The Soybean Oil Disconnect: Fuel Economics Under Pressure

The biodiesel market is flashing some contradictory signals this week, and producers and traders alike should be paying close attention. One of the most glaring indicators is the soybean oil-to-gasoil ratio, which has soared to an unusually high 1.63x. This level of overvaluation is unsustainable and points to an imminent correction. When feedstock costs outpace the rest of the fuel complex, especially this significantly, it creates compression on downstream margins that most blenders and producers simply can’t afford. Meanwhile, soft oil dynamics are shifting, with rapeseed oil now trading at a $35/mt discount to soybean oil—positioning itself as the most cost-effective feedstock among the softs.

In Northwest Europe, the paper market is steeply backwardated across the biodiesel spectrum. Q2/Q3 premiums show FAME 0 at +66, RME at +40, and UCOME at +44, with flat prices also reflecting that same structure. Interestingly, gasoil's backwardation over the same period is only +11, highlighting how biodiesel-specific factors—like regional tightness and logistics—are driving a very different curve. Barge freight in the ARA-Germany corridor remains firm due to ongoing Rhine River navigation challenges: low water levels in the north and unusually high waters in the south are limiting load capacities and disrupting seed,oil, and fuel movements on the river.

Reflecting this tension, we saw a sharp uptick in FOB paper trading volumes for RME, jumping from 159k to 232.5k contracts between weeks 13 and 14. Whether this is speculative or a hedge against tightening supply remains to be seen, but it’s a clear sign of increased market positioning. On the aviation front, SAF flat price is holding at $1802/mt, trading in line with HVO Class 4, underscoring how these two fuels are increasingly tracking one another in price and perceived value.

When it comes to production economics, the picture is mixed. Gross replacement margins for RME remain strong at $129/mt, but FAME 0 margins have turned negative at -$34/mt. In the U.S., producers face similarly tight economics, with gross margins still in the red at -25 c/gal, despite D4 RINs trading at $1.03. The widening BOHO spread reflects this squeeze, and while policy chatter in Washington has been active, no concrete updates have emerged on the 45Z Clean Fuel Production Credit or Biodiesel Tax Credit (BTC). With just 76 legislative days left before September recess, the clock is ticking.

In short, the market is on edge. Elevated soybean oil prices are distorting fuel economics, while logistical bottlenecks and political uncertainty add to the volatility. Now, with the U.S. imposing tariffs on key feedstocks like UCO, canola, and tallow, competitive American demand will effectively disappear in the short term. As a result, more feedstocks will be redirected to Europe, adding pressure to European supply chains just as regional demand remains firm and river logistics remain strained. Until we see a correction in bean oil pricing or clarity from U.S. lawmakers on key incentives like 45Z and BTC, this disconnect will continue to weigh on margins, supply availability, and market confidence. For now, it’s a market driven more by constraints than conviction.