After what many in the industry describe as one of the most difficult years in memory, the soybean supply chain is looking to proposed federal biofuel policies as a potential turning point.
For biofuel producers, prolonged uncertainty surrounding final regulatory rules—combined with another year of underwhelming volume targets under the Renewable Fuel Standard (RFS)—pushed many facilities to the brink. At the same time, soybean growers faced their own set of challenges, including tariff uncertainty and the ongoing trade dispute with China, layered atop declining commodity prices and rising input costs.
Grant Kimberley says farmers and biofuel producers alike have been caught in forces largely outside their control. “The tariffs are all about big picture things, and not a lot to do with agriculture, but when countries want to retaliate, we’re the ones catching the shrapnel,” he says. Trade negotiations often center on strategic industries such as rare earth metals, aluminum, aircraft sales, and domestic manufacturing, he adds. “We’re hopeful some increased sales for agriculture products too.”
Kimberley sees the situation from multiple perspectives in his roles as executive director of the Iowa Biodiesel Board, director of market development for the Iowa Soybean Association, and as a farmer himself.
Basis Pressure and Domestic Demand
One of the clearest impacts of trade uncertainty has been on basis, the difference between futures prices and what local buyers are willing to pay—a figure that reflects transportation costs and regional demand.
“Basis is a regional thing,” Kimberley explains. “Historically, it could be anywhere from 20 to 50 cents a bushel, but now it’s almost double that in places. And, if you go to North Dakota, they’ve experienced basis levels of $1.65 to $1.75 under the futures market, because they are very export dependent.”
Hope for improvement emerged this year when two new soybean crushing facilities came online in North Dakota. That additional domestic processing capacity could help strengthen basis—something soybean growers nationwide are watching closely, says Alexa Combelic, executive director of government affairs for the American Soybean Association.
“Even without the trade concerns we’re facing now, having additional domestic soybean oil processing for biofuel product means better basis for farmers, because they have a domestic market,” Combelic says. “It means there’s a lower cost to move that soybean to its market. Across the board, we see an expansion of biobased diesel production in the United States as a huge opportunity for soybean farmers.”
Despite that potential, Combelic notes that many crushers are currently operating below capacity. Expansion plans were built around expected growth that failed to materialize after the U.S. Environmental Protection Agency underestimated the industry’s capacity expansion and set renewable volume obligations (RVOs) for 2023–2025 too low.
Policy Signals Offer a Path Forward
In mid-summer, EPA released proposed RVOs that more closely align with existing and anticipated production capacity. Combined with changes to the Section 45Z Clean Fuel Production Credit included in the One Big Beautiful Bill, the proposals significantly improved the outlook for the soybean supply chain—though uncertainty around final rules meant many producers were unable to fully benefit in the past year.
The proposed RVO was raised to approximately 5.61 billion gallons, compared to a little more than 3 billion gallons in the 2025 RVO and 2024 domestic consumption of 5.1 billion gallons. The proposal exceeded what the industry had been advocating for, according to Donnell Rehagen, CEO of Clean Fuels Alliance America.
EPA also proposed a domestic-first preference by awarding half renewable identification numbers (RINs) to biofuel produced in the U.S. using imported feedstocks. That approach would tie the final RVO level to actual import volumes.
The half-RIN proposal would align the Renewable Fuel Standard with provisions in the One Big Beautiful Bill that amended the 45Z Clean Fuel Production Tax Credit to disqualify imported fuels and feedstocks, while still allowing participation from Mexico and Canada.
In addition to prioritizing domestic fuels and feedstocks, the legislation removed indirect land use change (ILUC) from the calculations used under 45Z—a major win for soybean-based biofuels.
“Removing ILUC will double the tax credit value per gallon for soy-based biofuels,” Combelic says. “For soy-based renewable diesel, it will double that tax credit from about 20 cents per gallon to about 40 cents per gallon on average, and for soy-based biodiesel, it will double that credit from 30 cents to 60 cents per gallon on average. Removing what we saw as a tax on agricultural feed stocks will really improve the value for those fuel producers and provide some encouragement for them to source domestic agricultural feedstocks for their production.”
However, that change will not affect California’s Low Carbon Fuel Standard (LCFS), which continues to apply ILUC penalties.
“The reason that’s important is because over half of the fuel produced in the United States goes to California,” Rehagen says. “For a biodiesel or renewable diesel producer, there’s still a significant economic advantage in the value of the LCFS credit if you use used cooking oil or animal fat in lieu of soy.”
Trade Dynamics and Global Competition
The threat of a renewed trade war with China influenced planting decisions last spring, Kimberley says, with some growers shifting acreage into corn. Under normal conditions, that shift might have supported soybean prices—but uncertainty muted the effect.
“Markets hate uncertainty,” Kimberley says, noting that the previous trade dispute with China stretched on for two years.
