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Something structural has shifted in the US biofuels market.
Feedstocks that once occupied a small corner of the renewable fuels complex – used cooking oil (UCO), tallow, poultry fat, yellow grease and distillers corn oil (DCO) – have become some of the most strategically important commodities in the sector.
The US animal fats and oils market has been broadly firm for weeks, with prices across most major feedstocks moving higher as tight supply conditions and strong underlying demand from the renewable fuels sector continue to underpin the complex.
But the more important story is not the latest price move. It is why these markets have become so difficult to rebalance and why that difficulty is likely to persist well into the year.
As renewable fuel obligations rise and compliance incentives strengthen, the challenge facing the industry is no longer simply producing more fuel. It is securing enough feedstocks – and increasingly enough fuel molecules – to support that growth.
The demand surge did not happen by accident.
The implementation of the 45Z Clean Fuel Production Credit, together with the finalization of Renewable Volume Obligations (RVOs) mandating a sharp increase in biomass-based biofuel blending for 2026 and 2027, has created a step-change in the economics of US biofuel production.
The effects are now clearly visible in compliance data. Domestic renewable diesel blending reached 274.48 million gallons in April, up by 4% month on month. Biodiesel blending increased by 10% in the same period to 129.10 million gallons – marking the strongest levels in approximately 16 months. Imports, meanwhile, remained minimal, underscoring the market’s continued reliance on domestic production.
On the feedstock side, EPA data tied to D4 RIN generation shows soybean oil accounted for roughly 28% of generation, while waste oils, fats and greases represented approximately 22% and distillers corn oil (DCO) another 7%.
While soybean oil remains the largest single feedstock, lower-carbon waste oils, greases and animal fats now account for a substantial share of consumption, with producers competing aggressively for these materials due to their policy-driven advantages.
Despite increased blending, the market remains well behind pace on Renewable Fuel Standard (RFS) obligations. Year-to-date RIN generation stands at roughly 26.5% of annual requirements, with biomass-based diesel at just 22.4%.
Sources noted that while March and April RIN generation improved materially, maintaining those rates through the remainder of the year would still leave the industry short of annual obligations.
For many, the question is no longer whether demand will increase, but how the industry will secure enough feedstocks and fuel volumes to support it.
D4 Renewable Identification Numbers have surged to all-time highs in May, with Fastmarkets pricing showing 2026-vintage values climbing above 235 cents per RIN at the end of last week.
For many in the market, the rally reflects more than margin support — it signals a system that remains structurally undersupplied relative to its obligations.
Some sources argued D4 values may have moved even higher were it not for elevated diesel prices earlier this year, when geopolitical tensions in the Middle East temporarily supported energy markets and renewable fuel margins.
Stronger RIN values are sustaining renewable diesel economics even as traditional margin signals weaken. In recent weeks, heating oil futures have retreated from highs reached during heightened geopolitical tensions, while soybean oil remains elevated, pressuring the soybean oil-heating oil (BOHO) relationship.
Under normal conditions, weaker margins would weigh on feedstock values. Instead, participants say stronger RINs have offset that pressure.
“Even if the spread narrows, RINs are still going up because we’re not encouraging enough production,” one trader said.
Participants increasingly point to compliance deficits, rather than traditional arbitrage, as the primary drivers of feedstock markets. The further the market falls behind on obligations, the more RINs must incentivize production, blending and potentially cross-border flows.
In that sense, rising RINs are not just supporting production, they are reflecting the system’s effort to secure sufficient feedstocks and fuel molecules to meet policy-driven demand.
Not all feedstocks are equal under the current policy framework. The 45Z credit rewards lower carbon-intensity inputs, elevating the strategic importance of waste-based feedstocks such as UCO, animal fats, yellow grease and distillers corn oil.
The challenge is that these feedstocks are inherently difficult to expand and are increasingly exposed to broader economic pressures.
Unlike soybean oil, which can scale through acreage and yield, waste-based feedstocks depend on underlying industrial and consumer activity. Tallow and poultry fat are tied to livestock production, UCO depends on restaurant activity and collection rates, and DCO is linked directly to ethanol output.
