Surplus Crops Meet Surplus Energy

The January USDA WASDE set a clearly bearish tone for oilseeds. World soybean ending stocks for 2025/26 are estimated near 123 to 124 million metric tons. Brazil’s soybean crop is marked around 178 million metric tons, which places global carryout near 70 percent of Brazilian production. US soybean ending stocks rose to about 350 million bushels versus trade expectations near 290. This balance sheet leaves little room for oilseed tightness and frames the vegetable oil complex as structurally long.

Corn only matters through its impact on soybean plantings. The WASDE showed US corn harvested area up about 4.5 million acres versus the June survey, taking corn production to roughly 17.02 billion bushels. US corn exports have been strong and supported these acres. From a rotation standpoint, heavy corn plantings increase the probability of rotation back into soybeans, since soy fixes nitrogen and lowers input costs. Large corn acreage this season therefore raises the likelihood of ample soybean acreage in the next cycle rather than tightening it.

Palm oil reinforces the surplus picture. Malaysian total palm oil stocks stand near 3.05 million metric tons, the highest level in roughly seven years and well above the 1.5 to 2.5 million metric ton range that defined most of the past decade. The stock composition is particularly bearish. Processed palm oil inventories rose about 12.5 percent month on month in December, while crude palm oil stocks increased only about 4.5 percent. This points to weak demand for refined products rather than a supply shock. China’s imports of Malaysian palm oil are down close to 30 percent year on year over the first ten months of 2025. India’s December palm oil imports fell about 20 percent month on month to roughly 507,000 tons, with buyers favoring crude grades they can refine domestically.

Vegetable oil spreads reacted accordingly. POGO retreated toward plus 375 following the Malaysian stock release, down from highs above plus 400. With palm acting as the residual vegetable oil and inventories elevated, the POGO structure now looks exposed to further downside and gap filling.

Despite this bearish oilseed and palm backdrop, European biodiesel pricing remains firm. ARAG window activity stayed active and values held up. With ICE gasoil front month near 621 per metric ton, window premiums translate into strong flat prices. RME averaged about plus 752 over ICE, implying a flat price near 1,373 per metric ton. FAME averaged plus 668.8 over ICE, implying a flat price near 1,289.8 per metric ton. UCOME averaged roughly plus 765.5 over ICE, putting flat near 1,386.5 per metric ton. HVO Class II printed plus 1,425 over ICE, implying a flat price close to 2,046 per metric ton. These levels keep European biodiesel margins positive even as feedstock balances loosen.

Spreads help explain this resilience. March BOGO rose about 5 percent to plus 481. At current levels, FAME trades about plus 189 over BOGO, which sits at the upper end of historical ranges. This reflects strong mandate driven demand and limited nearby availability of finished biodiesel rather than tight vegetable oil supply.

The US biodiesel market remains constrained by policy rather than feedstocks. Multiple meetings in Washington brought together refiners, agricultural interests, traders, and renewable fuel stakeholders, but produced no immediate clarity. Discussions centered on RVO timing, Section 45Z mechanics, and the broader energy security narrative. Conventional biodiesel margins remain negative, with screen economics around minus 30 to minus 40 cents per gallon even after expected credits. Production continues to run below nameplate capacity, and abundant global oilseeds are not translating into higher US biodiesel output without policy resolution.

Energy flows are now adding pressure at the margin. The administration initially tried to move Venezuelan barrels through oil majors and failed to generate sufficient execution. It then turned to trading houses and effectively tasked them with selling Venezuelan heavy crude into India and Asia. Those barrels are clearing at discounts of roughly 8 dollars per barrel to Brent, making them attractive for Indian complex refineries. Heavy sour crude maximizes middle distillate yield, so incremental Venezuelan flows directly increase diesel and gasoil output. This has already shown up in structure, with gasoil backwardation compressing sharply and front spreads such as Feb/Apr gasoil falling from above 30 dollars per metric ton late last year to low double digit levels.

This shift also carries political consequences. Traders delivered where oil majors did not. That experience is likely to influence the administration’s stance toward refiners in upcoming decisions on RINs, RVOs, and small refinery exemptions. The risk skew for oil majors now looks less favorable, while biofuel policy remains unresolved.

The picture across markets is consistent. Oilseeds are long, palm inventories are heavy, and incremental distillate supply is flattening gasoil structure. European biodiesel pricing remains firm because demand for finished molecules continues to absorb volume. The US biodiesel complex, by contrast, remains policy bound. How long ARAG strength can persist as gasoil structure continues to soften will define the next phase of price action.