10 Winners From EPA’s Recent RVO Announcement

Friday’s EPA RVO announcement was a big deal for crop based biofuels.  Find below, in no particular order, 10 of the winners.  Some are obvious, some not so much.  Enjoy!

 #1 US Biodiesel over RD 

Much has been made about US Biodiesel’s decline. The EPA’s move realigned policy to support biodiesel in spades. Here’s why.

i.  Soy is valued higher than imported feedstocks (tallow, UCO, canola) due to proposal to reduce RIN generation of imported feedstocks by 50%. Biodiesel plants are majority collocated with soy crush. Big win here.  

ii.  Bigger RVO = bigger blend requirements. This increases saturation of biobased diesel blends. Rising tide lifting all boats. 

iii.  A higher RVO works against the state LCFS programs pull on blending. When the federal RIN does more of the blend margin work, it democratizes blending across the US. This helps biodiesel in that the blending is less concentrated to LCFS states that are chasing low CI aka non soy feedstocks. 

iv.  Additional Bonus in the works: As written by the House in the BBB, Indirect Land Use Change (ILUC) is not to be considered in the 45Z credit calculations. If this passes as written, soy based biofuels will receive similar credit to other Low CI feedstocks federally. But state LCFS programs will still have ILUC effects in their carbon scoring. It seems state LCFS programs will need to pay, via their credit pricing, to get ILUC low CI feedstocks into their state, regardless of transportation costs, etc. It all serves to exacerbate the concentration effect of low CI feedstock product into LCFS states. Leaving the rest of the country to use what’s left, soy biodiesel. And now with a bigger RVO, there is a need for blending beyond just LCFS states. 

 #2 US Farmers!  

The increase in the Advanced RVO creates a base for real growth of farm produced biofuel feedstocks. New rotations and crops could materialize to fill the mandate. Itsgoing to do a lot to offset the impact of losing the China bean market.

But itssurprising how little understanding there is about the importance of the RFS outside of the Midwest, in farming regions where “No Ethanol” gasoline signs are still posted at fuel stations. 

A good next step for checkoff funded organizations is a roadshow to the Southeast, Midsouth, Northeast ag regions to talk about the RFS/RVO. There’s a lot of support yet to be mustered from growers in these regions.  

 #3 US Animal Feeders 

Oilshare is going to be a crowded trade in the near to medium term. Without a doubt oil will be the leg of soy crush driving expansion for the next several years.

The table below shows the impact on meal prices between the 52 week high and low of soybean oil. Its massive.

Meat demand is growing 1-2% currently in the US. But a layup on the protein side of the feed ration should support export growth. 

Or at the least keep prices in check for the US grocery consumer.

 #4 North American Railroads 

The reduction in RIN generation by 50% for imported feedstocks will massively upset Tallow/UCO imports. This will leave coastal RD plants reliant on domestic feedstocks supplied heavily by rail.

Additionally, crush rates will increase, driving bean and meal shipments higher. This is especially so for meal exports.

And the food oil picture will get jumbled up, forcing a realignment of shipping from traditional soy refineries to canola refineries or imports. Food oil will have a longer journey to market going forward.

Finally, biodiesel volumes will increase, supporting biodiesel shipments out of the Midwest to hit available blend capacity elsewhere.

Hope you have your tanker fleet sorted. Cars could get tight.

 #5 Oilseed Cover/Double Crops 

Are you ready for the gold rush part duex for domestic feedstock? This time, oilseed cover/double crops may just find their footing. 

Success all comes down to feedstock output per acre. If double crops can demonstrate they are better at that key metric, they have a chance.

But there are plenty of hurdles to overcome still: high dispersal of acres, lack of processors, coproduct sales, and soybean yield drag behind the winter crop. 

But I’m optimistic we could see commercialization happen in a few places of the country. Credit to Bunge/Chevron and Scoular for being early movers in the processing space to get ready for this.

 #6 International RD and SAF Producers 

I know this one sounds a little counterintuive. I hear you, they just lost the US market via the 50% dilution of their RIN generating ability.

But hear me out. 

The EPA announcement Friday put the US industry on notice that in 2026 it is time to run. Simple math puts the industry running at over 80% capacity to supply mandated US demand, higher than 2024. Giddyup. 

That slows RD/SAF/Bio exports. Which in turn gives room for the international markets to supply themselves. Additionally, international low CI feedstock will be looking for a home outside of the USA. 

I see opportunity here.

 #7 International Carbon Credit Shorts 

The market globally still feels long RD production capacity. The mandate increase in the US tightens that up some, but I don’t expect a spike in RD production profitability. More likely is a higher utilization rate, and a slight increase in gross margins. 

But what is going to change is low CI feedstock availability and pricing internationally. Non US feedstocks just took a major hit to their pricing power. With a couple billion gallons of international feedstock suddenly available, this should translate into lower Diesel/Jet decarbonization costs internationally.

 #8 US Renderers/UCO Suppliers 

The USA imports massive amounts of UCO and Tallow for biofuel production. The fuel made from these products headed disproportionately to LCFS states. RIN generation bifurcation between domestic and imported feedstocks makes these feedstocks considerably less competitive than domestic supply.

By how much you ask? 

At a $1.20 RIN…..~$.95/gallon. Much of that price spread is falling into the lap of value domestic animal fats and UCO. Mercy! 

An unfortunate knock on effect is it also drives incentives for domestic fraud, which has been an unfortunate reality in the biobased diesel space…..since like forever.

 #9 Renewable Fuel Blenders 

Nothing motivates like a financial incentive! High priced RINS drives both biofuel production and blending margins. 

I’m excited to see the ingenuity at the pump to satisfy this mandate growth. I expect surprising moves not just in biodiesel/RD but also in upping ethanol blends in the US.

Its not inconceivable to see Ethanol priced at or even below $.50/gallon net of the RIN for periods of time. That is a meaningful price signal.

Consumers win here. But we need infrastructure investment to get moving to provide lower cost fuel blends at the pump.

 #10 Seed Crushers 

I saved the obvious one for last. Expect another round of crush expansion soon, but margins will need to provide the signal first.

In order for margins to materialize, meal demand needs to get sorted. And we just aren’t there yet. We’ve bounced around -$50 meal basis in the Midwest a few times this season. It drops until it slows crush down to meal demand.

Until we sort out meal destinations for another 10%-20% soybean crush increase, margins will keep suffering. We just aren’t there yet.

That said, canola crush should shine. Expect winter canola acres to grow, and more announcements for investments similar to the Bunge/Chevron swing crush strategy in the future. 

We need the oil, not the meal. And price signals will force change here.

Lots of this story yet to unfold.  I’m working on a 10 losers list also.  Let me know what you think, and who is on your Top 10 list.