The green craze is underway, and it seems as though every farmer and their mothers are nonstop producing this cash crop with dreams of budding wealth. But what’s going to happen now that there’s an immense surplus?
While hemp has a plethora of uses, the farmers have been going over and beyond to produce, overplanting their crops to the point that they’re expecting 180 millions pounds of the stuff. With this being the case, beginning in October, hemp prices are expected to crash for approximately 18 months.
In this article, we’ll discuss the legalization of industrial hemp, the current situation, and what’s expected to come of this hemp surplus.
The Farm Bill
The Farm Bill was exciting when it passed in 2018, removing industrial hemp from the list of controlled substances list. Farmers were ecstatic that tribes, states, and territories would now begin to establish regulatory structures to ensure this high-value cash crop could be grown.
In the past, cannabis was not a crop associated with farm subsidies, nutritional assistance, and crop insurance. However, Senate Majority Leader Mitch McConnell supported the progression of the hemp industry, bringing the cannabis plant forward as a major cash crop.
While this bill is responsible for legalizing industrial hemp farming, the significance was even better because farmers and ranchers would still retain federal farm program benefits. This was new for the farmers and acted as a form of encouragement to get involved with growing hemp if they weren’t interested already.
The Current Situation
At this point, anyone who is currently farming hemp should be concerned about his or her future. This hemp surplus is expected to impact the market upon its introduction, highlighting just how problematic it could be for the farmers.
While CBD is incredibly popular, the US market’s use of CBD is nowhere near the level it should be to consume what’s being produced. The US public has the potential to consume 22.5 million pounds of 10% CBD hemp each year. With the farmers currently growing approximately 180 million pounds of the stuff, we’re seeing eight times the amount needed is being produced.
This massive amount of raw material doesn’t even take into consideration the CBD and hemp products currently being imported. China is a significant player in the hemp industry, stepping up its game to produce hemp-derived products at a cheaper rate than farmers in the US.
Looking at some of the data currently being offered by the experts at HempBenchMarks.com, with 400,000 acres of land allotted for hemp farming in the United States, perhaps 30 percent of that land is actually going to get planted. Since each acre will result in approximately 1,500 pounds of hemp, this means we’re looking at a yield of approximately 180 million pounds of biomass. Thus, since each pound of biomass results in 0.026 kilograms of isolate, we’re looking at a total CBD isolate yield of approximately 4.7 million kilograms of isolate. With such a large amount of isolate being thrown into the market, it’s bound to drive the prices down significantly.
Processing is also going to be a hassle. Keeping up with the processing that’s essential to extract all of that isolate is going to force the industry to process 500,000 pounds of raw material each day for the next year. With this being the case, since there’s so much raw material available, we’re going to see a massive decrease in the price of raw material down as well. This spells trouble for hemp farmers and their families.
Even though the current average price of raw hemp is $3.95 at this point, right before harvest season, it’s possible that the purchases will decrease to $2.30. This is because of the early harvests. However, this does not even take into consideration how the price will look by October 1st. While this is disastrous for many businesses operating in the cannabis industry, we’ve seen problems resulting from surpluses in the past as well.
The Previous Cannabis Surplus
Washington and Oregon have already dealt with cannabis surpluses following sudden legalization. The demand rose fast, causing prices to rise with the demand. This results in a limited supply. To meet the high demands, the farms raised capital to boost their production. However, none of the farms knew what the other farms would produce. So as soon as harvest time hit, there was a massive surplus, causing the prices to drop. As a result, the farmers ultimately suffer, and many people lose their businesses.
So What’s Going To Happen?
Looking at the history of the hemp market and what occurs when overproduction occurs, a price crash will likely happen. This drop should only last for around 18 months. Even with this being the case in some states, this crash may last as long as three years in some regions. Growing more hemp to offset the losses these farms will experience can offset the impact of this surplus of industrial hemp. However, it’ll take at least a few years to get to this point.
Some brands will prosper in this new market environment. The brands distributing product have a lot to gain over the next year and a half, especially brands landing massive purchase orders. These are the brands that will control the market as their purchase order prices tend to stay the same. In essence, these brands will see their input costs decrease while their margins increase.
Exportation could be an option as well. While the USDA has put some guidelines in place to import seed stock into the United States, it hasn’t put together guidelines to facilitate export. Thus, the USDA is going to have to make creating an exporting infrastructure a priority to ensure the crops and material can be exported, effectively saving many farmers from total losses.
How will the hemp surplus impact your life? Will your business suffer from the excess product hitting the market? Or do you have a way to take advantage of the situation, effectively make lemonade out of these lemons?