Investing.com -- A major policy shift proposed by the U.S. Environmental Protection Agency could trigger a resurgence in domestic biofuels, sharply boosting soybean demand and agricultural equipment sales.
According to Bernstein Research, the agency's proposed update to the Renewable Fuel Standards (RFS) mandates a 75% increase in biomass-based diesel production, from 3.4 billion gallons to 5.9 billion gallons by 2027, driven entirely by domestic feedstocks.
Soybean oil, already the largest contributor to biomass-based diesel at 30%, is expected to gain more ground as the EPA's changes penalize imported feedstocks, which currently make up 45% of the supply.
Under the revised structure, imported fuels will generate only half the Renewable Identification Numbers (RINs) of domestically produced equivalents.
Concurrently, the Trump Tax Bill extends the 45Z clean fuel tax credit to 2031, increasing subsidies for non-aviation biofuels from $0.20 to $1 per gallon and for sustainable aviation fuel from $0.35 to $1.75 per gallon.
To meet the proposed targets, soybean acreage must expand by 10 million acres, or roughly 12%, reaching 93 million acres by 2027.
This projection assumes soybean oil maintains a 29% share in the biofuel feedstock mix and that non-biofuel soybean use remains flat.
The policy echoes the 2005 ethanol mandate, which led to a 10 million acre jump in corn planting and a doubling of corn prices.
Bernstein estimates soybean prices would rise 12%, from $10.57 to $11.85 per bushel, reducing the stock-to-use ratio from 7% to 5%.
At these prices, real cash margins for farmers planting a 50/50 corn-soybean mix would increase from $0.23 to $1.52 per bushel.
This margin improvement historically correlates with a double-digit uptick in large ag equipment sales.
Manufacturers stand to benefit. Deere & Co (NYSE:DE)., AGCO, and CNH Industrial (NYSE:CNH) could see a 10% lift in North American ag equipment volumes in 2026.
That translates to 5-6% earnings growth and a 3-4% increase in share prices, based on Bernstein's estimates.
If soybean oil regains prior feedstock share levels of up to 50%, equipment demand could increase 22%, pushing OEM EPS growth higher still.
Public hearings on the RFS proposal begin July 8, followed by a comment period ending August 8. A final rule is expected by October 31.
The current growing season, aided by favorable weather, is expected to maintain downward pressure on crop prices in the short term.
While market outcomes depend on final implementation and farmer response, the scale and structure of the proposed mandate suggest a substantial shift in U.S. biofuel policy that could echo the ethanol-driven ag cycle of the mid-2000s.