Limit up on biodiesel & Rising Lion
For a while there was a bit of a sense of optimism and relaxation with a general wait and see attitude in the market. There was a focus on trade talks and hopes for positive biofuel news in the US. But the milk turned sour last week, when the US pulled back non-essential personnel from embassies across the Middle East when Israel prepared Operation Rising Lion: large-scale strikes against Iran targeting nuclear facilities, missile factories, air defense systems, senior military commanders and scientists. The beginning, last Thursday, of an extended preemptive operation to prevent Iran from acquiring nuclear weapons, and which may go on as long “as needed”. This added back a lot of “uncertainty, fear and war premium” in commodity and freight markets. In just two weeks fossil diesel added back $100/mt to its price…Initially, petroleum and gas infrastructure, Iran's “economic lifeline”, were not bombed nor their fertilizer production capabilities. Iran and others in the region are important for production and global trade of nitrogen fertilizer and potash. For instance, Iran is the third largest exporter of urea. Over the weekend though, oil and gas depots and refineries are reported to have been hit too and things escalated further. So, this situation can yet also affect the global food production system.
US “tariff talks” with China and EU have not yet resulted in a positive and permanent outcome and tariffs continue to weigh on the global economy. The erratic implementation and the unpredictability keep weighing on businesses and consumers. Beginning June, in its Economic Outlook report, the Organization for Economic Co-operation and Development (OECD) wrote it still expects a global economic slowdown, concentrated in the US, Canada, Mexico and China as most affected by tariffs. The business community remains concerned about the economic climate, despite the recent de-escalation of some trade tensions, and until there is clarity on the trade climate people will remain reluctant to invest money.
Now, rising geopolitical tensions cause more market unrest and increase uncertainty in an already shaky macroeconomic environment. The cards have been thoroughly reshuffled. And the market will be contemplating. Now what? What’s next?
Petroleum
Petroleum prices were already strengthening, supported by wildfires in Alberta, Canada’s petroleum producing province; by a declining US dollar (collateral damage from Trump’s policies, by fiscal worries and a “sell America” sentiment), by rising summer demand (driving season) and low US inventories and by optimism on US-China trade talks as progress would improve the global economy which would improve energy demand. All this outweighed oversupply worries from OPEC+ ‘s rising production. But that turned from oversupply to undersupply worries on increasing tensions in the Middle East, pushing up prices even further!
Biofuels
However, next year the situation might reverse dramatically in the US. Friday, the Environmental Protection Agency (EPA) finally came with its official surprise proposal for an increased biodiesel blending mandate (RVO = renewable volume obligation) for the US’s “Renewable Fuel Standard”.
The agency increases the RVO to 5.61 billion gallons (approximately 17.95 million mt) for 2026 and 5.86 billion gallons for 2027. The 2026 number exceeds the industry’s asking and is a major step from the 3.35 billion gallons in 2025. The EPA also halves the value of the RIN credit (blending compliance is monitored through credits known as renewable identification numbers = RINS) for foreign biofuels and when foreign feedstocks are used: only 50% of the credit would be awarded for imported biofuel, or for fuel produced in the US from foreign feedstocks. “Foreign” means any country other than the U.S., including Canada (e.g. rapeseed oil) and Mexico (e.g. ethanol for gasoline).
Although the EPA did not address the exemptions for small petroleum refiners it did announce reallocation, meaning that if small refineries get the requested exemption, those gallons will not evaporate but will be “reallocated elsewhere”.
The proposal promotes growth and is good news for farmers and the biofuel industry but still needs to go through a comment period and is only expected to get finalized at the latest by November 1st.
Edible oils & fats markets
The FAO Food Price Index for May dropped on lower global grain and sugar prices but also on lower vegetable oil prices which, generally speaking and excepting exceptions, continued their downward trend too.
Palm Oil
Soybean oil
The soybean complex saw weakness in the past weeks mainly on ongoing uncertainties around US biofuel policies, on demand worries due to tariffs and on favorable US weather for the new crop as farmers finish planting. The USDA’s Crop Progress report reported 90% of the soybean crop was planted by June 8th and condition ratings were 69% good/excellent. And wet weather down south was cause for shifting acreage from corn to soybeans. The focus has very much been on trade talks as there are and will be lots of beans to sell.
