Soybean Rally: Assessing the Trade and the Biodiesel Catalyst

The immediate catalyst is clear. The USDA reported third-largest weekly soybean sales of 2.06 MMT for the week ending January 8. That figure far exceeded estimates and was more than four times larger than the same week last year. The buying was broad, with unknown destinations and China both picking up large volumes ahead of the open. This surge in commercial and technical buying drove the price move.

Yet the story is more nuanced than just a bullish sales headline. The critical divergence lies in the product spreads. While soybean futures rallied, the breakdown shows a shift in crush demand. Soybean meal futures are down $2 at midday, while soybean oil futures are rallying 197 to 200 points. This spread shift signals that the demand driving the sales may be more focused on oil production than meal, which could indicate a complex and potentially unsustainable demand pattern.

The thesis here is that record sales are bullish for the overall crop, but the product spread shift demands close monitoring. It suggests the rally may be driven by specific, possibly temporary, factors in the crush sector rather than broad-based, fundamental strength. For now, the trade is supported by the massive sales data, but the spread divergence is a red flag that the rally's foundation could be more fragile than it first appears.

Supply Context and Near-Term Catalysts

The bullish sales data must be weighed against a backdrop of ample supply. The recent rally is a trade against a large crop. The U.S. is not facing a shortage, and the market is digesting the record weekly sales against a structural oversupply. The critical near-term catalyst is the NOPA crush report due Thursday, which will show December soybean processing volumes and help gauge domestic demand. Traders are looking for a total of 224.8 million bushels of soybeans crushed in December. This report will provide a hard look at whether the strong export sales are translating into sustained domestic crush activity or if the demand is more concentrated in the oil complex.

The market will also watch for whether the strong export sales continue or if they were a one-week anomaly. The 2025/26 pace remains behind last year's. The critical metric is the cumulative sales pace: sales have reached 71.5% of the USDA forecast for the marketing year, compared to a five-year average of 80.9%. This means sales need to average 364,000 tonnes per week to meet the USDA target. The recent 2.06 MMT sale was a massive beat, but the market needs to see that pace hold to tighten the supply picture meaningfully.

A tighter market scenario would require sustained high sales to deplete stocks. Yet the large Brazil crop and potential for increased U.S. production provide ample supply. The recent sales surge is a bullish event, but it is a tactical one. The setup hinges on the NOPA report confirming strong domestic demand and on the weekly export sales data showing the recent pace is sustainable. Until then, the rally faces the structural headwind of abundant supply.

Forward Catalyst: The Biodiesel Policy Timeline

The most significant fundamental catalyst for soybean oil demand is now in the final stages of its regulatory timeline. The U.S. EPA is scheduled to finalize Renewable Volume Obligations (RVOs) for the 2026 biodiesel mandate in early March. This event is a clear, forward-looking catalyst that will set the legal floor for biodiesel blending in the coming year.

The market is already pricing in the potential for higher demand, as evidenced by the recent surge in RIN generation. In November, 1.78 billion RINs were generated, a figure that, while down from the prior year, still represents a massive volume of renewable fuel production. The final RVOs will confirm whether this momentum is sustainable or if it was driven by temporary factors like the small refinery exemption (SRE) petitions that are now pending.

This is a fundamental, not tactical, event. The RVOs directly dictate the volume of biodiesel that obligated parties must blend, which in turn drives the physical demand for soybean oil as the primary feedstock. The timing in early March provides a concrete date for the market to price in. Until then, the soybean oil complex trades on anticipation, with the final mandate serving as the ultimate demand catalyst.