Soyoil Is Telling Us That EPA Soft Deadlines Are Weakening the RVO
The most disturbing number today is not in the USDA report. October/January soybean oil has fallen to a -0.80 c/lb carry, the deepest carry on our 16-month chart, after trading near +1.60 c/lb backwardation in late May. That is a 2.40 c/lb, or roughly $53/mt, reversal in little more than three months. Front BOGO has simultaneously collapsed to about +$51/mt, while December BOGO fell another 16% to roughly +$221/mt. USDA gave agriculture little reason to fear a shortage. World 2026/27 corn ending stocks came in at 272.10 MMT versus 274.66 MMT in August, soybeans at 124.02 MMT versus 124.21 MMT, and wheat at 276.29 MMT versus 273.25 MMT. U.S. soybean production increased to 123.42 MMT from 122.99 MMT, with ending stocks at 8.44 MMT. The soybean oil curve is therefore sending the stronger signal. Prompt vegoil is plentiful, and the market is questioning when biofuel demand needs to appear.
Europe and diesel continue to tell the opposite story. October ICE gasoil is around $1,488/mt and October/January backwardation widened from +$203 to +$217/mt today, up 7%. The U.S. heat crack is near $112/bbl even with WTI below $100/bbl. Northwest European physical values remain high, with FAME around $1,788/mt, RME near $1,808/mt, UCOME around $1,825/mt and HVO Class II near $2,818/mt against gasoil around $1,473/mt. Paper activity also remained substantial, with 35.5 kt of UCOME and 45.3 kt of HVO II reported traded today. Rhine logistics add another layer of stress, with Kaub near 22 cm and Rotterdam-Karlsruhe tanker freight around €165-170/mt versus roughly €100/mt last week. Diesel scarcity, backwardation and logistics remain strong while soybean oil moves deeper into carry.
The U.S. RVO clock offers the strongest explanation for this divergence, and crush economics reinforce it. Under the original February compliance framework, an obligation year effectively carried roughly 14 calendar months before final compliance. Moving the 2025 deadline to October 1 stretches the window to roughly 21 elapsed months, or 22 calendar months if January 2025 and October 2026 are both counted. Using the 3.35 billion gallon BBD mandate and a 1.6 RIN coefficient produces 5.36 billion D4 RINs. Dividing that across 14 months gives roughly 383 million RINs per month. Across 22 calendar months, the monthly-equivalent pressure falls to about 244 million, a 36% reduction. EPA has not reduced the nominal annual mandate, but repeated soft deadlines weaken its prompt market effect. Nearby soybean crush margins remain around $2.25-$2.45/bushel, roughly $83-$90/mt of beans processed, while soybean oil still represents about 50.5% of combined meal-plus-oil product value. That oil share has fallen from around 55%, but it remains far above the roughly 28-38% range common before 2021. Crushers therefore still have an incentive to run hard even while the oil curve says prompt supply is excessive. Unless meal strengthens enough to offset weaker oil, crush margins should eventually compress. Until then, strong crushing risks producing more oil into an already weak prompt market which seems contradictory to the diesel story but perhaps consistent with the change to a producer credit rather than a blending credit. Conventional biodiesel crush margin are at all time high at $2/gal (nearly $600/Mt) excluding 45z, LCFS or other State credits.
Asia adds further pressure to Vegoils. Malaysian palm stocks reached 2.824 MMT in August, up 7.48% month on month, while production increased 1.39% to 1.82 MMT and exports fell 7.5% to 1.295 MMT. September 1-10 exports were reported 11.7% to 17.5% below the comparable August period, while separate production estimates showed output up 26.6%. Q4 CPO fell about 1.9% today and Q4 POGO moved to roughly minus $79/mt. China also holds soybean port inventories near record levels while private crush margins remain negative. Recent purchases of roughly 1 MMT of U.S. soybeans improve forward replacement, but much of that volume still faces Mississippi logistics and later shipment timing. Indonesia’s severe dryness and more than 5,000 fire hotspots create a forward supply risk, but current Asian vegetable oil availability remains comfortable.
I still do not think the soybean oil curve is primarily forecasting a major recession or demand issue yet it is concerning. Diesel cracks near $112/bbl, gasoil Oct/Jan above +$200/mt, national diesel above $6/gal, elevated tanker freight and stressed river logistics do not fit broad demand destruction. The cleaner interpretation is ample crops, strong crush incentives and comfortable vegetable oil inventories meeting a biofuel mandate whose timing signal has been weakened by EPA flexibility. The market is showing the difference between the size of an annual RVO and the urgency created by its compliance date. With Oct/Jan soybean oil already at -0.80 c/lb, oil share still above 50% and front BOGO near +$50/mt, soybean oil remains the pressure valve. Unless EPA restores credibility to hard compliance dates or crush economics deteriorate enough to slow production, zero BOGO now looks like the next test.
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