A surge in crude oil prices lifted major biofuel feedstock futures on Monday, including soybean oil and palm oil, while a lower supply outlook for corn supported ethanol toward the end of last week.
The Nymex November ethanol futures contract firmed further by 0.37% to about $2.04 per gallon on Friday.
The US Department of Agriculture in its latest supply and demand report showed a drop in US 2026/27 corn production outlook to 15.80 billion bushels, relative to the previous estimate of 16.01 billion bushels. Corn use for ethanol, meanwhile, was unchanged at 5.60 billion bushels.
Additionally, "major global coarse grain trade changes for 2026/27 include smaller corn exports for Brazil on higher domestic use for ethanol production," the USDA said. The agency's forecast for Brazil's corn exports was revised down to 43 million metric tons from 44 mmt.
The large reduction in supply and strong demand may keep corn prices supported, StoneX chief marketing economist Arlan Suderman told Brownfield.
On Monday, the October soybean oil contract on the Chicago Board of Trade rose 0.56% to 69.58 cents per pound, driven by a jump in crude oil prices improving biofuel demand sentiment.
Higher prices for raw material soybeans due to strong Chinese demand also supported soybean oil. The November soybean contract on CBOT firmed 0.17% to $12.99 per bushel in early trade.
However, price gains were capped as the USDA kept its soybean oil price forecast for the current season at 70 cents per pound, while also maintaining the same outlook for biofuel consumption at 17.80 billion pounds.
Production and ending stocks estimates were also unchanged at 32.95 billion pounds and 1.88 billion pounds, respectively.
In Asia, Malaysian palm oil futures rebounded on Monday after four sessions of losses, supported by stronger crude oil and rival soybean oil prices, as well as bargain hunting.
The Bursa Malaysia Derivatives' October crude palm oil contract closed higher by 1.01% to 4,717 Malaysian ringgit ($1,159.31) per metric ton. The November contract gained 0.75% to 4,850 ringgit/mt.
"Bargain hunting emerged after prices hit a two-week low," Trading Economics said.
Rising crude oil prices due to persisting tensions in the Middle East improved the economics of biofuels over fossil fuels, with the spread between Malaysian crude palm oil and Singaporean gas oil dropping to minus $123.25 per metric ton on Sep. 10 from the 2026 peak of $428.88/mt on Jan. 27, according to a Platts assessment.
The current differentials support Indonesia's higher biodiesel blend mandate of 50%, or B50, which is set for full implementation by Oct. 1.
S&P Global Energy Horizons projects Indonesia's domestic biodiesel demand to grow to 13.9 mmt this year from 13.2 mmt in 2025.
However, the largely unchanged biodiesel production quota of 15.6 million kiloliters, or around 13.8 mmt, suggests that there is "limited room for demand growth without additional capacity," the research firm said.
The country's plan to further increase its biodiesel blend ratio to 60% next year would therefore require additional biofuel production capacity, according to Wilmar's biofuel head Rahul Kale, as cited by S&P Global.
In the near term, crude palm oil prices are lacking a "clear" direction, price reporting agency MySteel said, noting that weak export demand continues to offset a possible decline in output as oil palms enter the seasonal production-reduction cycle.
Cargo surveyors reportedly estimated Malaysian shipments in the first 10 days of September to have declined between 11.7% and 17.5% from a month earlier. This followed a 7.5% month-over-month drop in August, according to Malaysian Palm Oil Board data.
Meanwhile, analysts generally expect a strengthening in crude palm oil in the coming months amid improving biofuel viability and drought-driven supply risks.