Dr. Ken Rietz
Soybean oil is the starting point for two different types of diesel fuel additives: biodiesel and renewable diesel (it is never used with gasoline). Renewable diesel is chemically identical to diesel fuel and can be substituted for it up to 100%. Biodiesel, on the other hand, can blend with diesel fuel, but only up to a certain point. Recent federal governmental mandates for diesel fuel blends are going to have major impacts on soybean usage. That is what we are going to explore in this week’s commentary. But first, here is a graph of the price of soybean oil for the past several years.
Figure 1: Price of soybean oil at CBOT in USD per pound
You can see the effects on the price of soybean oil futures in the graph for 2025. There was a major spike up in mid-June, when the price closed at 0.4761 on Thursday, 6/12/25, to 0.5511 on Monday, 6/16/25, two trading days later. That is a huge 15.75% jump.
First, what are the new proposed mandates? The mandates for 2025 have been set, but the proposed mandates for 2026 and 2027 are expected to be finalized around November 1, 2025. The proposals increase the amount of soybean-generated blend from 3.35 billion gallons in 2025 to 5.61 billion gallons in 2026 and 5.86 billion gallons in 2027, for increases from 2025 levels of 67.4% and 74.9%. That is enormous and will have large effects on US soybean usage, assuming that the proposals are finalized at these levels. For the past four years, between 40% and 50% of the soybean crop has been converted to soybean oil and meal. If the mandates are enforced, then more than 50% of the soybean harvest will be processed for its oil.
The American Soybean Association is delighted with this proposal, as you would expect. The EPA is doing this in part to support the US soybean market. It sets a foundation for the amount of soybeans that can be expected to be sold in the US. This is particularly useful since China, by far the largest importer of soybeans, has been uncooperative in communicating its intentions to the US. It has been reducing its soybean imports in reaction to the trade tensions between China and the US, and it now imports a lower level of soybeans than at any time in the past 20 years. China instead has been turning to Brazil and Argentina for imports as well as boosting its own production of soybeans.
The process of getting soybean oil produces soybean meal at the same time, so more soybean oil means more soybean meal. The relative values of the oil and meal keep shifting, but the higher supply of meal is almost certainly going to mean a decrease in its price. Since the meal is a high-protein animal feed, a lower price will be gladly accepted by ranchers and could even reduce meat costs. This is another bonus to the proposed mandates.
How should you trade soybeans as a result of all this? The futures markets seem to have priced in these numbers; professional traders are very good. The question is whether prices will go up more than the pros expect. The extra advantages that will follow these mandates may not be fully incorporated, and so the futures for soybean oil could very well increase moderately. The November 1st finalization of the 2026 and 2027 mandates will be a catalyst for price movement, but not much is likely to happen until then. Those who wish to branch out from commodity futures would do well to look at companies that crush soybeans, such as Cargill and ADM.