Soybean oil is consolidating its position as the leading feedstock for biomass-based diesel in the United States, with a 45Z credit of $0.55 per gallon versus $0.20-0.22 for canola. Higher Renewable Fuel Standard volumes are sustaining demand.
Canola oil continues to be an important feedstock for the U.S. biofuel sector, but it faces increasingly stiff competition from soybean oil in the biomass-based diesel market, according to Jacqui Fatka, CoBank's lead economist for farm supply and biofuels.
“Soybean oil is the clear winner in the feedstock pool for biomass-based diesel,” Fatka said in a recent analysis. Data from the U.S. Energy Information Administration show that canola oil volumes are holding steady, while soybean oil consumption is on the rise.
The United States is by far the top export market for Canadian canola oil, and a growing share of that demand comes from the biofuel sector. Fatka attributes soybean oil's advantage largely to the expansion of crush plants in the country: capacity grew 25 percent over the past five years.
Another factor is the more favorable treatment soybean oil receives under the coveted 45Z production tax credit. A renewable diesel plant that uses soybean oil as a feedstock can earn a credit of $0.55 per gallon, compared with between $0.20 and $0.22 for canola oil. “Canola doesn't have as good of a carbon intensity score,” Fatka said.
That tax advantage of $0.33 to $0.35 per gallon comes on top of the price advantage soybean oil already holds over canola oil. “That's just one more hit for canola oil,” she said. And more hits could follow, because additional crush capacity is on the way.
For example, Louis Dreyfus Co. will begin production at a new plant in Ohio with capacity to process 1.5 million tonnes of soybeans a year. CHS Inc. is building another in Wisconsin that will be able to crush 2.18 million tonnes once it comes online in 2028. Fatka also noted that U.S. farmers planted three million acres of canola in 2026 and that processors in that country will produce 5.3 billion pounds of canola oil in 2026-27, an effort that could also restrict imports of Canadian canola oil.
Even so, there is still ample room for Canadian canola in the U.S. market. The Environmental Protection Agency set Renewable Fuel Standard volumes for 2026 and 2027 at 67 percent above the 2025 level, creating massive mandated demand for biomass-based diesel. “We're going to need every bit of feedstock we can get to be able to meet those really high targets,” Fatka said.
Brittany Wood, senior manager of transportation and trade policy at the Canadian Canola Growers Association, welcomed the fact that canola oil qualifies for the 45Z credit. “We're really happy that it landed that way,” she said. Despite the lower credit value compared with soybean oil, canola oil remains competitive in that market and demand for the product appears to be picking up in recent months. “We see it trending in the right direction,” Wood said. “Volumes are looking better, and we hope that we'll finish 2026 a bit higher than 2025.”
