EPA Announcement Could Boost Soybean Demand

The use of soybean oil to produce renewable diesel is critical to soybean demand and its potential growth. Soybean oil usage for biofuel production is projected at 13.9 billion pounds in marketing year 2025/26 (Sept. 1, 2025-Aug. 30, 2026) and accounts for approximately 45% of soybean oil usage in the U.S. Left to the private market, there would be no demand for renewable diesel because of its cost compared to conventional diesel. However, the renewable volume obligations (RVOs) set by the Environmental Protection Agency (EPA) under the renewable fuel standard (RFS) help overcome the cost difference by mandating biomass diesel fuel usage. Low carbon fuel standards (LCFS) adopted by California, Oregon, and Washington have also boosted demand.

Because demand for renewable diesel is driven by government policy it is effectively capped at the mandated amount. Scott Irwin, an agricultural economist at the University of Illinois, last year pegged the cap at 4.0-4.5 billion gallons, yet production capacity has been estimated around 7.0 billion gallons. Thus, soybean growers, processors, and biofuel advocates have been lobbying the EPA to increase the RVOs when setting the mandates under the RFS for 2026 and 2027. The industry sought an RVO of 5.25 billion gallons and has lobbied to restrict imports of renewable diesel or foreign feedstocks, like used cooking oil from China, to protect domestic sources.

Thus, it was a pleasant day for the sector when on June 13 the EPA announced a proposed rule to raise the RVOs for biomass-based diesel (biodiesel and renewable diesel) to 5.61 billion RINs (Renewable Identification Numbers) for 2026 and 5.86 billion for 2027, levels exceeding what the industry was seeking (Figure 1). According to Faith Parum, an economist for American Farm Bureau, RINs are credits based on the production of biofuels. Each gallon of renewable fuel produced is assigned a RIN. Aaron Smith, an economist at the University of California-Berkley, says that depending on the level of imports, the new rule will require the usage of between 4.45-5.7 billion gallons next year. Smith also noted the new rule specifies that imported fuel and fuel made domestically with imported feedstocks can earn only half the credits of domestically-produced fuel, giving a leg-up to domestic fuels and feedstocks. The EPA says the proposed rule sets the highest volume requirements ever under the RFS.

FIGURE 1. EPA Proposed Volume Requirements, 2026-2027

Source: Environmental Protection Agency

Soybean oil and soybean prices both reacted positively to the announcement. Soybean oil futures were up the limit and soybean futures jumped more than 25 cents. As of this writing, oil has been able to sustain the price increase, soybeans have not. And while the proposal is not finalized, hearings are scheduled, and a final decision will be made later this year. If finalized, the rule removes one element of uncertainty clouding soybean oil and soybean demand.