For the first time in decades, the United States finds itself embroiled in an international trade war. So far, billions of dollars worth of tariffs have been slapped on both foreign and domestic goods; and few groups have felt the pain of this war more than American farmers. Could industrial hemp production help give farmers, and the United States, a critical edge in this trade war? The data seems to suggest so, and in this special report, the Hemp Business Journal will walk you through the numbers and show you how.
Although the U.S. is involved in several international disputes, the most crucial front in the trade war is with China. China is one of the United States’ largest trading partners, and one of their most painful trade attacks is their 25% tariff on soybeans.
Soybean Prices Crushed
The reason soybean tariffs are so painful to U.S. farmers is that soybeans are their second largest export to China. In 2017, the U.S. sold approximately one-third of its soybean harvest to China, totaling $14 billion. At this very moment, there is a cargo ship loaded with $20 million worth of soybeans just sitting in the South China Sea, waiting for the trade war to end before it can offload its goods.
Although the owners of the cargo ship can afford to stay out to sea for an extended period of time, soybean farmers aren’t so lucky. Even without international trade disputes, soybean prices have been falling in recent years, and now, according to a report by the University of Illinois’ Department of Agricultural and Consumer Economics, the price is so slow it’s hard to economically justify planting it.
At the soybean market price peak in 2012, farmers were able to make $160 per acre after costs. But now, thanks mainly to the trade war, prices have fallen so far that farmers have gone from making a modest profit off their crop to losing approximately $20 per acre of soybeans. Projections for 2019 are dire, with farmers set to lose $47 per acre.
Hemp to the Rescue
So where does hemp fit into this economic picture? Industrial hemp cultivation would help the United States gain an edge in the trade war with China in two way. The first way is that a growing US hemp industry would cut into Chinese hemp exports. As the largest exporter of hemp in the world, China would stand to lose its parts of its export market if a competitor like the United States could develop processing infrastructure to cut into its market share.
The second reason is that full-scale hemp cultivation could help relieve some pressure for beleaguered soybean farmers. For farmers feeling the heat of soybean tariffs, hemp represents a viable alternative crop that can be far more profitable, according to Joe Hickey, Director of Corporate Relations and Founder of Atalo Holdings.
“Some of these farmers out here in Kentucky, if they make $30 or $40 an acre, they’re just happy they didn’t go in the hole,” said Hickey. “But hemp is a completely different ball game. We haven’t even scratched the surface yet.”
Atalo Holdings is one of the largest hemp farming co-ops in the state of Kentucky, with more than 60 farmers as part of the group. According to Hickey, the profitability of hemp depends primarily on what you grow it for. At present, there are three primary purposes that hemp is currently cultivated for grain/seed, fiber, and CBD.
Hemp grain can sell for anywhere between $0.60-$0.65 per pound, and on average, hemp farmers get about 1000lbs of hemp grain per acre. After taking into account costs, which can range from $300 to $350, farmers can make around $250 to $300 per acre. Similarly, hemp fiber sells for approximately $260 per ton. On average, hemp crops can yield about anywhere between 2.5 to 3 tons of hemp fiber per acre, which means after costs farmers can make upwards of $480 per acre in profit. Much of the fiber market depends on industrial processing capacity, and at present, there is little in the emerging US market.
When it comes to determining the profitability for hemp cultivated for CBD extracts, the math is wide-ranging for farmers.
Hemp CBD Cultivation Types
There are two main methods for cultivating hemp for CBD. The first model is the agronomic method, which is where hemp is grown like any other agricultural commodity crop. The advantage of the agronomic method is that it is both cheap and carries less risk than other methods of cultivation. The drawback, however, is that it yields less CBD.
The second model is called the horticultural method, where hemp is grown in a manner similar to cannabis. Growers using this method will often use the term “short, bulky Christmas trees” to describe their crop. The advantage to this model is that farmers get significantly higher yields of CBD than the agronomic model. The drawback to the horticultural model is that it is more expensive and not yet scaleable for most farmers.
Depending on the state, circumstances, and cultivation method; cultivating hemp for CBD can generate anywhere between $2,500 and $40,000 per acre. With such an incredible range of profits for farmers, the paradox of choice and learning curve on how exactly to grow hemp remains for many US farmers.
That said, even at its lowest price, hemp is significantly more profitable than soy at its peak price or any other agricultural commodity for that matter.
2018 Farm Bill
If the United States wants to gain a critical edge in its trade war with China, it should wholeheartedly embrace industrial hemp cultivation. Although industrial hemp cultivation is technically allowed in the United States under Section 7606 of the 2014 Farm Bill, restrictions stand in the way of the industry from reaching its full potential.
Currently, there is an amendment attached to the Agriculture Improvement Act of 2018, also known as the 2018 Farm Bill, that would fully legalize the cultivation of hemp. Sponsored by Senate Majority Leader Mitch McConnell (R-KY), the amendment would go a long way towards putting farmers back to work and the United States on top in the international hemp trade; so long as legislators pass the 2018 Farm Bill this fall.