UK Economist Offers Considerations for Potential Hemp Producers

As much uncertainty continues to swirl around the hemp industry, University of Kentucky agricultural economists remind producers to consider their personal risk tolerance, business contracts and all possible production scenarios before committing to grow hemp.

“This is still a developing industry that has long-term viability but is going through significant growing pains as it tries to find its footing and develop the infrastructure needed to support the industry,” said Tyler Mark, economist in the UK College of Agriculture, Food and Environment.

With the 2018 Farm Bill removing hemp from the controlled substance list, growers from more states will be producing hemp this year, increasing the supply for a market that is struggling to build the infrastructure needed to support the current supply. While consumer demand continues to increase for hemp-based products, U.S. producers more than doubled their hemp acreage from 2018 to 2019.

In Kentucky in 2019, producers licensed 60,000 acres for hemp production, up from 15,000 acres in 2018. Of those acres, farmers planted 26,000 acres and harvested a little more than 20,000 in 2019. This was up from around 5,000 acres for both in 2018.

“Farmers across the nation are looking for a ‘magic bullet’ to help counter an overall depressed farm economy. While future demand for hemp-related products remains positive, farmers must understand the market risks they face with competition from producers across the U.S. and the world,” Mark said.

While UK economists’ preliminary budgets continue to show potential for favorable returns for the production of cannabidiol, federal regulations concerning CBD content need clarification. Those budgets show a significant drop in farm-level prices for hemp biomass since July.

With many producers not only new to hemp production but also to agriculture, they will likely be unfamiliar with agricultural lending and crop insurance.

It is an exciting time right now for agriculture as new producers enter the hemp sector, however, there is a steep learning curve with this crop for both experienced and inexperienced producers, Mark said.

Here are some questions the economists recommend potential and current producers ask themselves:

• How many acres can I effectively manage?
• Do I have market access?
• How much money do I have to invest?
• Who and how will I finance the crop?
• Do I have a contract? Do I understand its terms?
• Have I effectively researched the company I am contracting with?
• What can I do to lessen my risk?
• What is my plan B?
• What happens if I have to destroy my crop for high THC content?

UK agricultural economists developed interactive, enterprise budget models for hemp producers that they can use to evaluate different production methods and scenarios. They are available online at http://hemp.ca.uky.edu/.

“While competition is tight and risks exist, Kentucky producers have significant advantages for growing hemp compared to producers in other states, including an experienced farmer base, one of the top research programs in the nation, existing infrastructure and investments, and administrative support from the Kentucky Department of Agriculture,” Mark said.