The economics of planting hemp can be complicated, and farmers are encouraged to carefully evaluate the crop’s market potential before deciding to allocate acres to it in lieu of corn or soybeans.
Ray Massey, a professor of agricultural economics at the University of Missouri, outlined the potential returns farmers could generate from growing hemp during the MU Crop Management Conference Wednesday in Columbia.
He said farmers can expect profits of $27 per acre growing hemp for fiber, $232 per acre growing hemp for grain and about $7,500 per acre growing the crop for cannabidiol, or CBD. But those estimates are based on assumptions about price and the amount of hemp that farmers can harvest from their fields.
“(Hemp) has tried to compete before, and it was not able to in some areas — in the market of clothing for example,” Massey said. “It has got some other uses that might make it more competitive now than it was in the early 1900s, but it used to be a viable crop in the 1800s.”
Renewed interest in growing hemp comes as a result of the 2018 Farm Bill. The legislation changed how hemp is handled federally, and it allowed states to develop their own laws regulating the crop. In Missouri, farmers will be able to grow hemp in 2020 after a hiatus of several decades.
Hemp and marijuana are both cannabis plants, but hemp plants contain less than 0.3% of tetrahydrocannabinol, or THC, the psychoactive ingredient found in larger concentrations in marijuana.
There are different varieties of hemp plants, and farmers will select specific types depending on the crop’s intended use. Some varieties may be better for using as a grain, while others may be more suitable to harvest for fiber or to extract cannabidiol. Farmers will alter the growth conditions and harvesting processes to meet the specifications of the processor.
There are several uses for hemp. The fiber can be made into clothing, shoes and other accessories. The grain is consumed for health benefits. Cannabidiol has been marketed as a treatment for conditions including anxiety, insomnia and chronic pain, although more research is needed to prove those benefits.
For farmers, there are risks when trying to sell hemp because markets for it are not as well established as those for traditional cash crops such as corn and soybeans, Massey said. That creates a level of uncertainty about hemp’s profitability and whether farmers can earn a living from selling it.
Based on Massey’s estimates, some types of hemp may not be a viable alternative to planting traditional crops. He estimates growing hemp for fiber is less profitable than cultivating corn.
“Are you excited?” Massey asked rhetorically. “My budget for corn says that you can make more money than this. This is not a tremendous opportunity right now, but people are excited about it.”
Massey said the revenue generated from hemp for fiber is roughly equal to revenue from corn, but that hemp is more expensive to grow — making it less profitable. The seed costs, for example, are higher for hemp by an estimated $25.
Then there is the potential financial uncertainty for growing a crop that is so expensive.
Hemp can be more profitable than corn, or even soybeans, when grown for grain. It can be more profitable still when grown for cannabidiol — provided the market is stable and predictable.
But with low margins, even the slightest decrease in market price can make farming hemp untenable. For example, if the price for hemp as a grain decreases by even 20 cents, farmers stand to lose almost $8 per acre instead of making a profit, according to Massey’s models.
Hemp grown for cannabidiol is most sensitive to price. Massey’s models predicted farmers would generate a profit, but that assumed a market price of $2.
“A year ago, the price was $4 …” Massey said. “What is the price right now? According to the market, it is $1.25.”
Given that risk, Massey recommends a cautious approach as Missouri farmers look to claim a piece of a newly legal market.
“It can be an alternative crop, but if you are growing 1,000 acres of corn, I wouldn’t encourage you to grow 1,000 acres of hemp,” Massey said. “I might say, ‘grow 10 acres of hemp and see how it goes.’”