Spain drags Europe Biodiesel lower and China buying of US Soy Fading

The striking feature in markets today is the continued structural deterioration in soybean oil forward spreads. The Dec/May and Dec/Jul carries are now widening again, with the one-year structure approaching levels that imply +900% to +1000% widening over the last three months. The market is sending a clear signal: Chinese buying of U.S. soybeans is deteriorating rapidly, the policy backdrop remains hostile, and FOB premiums in Brazil for new-crop soybean oil (now near –700) confirm that global fundamentals are softening rather than tightening. Something is breaking beneath the surface, and unless trade flows normalize, this imbalance may spiral further.

The RVO has to be issued early next year, but for now the market trades as if it does not exist.

In Europe, biodiesel sentiment continues to weaken. FAME premiums over ICE gasoil did not trade today, but the indicative level is now roughly $48/mt below the monthly average, highlighting how quickly discretionary blending is retreating. By contrast, RME remains firmer, still trading very close to its monthly mean. The divergence between the grades reflects both feedstock sourcing and the increasing pressure from HVO imports. Flat prices are stable, but the relative weakness of FAME is the clearest sign that the leading biodiesel/HVO market in Europe is slowing dramatically. Adding to this, gasoline cracks in Europe have surged to 18-month highs, suggesting a refinery slate tilted toward gasoline and further tightening diesel availability.

The renewable diesel complex shows an extraordinary anomaly: the spread between HVO Class II and SAF has blown out to nearly $400/mt (HVO Class II around $2,493–2,500/mt, SAF near $2,900–2,905/mt). SAF remains structurally tight, with mandate pressure, aviation contract lifts, and limited physical availability keeping prices high even as HVO softens since it is trading at a $1000/mt premium to UCOME flat price in NWE, incentivizing every refiner to maximize HVO blending sales at these levels except in Spain, where the blend rate has come off to 5.9%, which is the lowest since 2022. Since Spain has been the leading market in Europe all of this year, it is concerning to see Biodiesel/HVO consumption drop to 105,000 MT in Aug (CRORES).

In Asia, Indonesia continues to send contradictory signals. POGO around +$300/mt theoretically offers room to expand biodiesel blending, but the government’s insistence on advertising B50 into the second half of 2026 is telling. They are struggling to raise blend rates without raising domestic palm prices, and with export levies becoming uneconomic once palm prices rise past the $375 threshold, the domestic balancing act becomes even harder. The latest domestic consumption numbers (12.25 million KL year-to-date, roughly 10.7 million metric tons) show respectable volumes, but the ceiling is clearly tighter than policy ambitions suggest.

In the United States, biodiesel economics have quietly improved. With heating oil futures rising again, D4 RINs firming above $1.02, and biodiesel crush margins still improved, having moved up 68% in the last 3 months, what is good for diesel cracks is often good for biodiesel and RD, and the current environment reflects precisely that. The government is expected to reopen today, but with a continuing resolution lasting only until late January, the policy uncertainty around SREs and the upcoming 2026–27 RFS rulemaking remains unresolved.

Taken together, today’s session reflects a market under stress from multiple directions: weakening European demand, an increasingly dysfunctional soybean oil forward curve, Indonesian constraints on blend expansion, and an unusually wide SAF-HVO dislocation. The most acute warning signal comes from the soybean oil complex, where the extreme contango suggests that China–U.S. agricultural relations may be heading toward another breakdown. The market rarely lies, and at these levels, the forward structure is broadcasting that something is about to go off the rails again.