And as the South American harvests unwind and the last beans get counted, it’s getting better and better: Conab’s June report says Brazil’s soybean production was 169.61Mmt! or 14.8% better than previously counted and harvested area grew to 47.62Mha (+3.2%). In Argentina, the third largest soybean producer, the Rosario grains exchange said yields continue rise despite slower-than-usual harvesting due to heavy rainfall. There is no shortage of beans!
But last Friday the market shot higher following the EPA release of their RVO proposal for biomass-based diesel for 2026. In Chicago, bean oil futures closed limit up on all positions on that higher blending level news. Prior to that, soybean oil was firming on higher petroleum prices following the unrest in the Middle East. However, soybean meal saw a pullback, down nearly 1%.
Some considerations over the excitement: Oil ‘s been much higher before. Beans gained but still stay below $11.00. Increased oil demand in the US won’t necessarily be bullish for soybean oil in the rest of the world. Trade flows may change as the US will import less oil/feedstock for biodiesel production and export less beans and oil. Granted, if overall global oil demand increases by 3 million tons due to increased biodiesel production in the US, that is bullish in the global supply and demand picture. Ultimately the US might get back in the ‘Diesel vs doughnuts’ discussion with the American Bakers Association lobbying once more for lower federal mandates for biofuels.
MEAL FUTURES dropped. Lower meal prices mean that in order to have a decent crush margin either oil prices go up and bean prices go lower or vice versa. As oil demand for biodiesel picks up and more soybeans need to be crushed to produce soybean oil, the mountain of meal keeps growing and needs to find a home. We’ve already seen that EU and Africa are importing more soybean meal to incorporate in animal compound feed. The bright side is that demand for grain drops, feed is cheaper to produce and the cost to produce animal protein (meat) goes down. This growing supply of soybean meal is also weighing on rapeseed and sun seed meals and putting the crush margin of rape and sun under pressure. Add to that Europe’s deforestation rules (e.g. soy and beef) and tariffs/trade wars and it will be very exciting to see how all that evolves in the coming months and years.
Rapeseed oil
As harvest in EU approaches beneficial rains have fallen over key growing regions, fostering confidence for a good rapeseed crop by which new crop oil prices could come under further pressure. Although higher petroleum and gasoil prices of late have been supportive to rape oil. The tight situation on old crop (non gm) helps support an artificial bullish pigmentation of the market but as rapeseed oil is expensive markets remained quiet, with little business on nearby and on deferred as most buyers switched to a wait and see mode.
Crush margins continued to suffer from weakening oil demand and competition from soybean meal against a big rapeseed meal supply. Biodiesel producers were also suffering from poor margins and low-capacity utilization due to weak biodiesel demand.
For EU-27, the latest Coceral June Oilseed Crop Forecast indicates a rapeseed crop of 19.25Mmt compared to 17.07 in 2024. For the whole of Europe, including UK and UA, this would be 23.45Mmt vs. 21.70 last year. The USDA hints a crop of 19.35Mmt while other observers forecast abt. 19Mmt.
A stronger euro has also been causing some price pressure as European products are less competitive on the global market. But support for seed and oil prices could still come from a delayed harvest in Ukrainian paired with deteriorating yield expectations. And in Canada the new crop planting was done fast due to the dry conditions but now much rain is needed to help the crop grow especially given the low carryover stocks expected for the coming season. Also, Australia anticipates its smallest harvest (5.7Mmt) since 2020, down on dryness and smaller acreage.
Sunflower seed oil
Sunflower seed oil prices continued to weaken following the broader vegetable oil sentiment. Prices also remain under pressure on a positive crop outlook in Russia and Ukraine. For EU-27, the latest Coceral June Oilseed Crop Forecast suggests a sunflower seed crop of 10.15mt this year compared to 8.56 in 2024 (other analysts see the EU crop at 10.4Mmt). For the whole of Europe, including Ukraine, this would be 25.64Mmt vs. 21.76 last year, a noticeable sizeable increase!
Linseed oil
The difficult and limited supply of linseed resulted already in less crushing in EU and consequently in less production of linseed oil. Skyrocketing prices of linseed oil are curbing consumption, especially in feed for land and marine animals, to unseen low levels. In fish feed crude LSO is used also as a source of vegetable omega-3 fatty acids and is now partly being replaced by more crude rapeseed oil and by using more fish oil in the feed formula.
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