Cash vegetable oil market digests passage of 45Z; waiting on RVOs, SREs

Key takeaways:

• Bullish outlook for US vegetable oils: The passage of the “One, Big, Beautiful Bill” extends the 45Z Clean Fuel Production Credit through 2029, boosting demand for US-sourced vegetable oils and biofuel feedstocks
• Soybean oil gains competitive edge: Removal of ILUC scoring allows soybean oil to qualify for nearly the same tax credits as lower-carbon feedstocks, enhancing its market position
• EPA decisions awaited: Industry awaits clarity on small refinery exemptions (SREs) and final renewable volume obligations (RVOs), with the EPA’s final rule expected by October 31

The passage of the bill – which was signed by US President Donald Trump on Friday July 4 after the US House of Representatives narrowly passed it a day earlier – is considered bullish for 2026 US vegetable oil demand and prices, trading sources said.

“It is beneficial toward seed oils. It helps position our domestic industry in a good way,” a trading source said.

Impact of the 45Z extension on domestic vegetable oil demand

The legislation extends 45Z by two years through the end of 2029, and limits credit eligibility to biofuels produced in the US, Mexico and Canada. As a result, demand for US domestic supply should rise and shift incentives toward US-sourced feedstocks, market sources said.

The bill also removes indirect land use change, or ILUC scoring – allowing soybean oil to qualify for nearly the same level of tax credits as lower-carbon feedstocks like tallow and used cooking oil – and permits full credit transferability. Transferability of the 45Z credit is a mechanism that allows entities to transfer their credits to other entities for cash. This allows companies to receive the value of the credit beyond their current tax liability.

While the industry was broadly pleased with the passage of 45Z, two important questions remain for the market – how will the US Environmental Protection Agency (EPA) handle small refinery exemptions (SREs) and when will the agency finalize renewable volume obligations (RVOs)?

EPA rulings and their importance for the biofuel market

On June 13, the EPA proposed RVOs for 2026 and 2027 that were higher than the market had expected. Soybean oil and canola (rapeseed) oil are the primary vegetable oil feedstocks used in the US production of biomass-based biodiesel and renewable diesel.

Under the RFS, oil refiners are required to either blend billions of gallons of biofuel into the nation’s fuel mix, or to purchase tradable credits called renewable identification numbers (RINs) from other blenders or producers. But the EPA can grant SREs to entities that can prove that compliance with the program has caused them financial hardship.

The proposed rule does not specifically address the 169 pending SREs, although the EPA did indicate it will reallocate any SREs that may be granted in future actions.

The agency will hold hearings and take written comments to gather feedback on the proposed RVO levels. The EPA is expected to release a final rule by October 31.

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