Darling Ingredients: Capitalizing on Regulatory Tailwinds for U.S. Energy Independence

The Trump administration's relentless push for energy independence has reshaped the biofuel landscape, creating a tailwind for companies like Darling Ingredients (DAR), a leading supplier of feedstocks critical to biodiesel production. As policies prioritizing domestic feedstock sourcing, curbing foreign imports, and boosting renewable fuel mandates take hold, Darling's strategic position in the supply chain is set to gain momentum.

Regulatory Tailwinds: A Perfect Storm for Biodiesel Producers

The Trump administration's Renewable Fuel Standard (RFS) reforms have been a double-edged sword for biofuel companies. While Small Refinery Exemptions (SREs) initially depressed Renewable Identification Numbers (RIN) prices—crucial compliance credits for obligated parties—the second term's policies are now recalibrating the market. Key changes include:

1. Domestic Feedstock Preference: New rules halve the RIN value of foreign-sourced biofuels compared to domestic ones, incentivizing U.S. producers to use locally sourced materials. Darling, which derives 80% of its revenue from animal fats and used cooking oil (UCO)—domestic, low-cost feedstocks—stands to benefit as foreign imports like Chinese UCO or Brazilian tallow face penalties.

2. Higher RFS Volumes: The 2026–2027 RVO targets proposed under the “Set 2” framework will require record levels of biomass-based diesel. This expansion aligns with Darling's scale: the company processes 20% of the U.S. animal fat supply and recycles 40% of domestic UCO, positioning it as an indispensable partner for biodiesel makers.

3. The “Second Dial” Mechanism: By differentiating RIN values based on domestic sourcing, the policy creates a premium for U.S. feedstocks. This shift aims to reduce foreign biofuel imports by 150,000 barrels of oil equivalent per day, directly boosting demand for Darling's products.

4. E15 Expansion: Despite legal setbacks, the administration's push for year-round E15 sales—now supported by EPA waivers—elevates ethanol demand, indirectly benefiting Darling's corn-based feedstock synergies.

Supply Chain Resilience: A Domestic Anchor in a Volatile Market

Darling's supply chain strength lies in its vertical integration and geographic focus. The company's 50+ facilities across the U.S. and Europe ensure a steady, low-cost feedstock supply, insulated from global commodity price swings. Under the new policies, its reliance on domestic raw materials—45% of U.S. biomass-based diesel feedstock currently comes from abroad—means it can capitalize on rules favoring local production.

The Inflation Reduction Act (IRA)'s 45Z tax credit for low-carbon fuels further strengthens Darling's case. While competitors using imported feedstocks face penalties for long-distance transportation or foreign sourcing, Darling's domestic sourcing strategy avoids these hurdles, making its feedstocks more attractive to tax-credit seekers.

The Investment Case: Riding the Energy Transition

Darling's stock has underperformed the broader market in recent years, but the confluence of regulatory tailwinds and supply chain advantages could drive a revaluation. Key catalysts include:
- RIN Price Recovery: As foreign feedstock imports shrink, RIN values for domestic-sourced biofuels (e.g., D-4 and D-5) could rebound, boosting demand for Darling's feedstocks.
- IRA Tax Credit Adoption: Biodiesel producers will prioritize low-carbon feedstocks, favoring Darling's domestic offerings.
- Trade Policy Gains: The U.S.-U.K. ethanol deal and similar agreements reduce foreign competition, supporting higher feedstock prices.

Risks: Overreliance on biodiesel demand, potential regulatory reversals under future administrations, and feedstock supply disruptions remain concerns. However, the current administration's focus on energy security and rural economies mitigates some of these risks.

Conclusion: A Buy on Structural Shifts

Darling Ingredients is uniquely positioned to benefit from the Trump administration's energy independence agenda. With its dominance in domestic feedstock sourcing, regulatory tailwinds, and the IRA's tax incentives, the company could see accelerated growth in 2025 and beyond. Investors seeking exposure to the U.S. biofuel boom should consider DAR as a buy, particularly if RIN prices stabilize and trade policies further restrict foreign competition.

Stay tuned for updates on RFS implementation and DAR's quarterly results.