Ask Our Experts 9/15/2019
Q: We noticed on LinkedIn about New Frontier Data’s involvement in the Southern Hemp Expo this month, but could not get to Tennessee. What were some of the takeaways?
A: According to New Frontier Data’s Vice President and Senior Economist Beau Whitney, the hot topic in Franklin, Tenn. (near Nashville), was concern about the amount of supply that is about to hit the market. With more than 15,000 licenses issued in the U.S., and some 250,000 acres planted this year, cultivators are fretful about oversupply of hemp flower and biomass, and how such will impact prices. With a lack of supply-related data, speculation is rampant about a supply-related crash in prices.
Development of hemp’s supply chain might be new to some just getting into the nascent industry, but it is not for those experienced in commercial hemp production. Regardless of those just planting crops for the first time, traditional harvest time draws near.
As farmers take their crops down to bring them to market, their products will need to be dried, and then prepared for processing, transport, and processed into distillates or isolates. The first step once the crop is harvested is drying.
Right off, the amounts harvested will far outstrip the capacity for drying it all. Farmers can dry their crops in the field, thought it introduces risks of mold that can ruin the yield’s market value. Buyers generally require flower and biomass to have a specific amount of moisture content, so a lack of drying capacity will impact the supply right away.
Assuming that farmers can dry their crops, they must then be prepared for processing. Many farmers lack the experience or the machinery to do it, and may be unaware how to procure assistance. The same issue holds true for transport: If farmers fail to get their crops to buyers, they run the risk of not getting paid. Conversely, the costs of transporting materials may price smaller farmers out of the market.
Another key segment of the supply chain is storage. Farmers need a strategy for storing their crops after they have been dried. Given how much product will be hitting the market generally at the same time, processors lack the capacity to process all of it quickly. Thus, a significant portion of the 2019 harvest will ultimately be stored for processing throughout the year. Without sufficient storage capacity, farmers will continue to be at risk of failing to go to market, risking revenue and subsequently their viability.
The bottom line looks to reflect falling prices for hemp flower, biomass, crude, distillates, and isolates alike, though fulfillment of demand through an incomplete supply chain will buoy prices through the first year.
New Frontier Data forecasts that while a price decline will occur this year, it will be nowhere near the levels pending after next year’s harvest. Therefore, farmers should be on notice to immediately review their cost structures before heading in 2020, to determine their positions as prices slide further, and develop a respective exit strategy before it is too late.
