CBOT soybean oil futures plunge as EPA biofuel proposal weighs on the market

On October 14, the Chicago Board of Trade recorded a significant drop in soybean oil futures, responding to uncertainty over US biofuel policy and seasonal harvest pressures. The December contract climbed to an intraday high of 70.08 cents per pound on October 13 before slipping to 68.02 cents/lb, a decline of 0.89% from the previous day.

Opening at 68.16 cents/lb on October 14, the contract fell to 67.11 cents/lb by midday, marking a 1.34% decrease from the previous settlement and a 4.24% decline below the October 13 intraday high. The volatility was triggered by an EPA proposal on October 13 to transfer all additional renewable fuel volumes, waived through small refinery exemptions under the Renewable Fuel Standard, to 2027.

The agency proposed reallocating roughly 770 million Renewable Identification Numbers (RINs), indicating the gap between the 1.76 billion RINs exempted for 2025 and the 990 million RINs initially anticipated. The agency outlined two strategies: distributing the excess obligations evenly between 2026 and 2027 or allocating the entire volume to 2027.

While the reallocation would sustain demand for feedstocks like soybean oil, the announcement introduced uncertainty over the implementation timeline, leaving the market to adjust to the possibility of full reallocation. Market participants, anticipating full reallocation, were disappointed by the additional public comment period and the lack of a decision on the timing, as reported by a Sao Paulo-based trader.

The EPA has been accepting public comments until December 4, keeping the deadline unresolved. Meanwhile, the US soybean harvest, as of October 11, had reached 46%, a notable increase from 25% the previous week, but still below the five-year average of 50%. This accelerated pace of harvesting, coupled with commercial hedging pressures, compounded the bearish sentiment in soybean futures.

The recent volatility is attributed to the sensitivity of soybean oil futures to changes in US biofuel policies, particularly the implementation of additional renewable fuel obligations.