Combelic points out that by late October, China had already purchased enough soybeans to carry it through the end of the calendar year. “We generally export soybeans to China from the beginning of our harvest season—late August and September through about the end of January early February,” she says. “That is the time when Brazil’s harvest comes online, and when China makes a natural shift from U.S. purchases to Brazilian purchases.”
In late October, the U.S. and China reached an agreement that included a pledge from China to buy 12 million tons of U.S. soybeans through January, followed by annual purchases of 25 million tons. Even while China was largely absent from U.S. markets earlier in the year, global demand remained strong, Kimberley notes. A late-October weekly export report showed soybean movement up 46% compared to the prior year, excluding China.
Still, China’s role in global soybean markets is unmatched. “China buys about 60% of the globally available soybeans, after taking out domestic use,” Kimberley says. Last year, China purchased between 24 million and 25 million metric tons from the U.S. out of total imports of roughly 100 million to 110 million metric tons. The next-largest buyers—the European Union and Mexico—each import only about 4 to 5 million metric tons.
Looking longer term, Kimberley identifies Brazil as the most significant competitive challenge. Brazilian soybean production surpassed U.S. production in 2018 and continues to grow year after year, largely independent of global price signals. Brazil is estimated to have 60 million to 70 million acres that could still be brought into production—an area comparable to the central United States.
Used Cooking Oil, Trade Shifts, and Capacity Constraints
According to Kimberley, the most immediate impact of trade tensions has shown up at the farm gate.
“Some people say soybean prices aren’t much different this year than last year, so is there really an impact from the trade war?” he says. “And the answer is yes, and you see it primarily in the cash price and basis.”
Last year, imports of used cooking oil (UCO) from China were a major factor in the market. With the proposed half-RIN policy and imported feedstocks excluded from 45Z eligibility, those imports have begun to decline, says Brian Murphy, general manager of Mahoney Preferred Oil.
“There still is a lot of Chinese UCO that gets imported to the United States, but the fuel doesn’t get sold domestically, it gets re-exported mostly to the European Union,” Murphy says. “So, it is taking up space in the RD platform as far as run rates.”
Murphy adds that Europe has become the primary destination for renewable diesel produced from U.S. UCO. “Mahoney is now ISCC certified [a required sustainability certification for the EU market]. And because margins for RD and biodiesel producers are not good for making domestic fuel and selling it domestically with a RIN, a lot of it is going to Europe.”
“The cloud hanging over us is trade talks with China and the finalized RVO,” Murphy says. “So, if we can get that done by the end of January, I think the rest of the year and going forward will be really good for the industry, get margins back for the biodiesel makers and the RD guys, and be good for the farmers.”
45Z Uncertainty and Industry Strain
While there are signs that EPA may finalize the RVO early in the year, guidance for the 45Z credit is expected to take longer.
“There’s essentially no guidance,” says Joe Jobe, CEO of Sustainable Advanced Biofuel Refiners (SABR), which represents biodiesel producers. “They put out a notice of intent last January to issue a proposed rule, but they haven’t issued a proposed rule.”
That lack of clarity has pushed the industry into survival mode, Jobe tells Biodiesel Magazine. “Folks are running at maybe half or less of their production capacity. They’re shutting on and off, mostly just to keep their pipes warm and a few of their major customers happy, and most importantly, to keep their labor force.” Changes made to 45Z under the One Big Beautiful Bill effectively reset the regulatory timeline, he adds.
What is clear is that 45Z will be far more complex than the blender’s tax credit it replaces, which provided a flat $1-per-gallon incentive. Under 45Z, producers must document plant-specific and feedstock-specific carbon intensity values.
“There’s a lot more stuff they have to gather. It’s a huge burden,” Kimberley says. “They’ve got to hire auditors, third-party people, to verify this information. This adds more cost.”
Only a limited number of credits are trading today, Kimberley adds, and those transactions often require insurance coverage due to the risk that final rules could change. Prevailing wage requirements add another layer of difficulty, particularly for rural biodiesel producers.
“All those things factor in and hurt farmers and biodiesel producers,” Kimberley says. “The independent biodiesel producers are in big, big trouble. If this delays much longer, I’m afraid we’ll have less biodiesel producers in the next year or two.”
Banks are already beginning to pull back, he adds, as prolonged uncertainty and negative margins strain balance sheets. “That will impact demand for farmers. It’s all related.”
SABR is pushing for temporary relief, Jobe says. “If we were to extend the 40A blenders tax credit for even a short term period of six months or until 45Z has implementing regulations in place, it would turn the light switch back on immediately. So many elements throughout the value chain and so many industries are taking an economic hit because of these delays.”
Adapted from an article originally shared by Biodiesel Magazine. Image Credit: Flickr – United Soybean Board.
The Michigan Advanced Biofuels Coalition (MiABC) does not lobby or influence policy in any way. The policy interests of Michigan soybean farmers and biodiesel producers are supported by the Michigan Soybean Association and Clean Fuels Alliance America, respectively. This post is shared for educational purposes only.