US fats and oils decline slows as market searches for price floor

Market participants said the recent correction continues to be led by used cooking oil (UCO), where increasing imports into the US Gulf Coast have eased the tight supply conditions that characterized much of the first half of the year. Buyers were widely described as well covered through much of July and, in some cases, August, leaving sellers increasingly focused on placing nearby volumes.

Several participants cautioned, however, that the recent weakness should be viewed as a near-term supply adjustment rather than a structural shift in market fundamentals. While imports continue to arrive, many expect the additional volumes to provide only temporary relief to an otherwise supply-constrained market, particularly after vessel scheduling delays earlier this month concentrated arrivals into a shorter window.

“I really feel the UCO complex is more of a near-term fundamental problem,” one participant said, adding that recent declines in other Gulf feedstocks appear to be following UCO lower.

The softer tone continued to weigh on Gulf prices on Thursday. Used cooking oil, delivered US Gulf was assessed down at 75.50-77.00 cents per lb, while yellow grease, delivered US Gulf fell to 71-73 cents per lb. Distiller’s corn oil, delivered US Gulf also moved lower to 77.50 cents per lb from Wednesday’s 80 cents per lb.

Even so, participants expressed growing uncertainty over how much further values have to fall. While few were prepared to call a market floor, many said they do not expect a return to the lows seen earlier this year given continued Renewable Volume Obligation-driven demand and structurally constrained domestic feedstock supplies.

“Crazy to think that the market was basically up every week since January 1, and in the last two weeks has given back a lot of those gains,” one participant said. “Not sure where the floor is going to come in, but if bean oil keeps weakening, we’re going to keep going down.”

The weakness has also continued to filter inland, although trading activity slowed noticeably on Thursday after an active start to the week.

Technical tallow, fob Chicago fell by 6 cents per lb on the day to 79 cents per lb following a confirmed three-railcar trade at that level. Other Midwest fats and oils markets were generally quieter, with many participants reporting limited spot activity.

Distillers corn oil

One notable exception was distillers corn oil. FOB Midwest DCO was broadly assessed within 77-79 cents per lb, leaving values nearly on par with, and in some cases slightly above, delivered Gulf markets for one of the first times in more than a year.

Market participants attributed part of the unusual relationship to ongoing transportation challenges. Railcar availability across the Midwest has tightened as equipment remains tied up in California and Gulf markets because of extended turn times, limiting normal product flows and creating localized pricing dislocations.

“The high-70s Gulf just feels like logistical pressure,” one participant said.

Others noted that nearby truck markets have generally remained firmer than rail, while FOB Midwest bids near 79 cents per lb continued to surface despite weaker Gulf indications.

Soybean oil also provided some relief after several sessions of steep declines. The CBOT July soybean oil contract settled at 70.81 cents per lb on Thursday, up by 1.9% on the day, while July ultra-low-sulfur diesel (ULSD) futures climbed 3.8% to $3.2982 per gallon.

The rebound in both markets returned the soybean oil/heating oil (BOHO) spread to roughly where it stood earlier this month, offering some improvement to renewable fuel margins on paper. Participants said the stronger futures helped slow the pace of declines across physical feedstock markets, particularly for DCO, which remains closely tied to soybean oil values.

Elsewhere, Australian tallow sentiment also softened this week amid slower US buying interest and expectations for lower July contract values. However, market participants continued to describe the broader outlook for global animal fats as constructive, citing resilient renewable fuel demand despite the recent correction in feedstock prices.

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