Biofuel Rules to Absorb More Than Half of U.S. Soybean Oil

Soybean oil, once seen mainly as a staple for kitchens and food processors, is becoming something else entirely: fuel. The U.S. Department of Agriculture has projected that for the first time in history, more than half of all soybean oil produced domestically will be diverted into biofuel production during the 2025–26 marketing year.

That forecast reflects a policy-driven transformation of American agriculture. It is no longer simply about feeding people or livestock but about powering trucks, planes, and refineries in the name of reducing carbon emissions. For farmers, refiners, and policymakers alike, the change signals both opportunity and risk.

The numbers are striking. The USDA projects that biofuel will consume roughly 15.5 billion pounds of soybean oil next year, up sharply from less than a third of production just five years ago. At the same time, exports of soybean oil, once a reliable outlet for U.S. processors, are expected to contract significantly as more supply is absorbed at home. Food manufacturers warn they could face tighter supplies and higher prices, while livestock producers who depend on soymeal for feed are watching closely to ensure that crushing expansion keeps pace.

At the center of the change is government policy. Federal renewable fuel standards, combined with state programs such as California’s Low Carbon Fuel Standard, have created guaranteed demand for renewable diesel and sustainable aviation fuel. Refiners are responding with billions of dollars in plant conversions, many of them along the Gulf Coast and in California. Soybean oil is the feedstock of choice because it is abundant, relatively easy to process, and enjoys strong political backing from Midwestern lawmakers.

The Environmental Protection Agency has set ambitious blending mandates, requiring refiners to incorporate increasing volumes of renewable fuel into their supply. Tax credits in the Inflation Reduction Act further sweeten the economics for renewable diesel and aviation fuel. Taken together, the incentives have created what analysts describe as an almost insatiable appetite for vegetable oil.

In the Midwest, the demand surge is visible on the ground. Dozens of new soybean crushing facilities are being built or expanded across Iowa, North Dakota, Missouri, and Kansas. These plants are designed to process beans more efficiently, producing both oil for biofuel and meal for livestock. The construction boom is bringing jobs and local tax revenue to rural areas.

For growers, the shift represents a stable demand source in a volatile world. “This is a safety net we didn’t have before,” said one Illinois farmer. “Even if exports dip or feed demand slows, biofuel gives us a floor.” Futures markets have already adjusted, with soybean oil prices climbing to reflect expectations of tight supply.

Yet some producers remember the cautionary tale of ethanol. Corn farmers reaped huge benefits when the ethanol mandate was expanding in the 2000s, only to face painful downturns when margins shrank and political support wavered. A similar boom-bust cycle in soy oil could leave farmers and rural communities exposed if policies change.

The ripple effects are already being felt by other industries. Food processors and restaurants that rely on soybean oil for frying, baking, and packaged goods warn that higher input costs are likely to be passed to consumers. In some cases, companies are looking to switch to alternative oils such as canola or sunflower, though supplies are not limitless and carry their own price volatility.

Exporters face a different dilemma. Countries such as Mexico and South Korea that have long depended on U.S. soybean oil are beginning to look elsewhere, turning to Argentina and Brazil to fill gaps. Trade analysts worry that once market share is ceded, it will be hard to win back. “Exports can vanish quickly,” said one trade economist. “It’s not as simple as flipping a switch when domestic demand eases.”

Supporters argue that diverting soybean oil into fuel is a crucial part of meeting climate goals. Renewable diesel is considered a “drop-in” fuel, compatible with existing engines and infrastructure, and can cut greenhouse gas emissions by as much as 60 percent compared to petroleum diesel. Sustainable aviation fuel, a newer product, is seen as one of the few viable options for reducing emissions in air travel.

But critics question whether the benefits are as clear-cut as advertised. Environmental groups argue that increased soybean cultivation could drive land-use changes that offset emissions gains. They point to deforestation risks in South America, where global demand for soy may encourage expansion into sensitive ecosystems. Even within the United States, expanded acreage raises concerns about water quality, pesticide use, and biodiversity.

The U.S. is not alone in pursuing crop-based biofuels. The European Union has also leaned on vegetable oils for renewable fuel targets, though it has scaled back palm oil due to environmental concerns. As the United States shifts more soy oil into fuel, global markets are adjusting. Palm oil, rapeseed oil, and sunflower oil are all experiencing price pressure as buyers scramble for alternatives.

Brazil and Argentina, already major soy exporters, may stand to gain from the U.S. policy. With less American oil available for export, those countries can expand their footprint in food markets, potentially at the expense of U.S. farmers once known for their reliability as suppliers.

The USDA’s projection is a warning shot: the traditional balance of how soybeans are used is changing fundamentally. Food, feed, and fuel are no longer complementary markets, they are competitors. For policymakers, the challenge will be balancing energy security, climate targets, food affordability, and trade relationships without tipping the scales too far in any one direction.

For farmers, the moment feels like both validation and risk. Years of promoting soy as a flexible crop with multiple markets are paying off. But tying its future so tightly to energy policy means the farm economy could rise or fall on decisions made in Washington or Sacramento.

The outcome will shape not only grocery bills and export tallies but also the energy mix powering American transportation. As the USDA’s numbers make clear, soybean oil is no longer primarily a food product. Increasingly, it is an energy commodity, and the consequences of that shift will be felt across agriculture and beyond.