Starting from June 13 of the current year, when the U.S. Environmental Protection Agency (EPA) unexpectedly raised the Renewable Fuel Standard (RFS) for biomass diesel fuel, the market community felt excitement and uncertainty about this matter.
Following the announcement, soybean oil futures in Chicago jumped by 17% in just two days, but then the market retreated: quotes for the August contract sharply declined by almost 6% from the peak reached on June 16, according to information from World Grain.
Erin Nazzetta, a food and agriculture researcher at Broadview Capital Holdings, noted: "The market reacts to rumors but trades on facts, as the final decision won't be made until at least November."
There are many uncertainties. Currently, the government has proposed many conditions and is seeking feedback from the market, meaning adjustments may be made until the end of October. Nazzetta believes that many months will pass before November, and during this time, new ideas will emerge, adding uncertainty and fluctuations in the markets.
Furthermore, the ongoing lack of guidance on Small Refinery Exemptions (SREs) and uncertainties regarding the 45Z Clean Fuel Production Credit bill governing biodiesel production funding only exacerbate the situation of uncertainty. Currently, there is a record number of pending SRE petitions that will be reviewed later. The deadline for comments on the RFS proposal is July 8.
The 45Z tax credit, which was approved by the House of Representatives to exclude the use of imported resources at the expense of tax revenues, is under consideration in the Senate. The EPA has expressed its first opinion on foreign resources, stating that biofuels and raw materials from abroad will only receive a 50% subsidy of the total cost.
This situation may reignite discussions about the balance of soy use in the food and energy industries or at least lead to price increases in both sectors. The U.S. Department of Agriculture predicts that the ratio of final soybean oil stocks to consumption in the U.S. will be only 5%, which is historically low, while American farmers have reduced soy planting area this year.
However, the shadow of uncertainty against the backdrop of concerns about declining export demand due to geopolitical events seems to have a greater impact than these optimistic factors.
Recently, the U.S. Department of Agriculture (USDA) in a new report reduced its forecast for soy use in biofuel production in the 2024/25 season but increased it by 6% for the following season, 2025/26.
