Soybean Oil Tightens Grip on US Biofuel Market as Crushing Booms

Soybean oil is consolidating a structural advantage in the US renewable diesel sector, outcompeting canola oil on tax incentives and feedstock costs while expanded crushing boosts domestic oil availability. Stronger biomass-based diesel mandates should still sustain demand for both oils, but the balance of growth is shifting clearly in favour of soy. Biofuel policy, tax credits and rapid investment in US processing capacity are redefining the soybean complex. A 25% rise in crushing capacity over five years and new plants scheduled through 2028 will anchor soybean oil as a core feedstock for biodiesel and renewable diesel, while simultaneously lifting soybean meal supply for feed users. Canola oil demand remains supported by rising renewable diesel blending requirements, yet Canadian exporters face intensifying competition as the US scales up its own soybean and canola processing base.

Prices

Physical soybean indications in key origins show a mildly firmer bias, consistent with robust demand for oil in US biofuels and steady meal offtake:

• China, Beijing, Soybeans yellow, organic, 99.8%, FOB: EUR 0.90 (up from EUR 0.88 on 2026-11-04).
• China, Beijing, Soybeans yellow, 99.5%, FOB: EUR 0.79 (up from EUR 0.77 on 2026-11-04).
• Ukraine, Odesa, Soybeans GMO-free, CPT: EUR 0.374 (slightly lower than late-October highs around EUR 0.396).
• India, New Delhi, Soybeans sortex clean, FOB: EUR 0.85 (down from EUR 0.89 in late October).
• US, Washington D.C., Soybeans No. 2, FOB: EUR 0.55 (down from EUR 0.58 on 2026-10-30).

This pattern points to modest firmness in Chinese nearby offers, some softening in Black Sea and Indian quotes, and a slight easing in US FOB values as the market absorbs expanding crush capacity and ongoing harvest supplies.

Supply & Demand

Soybean oil is strengthening its position in the US biofuel industry as favourable tax incentives, comparatively lower feedstock prices and expanding domestic crushing capacity increase competition with canola oil, particularly imports from Canada. Data from the US Energy Information Administration indicate that soybean oil consumption in biofuel production continues to increase, while canola oil use remains comparatively stable.

On the supply side, US soybean crushing capacity has risen by roughly 25% over the past five years, and further investments are underway. New large-scale plants, including a Louis Dreyfus facility in Ohio with about 1.5 million tonnes annual capacity and a CHS plant in Wisconsin expected to process around 2.18 million tonnes of soybeans from 2028, will materially lift domestic oil output. This will also expand soybean meal availability for feed, partially offsetting upward pressure on bean prices from stronger oil demand.

Canola supply is also growing. US farmers planted around 3 million acres of canola in 2026, with domestic canola oil production forecast near 2.4 million tonnes in 2026/27. This expansion, together with added US canola processing capacity, may reduce reliance on imported Canadian canola oil even as Canada remains heavily oriented toward the US market. Overall, the renewable diesel sector is becoming the key incremental demand driver for both soybean and canola oil, but soy currently captures the larger share of new demand.

Fundamentals and Policy Drivers

The principal structural support for soybean oil lies in the US Section 45Z clean fuel production tax credit. Under the reported incentive structure, renewable diesel producers using soybean oil can receive roughly US$0.55 per gallon in tax credits, while canola-based fuels obtain only about US$0.20–0.22 per gallon. This implies an approximate tax advantage for soybean oil of US$0.33–0.35 per gallon, a decisive edge given that feedstock costs dominate renewable diesel production economics.

In addition, soybean oil currently trades at lower prices than canola oil, amplifying its competitiveness and encouraging refiners to prioritise soy when optimising feedstock slates. CoBank analysis highlights soybean oil as a major beneficiary of growing demand from biodiesel and renewable diesel producers, reflecting both supportive policy and improved domestic processing logistics. Over time, greater domestic soybean oil availability should reduce the need for some vegetable oil imports, shifting trade flows in favour of US-origin product.

Despite this, canola oil demand prospects remain relatively favourable. The US Environmental Protection Agency has set biomass-based diesel volume requirements for 2026–2027 that are about 67% above 2025 levels, significantly lifting total demand for vegetable oils and other biofuel feedstocks. Representatives of the Canadian Canola Growers Association report improving canola oil demand, and Canadian shipments in 2026 could still top last year’s volumes even as soybean oil gains market share.

Outlook and Trading Strategy

Soybean oil is expected to retain a structural advantage in the US renewable diesel market, underpinned by favourable tax treatment, relatively lower prices versus canola and rapidly expanding domestic crushing capacity. At the same time, stronger overall renewable diesel blending requirements should support demand for both soybean and canola oil, limiting downside for the broader oilseed complex.

For Canadian exporters, the combined expansion of US soybean crushing and canola processing implies intensifying competition and a likely need to diversify toward alternative export markets. For global soybean producers, the US remains a strong demand centre for beans destined for crush, but rising domestic production and capacity could temper import growth over the medium term. Regionally mixed physical price trends suggest that local supply conditions and logistics will continue to drive short-term differentials around this structurally supportive policy backdrop.

Trading outlook (next 1–3 months)

• Producers (US and South America): Use current policy-driven strength in soybean oil demand to scale into forward sales on rallies, particularly where crushing margins remain attractive.
• Crushers: Maintain high utilisation where feasible; the tax advantage and EPA mandates favour sustained strong demand for soybean oil, while additional meal output can be hedged against feed demand.
• Importers and end-users: Consider diversifying between soybean and canola oil, but recognise that soy currently offers the more favourable cost and policy profile in the US market.
• Canadian exporters: Monitor US capacity additions closely and explore alternative markets to mitigate potential erosion of US share over the medium term.

Short-term 3-day directional view

• US FOB soybeans No. 2: Slightly softer to sideways as harvest and expanding crush capacity keep nearby supplies comfortable.
• Black Sea (Ukraine) soybeans: Mildly sideways with a modest downside bias after recent easing in CPT and FOB indications.
• China FOB soybeans (food and feed grades): Slight upside tendency, reflecting firmer recent quotes and solid downstream demand.