The White House’s aggressive targets under the renewable fuels standard and its renewable volume obligations for 2026-2027 for biofuels have some soybean market participants drawing hopeful parallels to the ethanol boom of the early 2000s.
For an industry that has been battered by tariff wars and a sharp drop in sales to China, the top soybean export destination, creating a new market to divert that lost business could go a long way to stabilizing soybean prices that are under the cost of production.
It all depends on the current administration finalizing its policies regarding biofuels, including the 45z clean fuel production tax credit to maintain high bids for soyoil, and the Environmental Protection Agency’s decision whether to allow imported feedstocks. Until then, market participants hope for the best.
Ethanol Changed Corn Economics
The ethanol boom that began in 2004 fundamentally changed the grain markets, essentially doubling the average price for Midwestern corn and greatly expanding corn planted acreage at the expense of soybeans, wheat and other small grains.
When the Biden administration raised targets for biomass-based diesel production to increase demand in 2022, it spurred the soy-crush expansion. Since the 2021/22 marketing year, there’s been about a 20% increase in crush capability, primarily driven by the biofuels push, says Gordon Denny, an independent soy-crush analyst.
In January, the U.S. Department of Agriculture said U.S. soy crush was a 2.57 billion bushels for the 2025/26 marketing year, and Denny forecast that figure to rise to 2.59 billion for 2026/27.
He says even with the expansion, soy processor margins, as well as domestic and export meal offtake, are surprisingly good in light of expansive crush growth.
Similarities and Differences
Government policy jumpstarted ethanol’s growth with the renewable fuels standard and tax credits like V-tech, but it was also market driven, says Scott Irwin, Laurence J. Norton chair of agricultural marketing at the University of Illinois Urbana-Champaign.
Ethanol replaced another fuel oxygenate, MTBE, which was banned for polluting groundwater. Crude-oil prices had also rallied to over $100 a barrel by 2007, making ethanol price competitive, he says.
Soybeans have seen some support from the biomass-based diesel boom that started in 2021, but the impact has been muted, Irwin says. Unlike ethanol which only used corn as a feedstock, renewable diesel has multiple feedstocks. The increased crush for soyoil produces excess soymeal for current demand needs, which weighs on soy complex values. The blending rate for biodiesel is 5%, whereas ethanol blends are at 10%.
If the RVO targets are finalized, Irwin says it should justify the current crush expansion for at least the next two years. Whether more capacity will be needed depends on the outcome of the EPA’s “half renewable identification numbers” proposal. RINs are crucial for refiners and importers to meet renewable volume mandates.
The half-RIN proposal would provide twice the level of RIN credits for domestically sourced feedstocks compared to imported feedstocks. If the half RIN proposal is passed, the U.S. would need to build more crush plants, Irwin says, without it, it’s questionable if more crush capacity is needed.
Markets Expecting Good News
Chicago Board of Trade soyoil futures are trading at their highest levels since October 2023 for nearby months, expecting a favorable outcome, says Sean Lusk, vice president, commercial hedging division of Walsh Trading. “The market has a lot of hopium,” he says,
Research Irwin did with Todd Hubbs at Oklahoma State University suggests that if the half RIN proposal survives, with soyoil prices around 55 cents a pound, values could rise five to 10 cents.
That would mean an extra $1.10 in extra crush value for a bushel of soybeans, on a national average, and push soybean futures prices over $11 a bushel. Of that $1.10, 24 cents would be lost due to lower soymeal prices, another 40 cents goes to higher crush margins and 46 cents to the farmer.
If policy disappoints, Ed Usset, grain market economist and extension professor at the University of Minnesota, says there could be an industry shakeout and plants closing.
Denny concurred. Without a long-term decision on biofuels policy, soy-processor margins would and some newly built, indebted plants could close. He is already concerned about overcapacity and that the biodiesel market is completely dependent on policy.
Policy dependency is another difference between ethanol and biodiesel, Irwin says. Ethanol would see limited drop in demand if the renewable fuels mandate was eliminated as it’s become an established market because of its octane value. Biodiesel isn’t the same.
“I don’t see that ever developing on the renewable diesel or from biodiesel side,” he says, citing high costs versus petroleum diesel as one factor.
Denny also believes all biofuels days are limited. “Regardless of Trump’s policies, the world, especially Asia and Europe, is moving away from internal combustion engines,” he says.