume reached roughly 20,000 contracts today, extending up to the 70 cent per pound May strike. Despite this heavy upside participation, implied volatility remains in the low to mid 30 percent range. This combination suggests directional positioning rather than stress hedging, consistent with late stage optimism rather than early cycle repricing.

European biodiesel pricing adjusted lower but remained active. In the ARAG window, FAME 0 traded down $33 on the day, settling near a flat price of $1,289 per metric ton, yet volumes remained strong. UCOME traded near $1,420 per metric ton, maintaining a premium of about $131 per metric ton over FAME 0. RME traded around $1,381 per metric ton. Even after the decline, RME gross margins versus rapeseed oil remain positive at approximately $138 per metric ton.

FX contributed to the pressure on European flat prices. The stronger dollar, with EUR/USD near 1.18, improved rapeseed oil competitiveness in euro terms and weighed on biodiesel prices expressed in dollars. This FX effect has become a marginal driver of European biodiesel margins.

Advanced biofuels pricing continues to show distortion. SAF traded near $2,061 per metric ton, while HVO Class II traded closer to $2,387 per metric ton. The roughly $325 per metric ton premium for HVO over SAF materially reduces the incentive to produce SAF in Europe, favoring HVO allocation despite policy objectives.

Paper biodiesel markets confirm a defensive posture. Total paper activity last week exceeded 1 million metric tons, led primarily by UCOME hedging. This reflects margin protection and exposure management rather than demand retreat, reinforcing that participants are locking risk rather than expanding output.

In the United States, policy signals remain mixed. D4 RINs remain firm near 1.38, improving prompt economics but failing to restore forward margins. California LCFS credit prices have risen toward $64 per metric ton of CO2. These higher LCFS levels are drawing domestic renewable diesel and biodiesel volumes toward the US West Coast, reducing availability in other regions and limiting imports. Imports remain constrained as producers await clarity on 45Z guidance and the proposed 50 percent reduction in RIN obligations.

Overall, current price signals are consistent. March BOGO at +514, elevated bean oil to gasoil ratios, negative forward biodiesel margins of 22 to 29 cents per gallon, heavy call option activity, and rising LCFS prices all point to soybean oil pricing that is ahead of end use economics. The market is rationing demand through margins rather than signaling sustainable expansion.