5 problems hemp farmers face this year

Five years ago, farmers were racing to get in on the hemp craze with visions of $100,000 an acre dancing in their heads.

This year, farming problems are coming into focus, with so many problems facing farmers—from insurance costs and processing infrastructure challenges to regulatory and consumer uncertainty. And that’s not even counting the challenges of the weather and the too-successful harvest of last year that has led to a glut in the hemp CBD market with its attendant cratered pricing.

“You can’t tell farmers they’ll make the same money as last year or the year before,” said Wendy Mosher, president and CEO of New West Genetics, a hemp seed genetics seller. “You can’t afford to get in unless you’re vertically integrated. You’ve got maybe $8-12,000 per acre in spending.”

Daunting figures, with more headwinds than farmers would like to normally consider. But what if you can get an optimistic $5,000 an acre—which is maybe about $5,000 an acre more than you’re making on your soybeans? Plus, while hemp needs more water than corn or soybeans for the first month, hemp requires only one-third the amount of water during the rest of its growing cycle. Here are the issues at play for today’s hemp farmers. 

"Farmers feel if they can get between $4,000-$5,000 per acre they are doing great," said Tim Gordon, president of the Colorado Hemp Industries Association and chief science officer at the Functional Remedies hemp CBD brand. "But they will take anything above $2,000 per acre, so long as input costs justify." 

Related:Can one hemp ingredient supplier own the entire CBD market?

Oversupply

In the 2019 planting season, an estimated 250,000 acres of hemp were grown in America, which is about triple the amount grown in the year prior. That led a lot of observers wondering if the hemp CBD market could accommodate all this new raw material.

Two things happened. One is the price collapsed. For consumers, that was great news, as a tincture bottle of hemp CBD going for $100 was a bridge too far for some. So consumer prices for their CBD have become more affordable.

Two is farmers embarked on a great storage experiment. For larger-scale farmers, pelletizing their harvest became the go-to way to efficiently store excess hemp. Small-scale or boutique farmers had to hustle to find a market for their hemp.

“The market is bumpy,” said Mosher. “Last year was rough because a lot of new farmers came in and there’s a lot of biomass out there.”

Hemp farmers will agree with that sentiment.

“There’s a gluttony of harvest on the cannabidiol (CBD) side,” said Tim Gordon. “It asks whether this market is sustainable.”

Insurance

Even before putting a seed in the ground, farmers have to jump through hurdles they would not otherwise have to do with any other crop. The U.S. Department of Agriculture has issued its interim final rule governing growing practices that ensure the crop grown is hemp and not marijuana—the difference between the two plants being the amount of psychoactive THC within the plant. And amid the buzz for CBD products other market players are putting fingers on the scale.

One farmers might not have thought of is insurance.

The 2018 farm bill allowed for crop insurance for hemp, so that an unfortunate hailstorm would not lead to a total loss.

But who thought of private insurance for farms? Wouldn’t insurance for hemp cost the same as for corn?

That’s a big N-O.

“There’s no way my insurance should be four times higher than for anyother comparable crop,” said Mosher. “It’s an onerous up-front investment.”

Green rush

When hemp was liberated, a lot of attitudes around marijuana continued to plague the now-free hemp plant. Whereas hemp does not face the sky-high taxes that marijuana faces (costs that are passed on to consumers), it is still facing unique costs.

“When farmers and producers say, ‘I’ve produced X grain and I need it cleaned and conditioned,’ the pricing is not comparable,” said Gordon. “It’s three to five times higher than they’ve paid for corn. It’s astronomical.”

Gordon called such market responses to cannabis a “green rush tax” and said it’s an unexpected price farmers should not be paying. It’s even happening for hemp used for foods, not even CBD.

Processing infrastructure

A significant bottleneck preventing hemp from realizing its fortunes comes from a lack of large-scale, industrial processing interest.

“There’s no elevator to take this to. Where do I take it?” said Mosher. “Where can farmers drop it off as a whole-seller? It’s still nascent.”

Grain elevators are standard facilities designed to stockpile grain. It’s a large silo, or tower, that contains a conveyor to industrially take the biomass and store it—an essential part of agricultural practices.

The lack of a simple hemp-devoted elevator infrastructure is processing problems writ large. That means growers have to find other ways of keeping up with the supply chain—and with industry conferences all but kaput (at least in in-person formats), it means making those contacts all the more difficult.

“Who’s going to buy the product that you’re farming?” asked Preston Whitfield, business development advisor at the NoCo Hemp Expo. “You have to understand the supply chain from genetics to selling.”

An all-too common oversight farmers have is they start growing without having contracts already signed for who’s going to buy it at the end. That means a frantic, 90-day window between planting and harvesting to figure out a seller—or, better yet, sellers, plural.

“If you’re a new farmer, the proof is in the pudding,” said Whitfield. “Crawl, walk, run. Prove your success and then move on. We see people jump in with hundreds of acres. Jump in smaller.”

A handful of processors for hemp grains for final products do exist, says Gordon. But that falls far short of what is required when hemp is being grown in all 50 states.

“Scalability of processing is often not there,” said Gordon. “There’s a processing lag because of the lack of infrastructure to do so.”

The problem seems to be too much production for the current system, and not enough for the big boys.

“When you can bring me five rail cars a day, then we can go,” she said. “We’re stuck between small grain processors and large ones that are also inhibited by the regulatory piece.”

Regulatory headaches

The USDA issued interim rules giving states detailed requirements to implement the hemp provisions of the 2018 farm bill. The interim rule will last two years, then the agency will reassess (though it has already walked back at least one provision). 

The provisions include maintaining information on the land where hemp is grown, testing levels of THC, disposing of plants not meeting requirements, licensing and compliance requirements for sampling and laboratory testing.

“They suck,” is the simple assessment from Samantha Walsh, CEO and co-founder of the Tetra Public Affairs political consultancy. “They USDA took a restrictive approach, centered around the specter of marijuana.”

And that gives a big pause to farmers looking to move on from soybeans or tobacco and are being given the distinct impression by the federal government that the simplest oversight—or even just a simple twist of fate with a plant going “hot” (more than 0.3% THC by dry weight)—can make the farmer a felon.