Biofuel policy boosts soybean oil outlook

May 14, 2026 | Kriss Nelson

Industry experts and analysts say EPA’s finalized 2026 Renewable Volume Obligations could push soybean oil demand to record levels. Some project that biofuels may consume roughly half of all U.S. soybean oil production.

Why it matters

The increase gives new momentum to soybean crush expansion and renewable diesel production after what industry leaders described as a difficult 2025 market environment marked by weak margins, policy uncertainty and excess production capacity.

“This is exactly the step change our industry needed,” said Kurt Kovarik, vice president of federal affairs for Clean Fuels Alliance America, on a webinar Clean Fuels hosted recently.

By the numbers

EPA finalized the 2026 biomass-based diesel RVO at roughly 5.4 billion gallons, up from 3.35 billion gallons in 2025.

Industry leaders say the previous mandate failed to match actual production capacity.

According to Clean Fuels Alliance America:

• The industry produced more than 5 billion gallons in 2024

• Domestic production capacity now approaches 7 billion gallons

• EPA estimates actual biomass-based diesel demand in 2026 could exceed 6 billion gallons

EPA’s higher demand estimate accounts for additional biomass-based diesel needed to offset previously waived refinery obligations.

The increase represents a nearly 60% year-over-year jump, which industry leaders described as a major shift for the renewable fuels market.

EPA changes course

One of the most significant developments was EPA’s shift in how it evaluates future biofuel volumes.

Historically, the agency focused heavily on whether enough feedstocks were available to support larger mandates.

This time, EPA pointed instead to available production capacity.

“The determining factor most likely limiting production and use of biomass-based diesel is production capacity,” says Kovarik. “The availability of qualifying feedstocks is not a hard limit.”

The previous RVO underestimated how quickly fuel production capacity and feedstock investments had expanded across the industry.

This is considered a major philosophical shift for the agency and is believed to give EPA greater flexibility to support larger renewable fuel volumes moving forward.

Soybean oil demand climbs

Soybean oil demand is expected to rise sharply under the new policy environment as renewable diesel and sustainable aviation fuel production expands.

“We need to be well over a billion pounds of soybean oil used each month to support growing biofuel production,” says Alan Weber, ag economist consultant for Clean Fuels Alliance America.

StoneX analysts projected:

• Soybean oil demand for biofuels could reach 14 billion to 15 billion pounds annually

• Soybean oil’s share of the feedstock mix could climb from roughly 35% to near 40%

• About half of all soybean oil produced domestically could move into biofuel markets

Soybean oil is positioned to capture a larger share of the renewable fuels market because it remains one of the most scalable and readily available domestic feedstocks.

“We think soybean oil could take a bigger share of the demand mix moving forward,” says Cooper Carlson, StoneX analyst.

With stronger RVO levels now finalized and updated guidance for the 45Z tax credit in place, analysts noted those inventories are expected to tighten as biofuel production ramps up throughout the year.

Eyes on crush expansion

Higher biofuel demand is tied to recent soybean crush expansion across the U.S., experts say.

New crush facilities are coming online in several states, while additional projects remain under consideration as soybean oil demand grows.

Industry leaders say those investments helped justify higher RVO levels and demonstrated the industry has the feedstock capacity needed to support larger renewable fuel volumes.

“We would not have been able to win an argument for an RVO like this without crush expansion,” says Donnell Rehagen, CEO of Clean Fuels Alliance America.

Speakers noted EPA is already watching crush expansion closely as it considers future Renewable Fuel Standard targets.

Analysts say additional crush capacity also creates more long-term domestic demand opportunities for soybean farmers by increasing soybean oil supplies for renewable diesel and sustainable aviation fuel production.

Strong crush margins are also encouraging additional investment.

According to StoneX analysts, crush margins recently climbed to historically strong levels as soybean oil values increased.

“I think you’re going to continue to see crush capacity increase,” says Nate Burk, senior vice president of fats, oils and greases for StoneX Commodity Solutions. “Everything we can do to encourage increased domestic crush capacity and increased demand for soybeans is going to be taken very well.”

45Z and RVO policy now aligned

The industry now has greater certainty after several major biofuel policies aligned simultaneously, including finalized RVO levels, updated guidance for the 45Z clean fuel production tax credit and stronger incentives favoring domestic feedstocks.

“This is the first year since 2011 the industry has had small refinery exemptions cleaned up, had a subsidy, and has had a known RVO,” says Burk.

Changes to 45Z also removed penalties tied to indirect land-use change calculations for crop-based biofuels, improving the economics of soybean oil-based fuels.

“Removing that ILUC penalty alone will increase the value of the credit for soy biodiesel from about 30 cents a gallon to about 60 cents a gallon,” says Kovarik.

The added certainty is helping support investment decisions throughout the supply chain.

Could fuel demand tighten vegetable oil supplies?

Participants acknowledged concerns that renewable fuel demand could eventually compete with food markets for vegetable oils. Analysts discussed scenarios in which some vegetable oil supplies could shift from food use to fuel production.

However, expanded crush capacity should help offset those concerns.

“Food demand has been really consistent,” says Burk.

It was also noted that the future Renewable Fuel Standard discussions, commonly referred to as “Set 3,” will play a major role in determining how aggressive biofuel demand continues to grow.

Written by Kriss Nelson.

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