As of mid-January 2026, the once-booming American soybean oil market has hit a wall of policy-induced paralysis. Despite a decade of aggressive investment in renewable diesel and sustainable aviation fuel (SAF) capacity, soybean oil prices remain stubbornly rangebound between 48.00 and 52.00 cents per pound. The culprit is a "demand vacuum" created by the transition to the Section 45Z Clean Fuel Production Credit, a performance-based tax incentive that officially took center stage on January 1, 2025, but continues to be plagued by regulatory delays and scoring controversies.

The immediate implications are stark: domestic crush margins—the profit processors earn from turning soybeans into oil and meal—have collapsed from their 2023 highs. Refiners and biofuel producers, uncertain of how the Department of the Treasury and the EPA will finalize Carbon Intensity (CI) scores for the 2026–2027 period, are hesitating to sign long-term feedstock contracts. This wait-and-see approach has left farmers and agribusinesses in a state of high-stakes limbo, as the market shifts from being driven by global supply and demand to being dictated by the stroke of a regulator's pen in Washington.

The Policy Cliff: From the OBBB Act to the 45Z Transition

The current stagnation is the culmination of a tumultuous two-year period in federal energy policy. Following the signing of the "One Big Beautiful Bill Act" (OBBB) on July 4, 2025, the industry was promised long-term stability with the extension of the 45Z credit through 2029. However, the transition from the old $1.00-per-gallon Blenders Tax Credit (BTC) to the 45Z performance-based model has been anything but smooth. Unlike the BTC, which paid out a flat rate regardless of the fuel's carbon footprint, 45Z requires producers to prove their fuel’s CI score using the GREET (Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies) model.

The timeline leading to this moment was marked by a massive influx of foreign feedstocks in early 2025. Anticipating the January 1, 2026, "North American-only" restriction—which limits 45Z eligibility to fuels made from feedstocks grown in the U.S., Canada, or Mexico—refiners flooded their storage tanks with cheap Chinese used cooking oil (UCO) and Brazilian tallow. This inventory cushion, combined with the EPA's failure to release the 2026–2027 Renewable Volume Obligations (RVOs) by the end of 2025, has left the market without a clear signal for domestic soybean oil demand in the new year.

Key stakeholders, including the American Soybean Association and major energy lobby groups, spent the final months of 2025 debating the "Climate-Smart Agriculture" (CSA) requirements within the GREET model. While the removal of the Indirect Land-Use Change (ILUC) penalty in late 2025 was a major win for soybean oil, narrowing its CI gap with waste-based oils, the lack of final operational guidance has kept the "starting gun" from firing for the 2026 trading season.

Winners and Losers in the 45Z Era

The financial impact of this policy pivot has been uneven across the agribusiness and energy sectors. Archer-Daniels-Midland (NYSE: ADM) has emerged as one of the most visible victims of the transition. In late 2025, the company reported a staggering 93% drop in its crushing profits, citing thin margins caused by the lag between feedstock prices and the realized value of 45Z credits. ADM’s heavy reliance on U.S. domestic processing has left it exposed to the current policy-induced demand lull.

In contrast, Bunge Global SA (NYSE: BG) has shown more resilience. By leveraging its 2024 acquisition of Viterra, Bunge has utilized its global footprint to navigate the margin compression in North America. By processing more in South America for non-U.S. markets while waiting for the 45Z rules to clear, Bunge has maintained a more balanced portfolio. Similarly, Darling Ingredients (NYSE: DAR), through its Diamond Green Diesel joint venture with Valero (NYSE: VLO), has taken some production capacity offline in late 2025 to perform maintenance, effectively waiting for the market to normalize before ramping back up to full capacity in 2026.

In the aviation sector, the landscape is shifting. United Airlines (NASDAQ: UAL) and Delta Air Lines (NYSE: DAL) are grappling with the 2026 expiration of the "special rate" for SAF, which previously allowed for credits up to $1.75 per gallon. Under 45Z in 2026, SAF is capped at $1.00 per gallon, the same as renewable diesel. This has forced airlines to lean more heavily on state-level incentives and "premium" traveler programs to cover the costs. However, producers like Gevo (NASDAQ: GEVO) stand to win in the long term, as their carbon-capture-integrated ethanol-to-jet pathways are expected to achieve the lowest possible CI scores under the finalized GREET model.

The CI Wars: Regional Disparities and Industry Trends

The stagnation in soybean oil prices isn't just a matter of supply; it's a battle over how carbon is measured. The current industry trend is a shift toward "carbon-negative" agriculture, where the value of a bushel of soybeans is increasingly tied to the farming practices used to grow it. The removal of ILUC penalties under the OBBB Act was a watershed moment, effectively acknowledging that domestic soybean production does not inherently drive global deforestation. This has made soy-based renewable diesel significantly more competitive against imported waste oils.

However, a new "regional disparity" has emerged within the GREET model. To achieve the lowest CI scores—and thus the highest tax credits—farmers must often employ "Climate-Smart" practices like no-till and cover cropping. Farmers in the Northern Plains, such as North Dakota, argue that their climate makes cover crops nearly impossible to implement, potentially placing them at a permanent financial disadvantage compared to peers in the Midwest. This regulatory friction has slowed the adoption of SAF and renewable diesel in certain regions, contributing to the overall market malaise.

Historically, this situation echoes the early days of the Renewable Fuel Standard (RFS), where uncertainty over blending mandates often led to price volatility. The difference in 2026 is the sheer scale of the capital involved. With billions of dollars in new crushing and refining infrastructure now online, the industry is no longer in a "pilot" phase. It is a mature sector being held back by a regulatory framework that is struggling to keep pace with its technical capabilities.

Looking Ahead: The Q1 2026 Pivot

What comes next for the soybean oil market depends almost entirely on the EPA and the Treasury Department. In the short term, the market is bracing for the EPA’s Q1 2026 release of the final RVO targets. If the EPA sets aggressive mandates for 2026 and 2027, the "North American-only" rule will likely trigger a massive rotation back to domestic soybean oil, as the cheap foreign inventories accumulated in 2025 begin to dwindle. Analysts suggest this could break the current price ceiling and lead to a significant rally in the second half of the year.

Longer-term, the industry may see a "strategic pivot" toward integrated supply chains. We should expect to see more partnerships where refiners like Phillips 66 (NYSE: PSX) directly contract with farmer cooperatives to ensure a steady stream of low-CI, verified domestic feedstock. The challenge will be the data; the administrative burden of tracking the "carbon journey" of every bushel of soybeans from the field to the fuel tank is a hurdle that may favor larger, more technologically advanced players over smaller independent crushers.

Conclusion: A Market Waiting for its "Starting Gun"

The early weeks of 2026 have been a period of frustration for the agriculture and renewable energy sectors. The stagnation of soybean oil prices reflects a market that has outpaced its policy environment. While the transition to the 45Z tax credit offers a path toward a more sustainable and domestic-focused energy future, the current lack of finalized guidance and mandates has created a bottleneck that is stifling growth and compressing margins for giants like ADM.

Moving forward, the market is likely to remain volatile but rangebound until the regulatory fog lifts. Investors should keep a close eye on EPA announcements regarding RVOs and any further refinements to the GREET model's CSA requirements. The "North American-only" restriction is the most significant bullish factor for domestic soybean oil in years, but its impact will only be felt once the industry has a clear rulebook to follow. For now, the American heartland remains in a state of suspended animation, waiting for the policy certainty that will define the next decade of green energy.

This content is intended for informational purposes only and is not financial advice.