CHICAGO (Reuters) -U.S. biofuel makers will consume more than half of all soybean oil produced in the United States next year as a recent flurry of federal policy moves has transformed the sector, including higher blending mandates and curbs on foreign biofuel imports and feedstocks, the U.S. Department of Agriculture said on Friday.

In a monthly supply-and-demand report, the USDA sharply raised its outlook for soybean oil use by biofuel producers in the 2025/26 marketing year, which begins October 1, to a record 15.5 billion pounds, up 11.5% from its forecast a month ago and 26.5% higher than the current marketing year.

U.S. soyoil exports were seen tumbling to 700 million pounds in 2025/26 as more oil is consumed domestically, down from 2.6 billion pounds in the current season.

The U.S. Environmental Protection Agency last month proposed to increase the amount of biofuels that oil refiners must blend into the nation's fuel mix in 2026 and 2027, driven by a surge in biomass-based diesel mandates, along with measures to discourage biofuel imports.

The moves were welcomed by the nation's fast-growing biofuels industry after months of policy uncertainty that had hobbled output of fuels made from vegetable oils like soyoil, canola oil and used cooking oil.

Under the Renewable Fuel Standard, refiners are required to blend large volumes of biofuels into the U.S. fuel supply or purchase credits known as RINs from those that do.

"EPA not only significantly raised the mandates but also proposed to reduce the number of Renewable Identification Numbers (RINs) generated for imported renewable fuels and renewable fuels produced from foreign feedstocks starting in 2026, which increases demand for domestically produced feedstocks like soybean oil," the USDA said on Friday.

Additional incentives via state biofuel mandates and the federal 45Z clean fuel production tax credit in U.S. President Donald Trump's recently enacted budget law further fueled the outlook for soyoil use in biofuel, the USDA said.

Benchmark Chicago Board of Trade soyoil futures firmed on Friday, hovering just below a 7-1/2-month peak hit on June 23.