US Renewable Diesel Producers Pivot to Tallow as Brazil Exports Surge
The latest WASDE report, released on February 11, 2025, highlights the growing US renewable fuel sector's impact on global feedstock markets. According to the report, US consumption of oils and fats reached a new quarterly high of 7.75 million tonnes in October-December 2024. Now in 2025, with the absence of the Biodiesel Tax credit and new guidance around the 45Z credit limiting opportunities for fuels derived from imported UCO, renewable diesel producers are operating more cautiously (60% operational capacity) and especially actively shifting their feedstock mix toward tallow. Screen Biodiesel crush margin in US has now dipped just below -20 cents/gallon on account of strong Heating oil prices.
Brazil has become a crucial supplier in meeting this evolving demand, with Brazilian tallow exports setting an all-time record of 320,264 tonnes in 2024, marking a 30% increase from 2023 levels. The momentum has continued into 2025 as tallow provides important LCA advantages under LCFS & 45z, with January exports climbing by 58% month-on-month to 40,459 tonnes from 16,870 tonnes in December. This surge in Brazilian tallow exports is particularly significant as approximately 94% of Brazil's tallow exports were directed to the United States in 2024.
The strong export performance in tallow comes as Brazil's overall biofuel feedstock market shows signs of weakness. Total diesel sales in Brazil plunged by 6% year-on-year in December 2024, curbing biodiesel production to only 0.61 million tonnes - the lowest level since the introduction of the 14% admixture mandate in March 2024. Additionally, Brazilian soybean oil exports have fallen significantly, with the WASDE report showing reduced crush expectations and lower export projections, indicating a broader softening in Brazil's domestic biofuel feedstock market.
EIA data shows tallow and greases usage increased by almost one-third to 3.39 million tonnes in January-November 2024, representing the largest growth segment in the US renewable diesel feedstock market driven by layered incentives that included BTC through the end of 2024. This trend is not expected to continue in early 2025 as producers adjust to the new UCO import restrictions and potential guidance on 45z. Brazilian exporters are currently offering tallow between $1,040-1,060 per tonne, with prices likely to find additional support from potential and anticipated increase in demand once 45z is cleared up.
Looking ahead, competition for tallow supplies is likely to intensify through 2025. While Brazilian exports are projected to reach 400,000 tonnes in 2025, the country's beef tallow production is expected to drop 6.7% to 1.27 million tonnes. This supply constraint, combined with US producers' increasing shift toward tallow in response to the new US UCO import policy, could create additional price pressure in an already tight market. The situation underscores the rapid evolution in renewable diesel feedstock procurement strategies as the industry adapts to new regulations taking effect in 2025.
Meanwhile in the gasoil/diesel market we note a spike in geopolitical tensions that have propped up screen heat crack to $32/brl while ICE Gasoil is up 4% in one week. Feb/Apr backwardation is nearly $16/mt while Apr/Jul is $21/mt. If it wasn’t for gasoil bounce vegetable oils would not be so well supported!!
