The opportunities and challenges with hemp
The following is an excerpt from this article over at Aberdeen News:
To me, the biggest challenge for anyone exploring hemp, either as a producer or as a landowner with a tenant possibly producing hemp, will be to secure a marketing channel. For the majority of Iowa’s agricultural production there are numerous markets where producers can sell their crops, animals, and associated products. For hemp, that is not the case. Currently, there are no organized hemp markets, nor hemp processors, in Iowa. This is not the type of market where you should take a Field of Dreams approach (“If you grow it, processors will come”) as production costs can be extremely high and the approval process for hemp, and especially CBD, products could take considerable time. The market conditions for hemp in many of the states that moved before Iowa show that the development of hemp markets takes time. See, for example, these stories in Forbes (tinyurl.com/t6ojnxp), Harvest Public Media (tinyurl.com/y4wahup3), and the Hemp Industry Daily (tinyurl.com/tn6ygns). Before you or your tenant put a hemp seed or clone in the ground, you better know where your markets are, or better yet, have a contract with a processor already in place. You (and your tenant, in the case of a landowner) also need to understand the potential legal and marketing challenges if your hemp crop is tested and found to exceed the 0.3% level for THC. Who pays for the destruction of the crop? (Answer – you do. If the tenant does not pay for destruction, then the landowner would have to pay.) What are the legal ramifications if your crop exceeds the THC limit? (Answer – if you exceed the allowable ‘negligent violation’ level, criminal charges could be filed.) Given the ever-changing legal and regulatory scene for hemp, it would make a great deal of sense to review any hemp business prospects with an attorney.
At the publication of this article, neither CBD extraction nor processing is legal in Iowa. There is a bill in the legislature that would make it legal, but with the legislative shutdown due to COVID-19, we do not know when the legislature will reconvene again. And, if the bill does pass and is signed into law, regulatory requirements will be put in place, making the processing site equivalent to a licensed food processing facility. If you grow hemp for CBD it is likely that the 2020 crop will need to be transported out of Iowa for extraction. Hemp prices are like hemp processors, hard to find currently. But the general trend reported in the hemp industry is for lower prices. Hemp Benchmarks has created a hemp price index, based on prices they have found in three of the largest hemp producing states (Colorado, Kentucky, and Oregon). That index has fallen by 84% from July 2019 to January 2020. At least three Kentucky processors (Atalo, GenCanna, and Sunstrand) filed for bankruptcy in 2020. It is difficult to create new markets, especially when the product faces significant legal and logistical challenges. While in the long run I believe that hemp will develop as a fruitful crop for some producers in Iowa, the short-term prospects are dim for most who will pursue hemp this year. The few who will be successful will need to do a lot of homework and preparation to produce and market their crop. That homework includes knowing who you will sell to and how well they are set up financially. As the bankruptcies in Kentucky highlight, just because they’re processing today, it doesn’t mean they’ll be processing tomorrow.
The agricultural economy has been rough the past few years. Traditional crop returns have not been strong and farm incomes/balance sheets have been in decline. Producers and landowners are searching for alternative crops that offer any prospects for profitability. We’ve seen these types of agricultural “rushes” before: emus, ostriches, Jerusalem artichokes, Aronia berries, etc. It’s not that these products did not have a market. It’s that these markets were overhyped and initial production over-exceeded (in some cases, greatly) what the market could bare. Hemp is setting up to have a similar path. A few folks will be successful with the crop, but many will likely see hemp as a flame-out, a lot of cost sunk into a crop with no real opportunity for returns.
About Dr. Chad E Hart:
I was born and raised in southwest Missouri. My parents raised a few cattle and operated a small meat locker. I received a B.S. in economics with minors in mathematics, history, and astronomy from Southwest Missouri State University in 1991. I then moved to Iowa in the summer of 1991 to pursue graduate education. I received a Ph.D. in economics and statistics in 1999 from Iowa State University.
Upon graduation, I joined the staff for the Center for Agricultural and Rural Development (CARD) at Iowa State. I served as the U.S. Policy and Insurance Analyst with the Food and Agricultural Policy Research Institute (FAPRI) and a Scientist with CARD. For FAPRI, I was responsible for directing econometric and modeling efforts for the crop insurance component of the FAPRI modeling system. For CARD, I served in multiple roles, concluding as the head of the Biorenewables Policy Division and examined the interactions between the agricultural and energy sectors.
My research has examined the interaction between the agricultural commitments within the World Trade Organization (WTO) and the agricultural policies and programs of WTO members, crop insurance, international trade, biofuel policy, federal agricultural policy, and crop marketing.
I am also a partner in Farm Risk, an Iowa firm that develops revenue insurance products and receives revenue based on policies sold by crop insurance companies.
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