MarketsJul 7, 2026
The Biofuel Supercycle Is Underway. Can the Industry Deliver?
Energy Policy
Rhea Lobo
Discover
Biofuels — fuels made from crops like corn, soybeans, and palm oil rather than petroleum — have moved from niche policy tool to urgent energy priority.
Disruptions to global oil flows this year accelerated government blending mandates worldwide. The investment story is real, but a growing production gap adds a layer of risk you need to understand.
Disruptions at the Strait of Hormuz created fresh urgency for countries already leaning toward biofuels. Brazil announced plans to raise the ethanol blend limit in gasoline to 32%, up from 30%, partly to curb domestic inflation in an election year.
Indonesia is rolling out a mandate requiring diesel to contain 50% palm-based biofuel, one of the most ambitious programs globally. Malaysia plans to double its palm-oil diesel share to 20%.
In the US, the Trump administration's EPA set record biofuel blending targets for 2026, mandating a 60% increase in biodiesel and renewable diesel use versus 2025 levels.
The administration also raised the required share of soybean oil going into biomass-based diesel, a direct boost to domestic farmers.
The policy shift is already flowing into stock prices. Archer-Daniels-Midland raised its earnings forecast and its stock is up 40% this calendar year.
Bunge Global is up nearly 50%. Both companies buy soybeans from farmers and crush them into oil, which feeds directly into biofuel production.
Refiners are also turning a corner. Valero Energy, the nation's biggest biofuel producer, swung its renewable diesel business to a $139M profit in the first quarter after a $141M loss in the same period last year.
HF Sinclair posted a $133M profit in renewable diesel after a $17M loss a year earlier. Phillips 66 sharply narrowed losses in its renewable fuels division and reported its renewable diesel plants are running above capacity.
A key driver is the price of Renewable Identification Numbers, or RINs — tradable credits refiners earn by blending more biofuel than required.
Refiners who generate surplus RINs can sell them to others that cannot meet mandates on their own. RIN credit prices have surged more than 80% this year to over $2 each.
Here is where the story gets complicated. US plants are running well below the pace needed to hit EPA targets. Biodiesel facilities operated at 77% of capacity in May, and renewable diesel plants ran at 78%, against the roughly 90% the EPA assumed when setting mandates.
Refiners generated 736M RINs in May. The monthly pace needed to stay compliant is roughly 915M. Production through the first four months of 2026 lagged required levels by 1.41B RINs.
"There is no way the industry is going to meet its targets at the rate they are going," said Paul Niznik, director of energy at Capstone LLC. Part of the shortfall traces to delayed federal guidance on the 45Z clean fuel production tax credit, which held back investment decisions for months.
A surge in conventional diesel margins during the Iran conflict also gave refiners more incentive to maximize petroleum output rather than expand renewable production.
If the gap persists, the stockpile of unused RIN credits could be exhausted by year-end, pushing compliance costs higher. Smaller refiners that buy credits rather than blend fuel themselves face the most direct pressure.
US government farm support reinforces the corn and soybean demand floor. Direct payments to US farmers could hit $44B in 2026 before a proposed additional $11B request, keeping feedstock supply abundant. That is a structural tailwind for processors like and.
For refiners, the near-term profit windfall is real but the policy outlook is contested. The American Fuel and Petrochemical Manufacturers has filed a lawsuit against the EPA over the mandates and is actively lobbying Congress to lower 2026 targets. Any rollback could deflate RIN prices and compress renewable fuel margins.
The cleaner exposure sits with grain processors who benefit from strong soybean oil demand regardless of whether refiners hit their blending targets. Refiners carry more binary policy risk tied to whether mandates hold.
