Farmers Expand Hemp Acreage Despite Lack of Clarity On Pricing

With the passing of the 2018 Farm Bill last December, farmers across the nation rushed to clear their lands and designate additional acreage to be planted with hemp. For the first time since 1957, when the last hemp field was planted in Wisconsin, this hemp crop was back on the menu.

In effect, the Farm Bill decriminalized the growing and cultivation of industrial hemp plants by removing it from the 1970 Controlled Substances Act (CSA). In the recent past, Hemp was classified in the same way as its psychostimulatory cousin, Marijuana. This classification was largely due to the fact that both marijuana and hemp are part of the Cannabis Sativa family.

With the Farm Bill having both passed and put into effect, many farmers across the nation saw the move as an opportunity to cash in. Now that the growing and selling of hemp is federally legal, this opens up the doors for farmers as well as other federally regulated institutions such as banks, merchant services, and credit card companies to participate in the industry.

As an added benefit, legalization now means that farmers qualify for crop insurance and can participate in USDA programs for certification and competitive grants. To the average individual, this would not seem like an important development, but to farmers, crop insurance and other federal benefits can often mean the difference between losing everything and financial security. For example, in South Carolina, the need for crop insurance has led to a list of pesticides being approved that will give farmers an advantage over the pests that would otherwise wreak havoc on crops.

Legalization has Led to Strong Investor Interest

The aforementioned developments have led both farmers and hemp companies alike to make substantial investments in the hemp farming industry. Companies such as Next Green Wave, Inc. (Next Green Wave, NGW:CSE | NXGWF:OTCQX) have already taken advantage of this newly minted cash crop, having vertically integrated their business to control hemp production from seed to store shelf, a move that has resulted in impressive growth and returns for shareholders.

States such as Colorado and Oregon have already seen drastic increases in acreage used to grow and cultivate hemp. Colorado currently has an estimated 80,000 outdoor acres licensed to grow hemp, up 562% from 2017, when the state licensed only 12,042 acres. Oregon currently has more than 51,000 outdoor acres licensed for hemp production, which is a dramatic increase of 1,300% from 2017, when the state boasted only around 3,500 acres.

Steady Growth - uncertain prices

Although farmers are have been feverishly rushing to seed their fields with hemp, both farmers and manufacturers alike are uncertain about how to price the crop. "No one knows what prices should be," said Kaelan Castetter, CEO of CSG Hemp, which grows and sells hemp in southern New York. "Farmers are just taking what they can get at this point."

According to data found by the Frontier Financial Group, hemp grain can be sold for about $300-$350 per acre, and fiber can sell for up to $480 an acre. However, the introduction of hemp-derived CBD as a primary driver of demand for hemp has thrown a wrench into calculations. "Farmers are looking for financing to expand production, and they don't even know what to say they're going to get for the crop," Castetter said.

A New Weapon for Farmers to Use Against Expensive Tariffs

According to Frontier Financial and many other hemp farmers, this boom crop provides US farmers with the unique opportunity to help the United States win the trade war with China.

The United States' largest export to China is currently soybeans; a crop that now commands a 25% tariff for all exports to China. If farmers switched to growing hemp, they could potentially use their current soybean fields, which are being drastically price slashed from the current tariffs, to grow hemp. With hemp having an earning potential of two to three times that of soybeans, this move is one that makes sense for most soybean farmers.

This move could potentially put the United States on top of the international hemp trade. Hemp is used for a multitude of products, including the multi-billion dollar CBD market, fibers for textiles, clothing, insulation, food, and much more.

Hemp's rise to cash crop stardom looks more promising than ever before, with some projections placing the industry at more than 13 billion by the year 2022.