Each of these supply streams is sensitive to the broader economic environment. Softer consumer demand can slow restaurant throughput, reduce meat consumption and limit ethanol production, constraining feedstock availability across multiple channels simultaneously.
In the case of animal fats, the constraint is even more structural. Livestock is not raised for fat production, rather it is a co-product of the meat industry, making supply doubly inelastic to changes in biofuel demand.
That limitation is already visible in livestock fundamentals. US cattle slaughter for the week ending May 30 totaled approximately 490,000 head, down 7.2% week on week and 8.2% below year-ago levels on a year-to-date basis. Hog slaughter has been more stable, but growth remains limited relative to rising renewable fuel demand.
“It takes three years to raise a cow from beginning to the point where it’s marketable,” one participant said.
The result is a structural mismatch: policy-driven demand can accelerate quickly, but the feedstocks required to meet it cannot.
Physical feedstock markets are more balanced than earlier in the year, but only relative to prior extremes, not because underlying tightness has materially eased.
Across the animal fats and oils complex, prices remain supported by limited availability and ongoing renewable fuels demand. US Gulf tallow and UCO were most recently assessed at 89–90 cents per lb and 86 cents per lb, respectively, maintaining the highest levels since Fastmarkets launched the assessments in November 2022.
Stabilized poultry fat has similarly held at more than four-year highs in the upper-70s to low-80s cents per lb range.
Several sources report buyers are increasingly covered through June, while additional offers have emerged following recent price gains.
Even so, inventories remain tight. One trader described the market as largely “hand-to-mouth,” with little evidence of excess stocks.
Attention is also turning to potential heat-related specification issues heading into summer, particularly in poultry fat. While still early, some suggest warmer conditions could modestly shift product into lower-spec segments, loosening availability at the margins.
Still, any relief is expected to be incremental. A sustained decline in prices would likely require a broader loosening in underlying supply.
Despite the structural support, there are growing indications that the market may be approaching a near-term ceiling.
Elevated domestic feedstock values have intensified discussion around imports, which many increasingly view as one of the few realistic sources of incremental supply.
While 45Z favors domestic feedstocks, strong RIN values and growing renewable fuel obligations are increasingly viewed as sufficient to offset those disadvantages, supporting interest in imported tallow, used cooking oil and other low-carbon feedstocks.
Coverage through June appears relatively comfortable for now, but attention remains focused on where additional supply will come from as renewable fuel obligations rise.
“Quite frankly, irrespective of tax policy, there’s just not enough EPA-approved triglycerides in North America to run a 7-or-8-billion-gallon biomass-based diesel industry. There’s just not. There’s not enough oil.”
Yet imports alone may not fully solve the problem, as stronger compliance values may ultimately need to attract not only additional feedstocks, but also renewable diesel volumes that might otherwise remain outside the US market.
“We’re still roughly 20-40 cents away from levels that would really pull incremental renewable diesel into the US,” another source said.
At the same time, strong global demand for renewable diesel and sustainable aviation fuel continues to pull finished fuel into export markets, limiting availability for domestic compliance.
The implication is that while imported feedstocks may moderate some of the recent upside momentum, the structural floor beneath these markets remains firmly in place.
The near-term direction for US animal fats and oils markets remains anchored by rising renewable fuel obligations, elevated compliance values and limited supplies of low-carbon feedstocks.
As blending requirements ratchet higher into 2027, the market is likely to rely increasingly on imports, stronger compliance incentives and global trade flows to bridge the gap between renewable fuel demand and available feedstock supply.
But the challenge facing the industry is no longer simply one of production. It is one of scale.
Renewable fuel capacity has expanded far more quickly than the feedstocks needed to support it, leaving the market increasingly dependent on a finite pool of waste oils, greases and animal fats. The result is a system in which competition for low-carbon feedstocks is likely to remain a defining feature of renewable fuel economics for years to come.
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