Weighing Hopes from an Ending Trade War Against the Megadrought of a Millennium
By Eric Singular, Director, Hemp Business Journal, New Frontier Data
In 2000, scientists predicted that the Western U.S. had entered a once-in-a-millennia megadrought. In two decades since, the accuracy of that prognostic has been increasingly felt by the American farmer. This summer, a severe drought threatens widespread crop failure for the U.S. agricultural community. The U.S. Department of Agriculture (USDA) estimates that 40% of the country — approximately 214.9 million acres of cropland — is experiencing drought conditions. While wildfires ravage hundreds of thousands of acres in the West, a critical symptom of severe droughts is being manifested as agriculture is threatened by extremely low water levels.
California reservoirs are at roughly half their average capacity, the Colorado and Rio Grande rivers are trickling, and snowpack levels are well below normal. In an historic first, the federal government this week declared a water shortage from the Colorado River, precipitating mandatory water consumption cuts for the Southwest U.S.
Meanwhile, soils are barren and legal battles for water rights continue to mount. Each of those inform a dim outlook for the future of farming in the region, where summer rains become increasingly sparse and demands for irrigation continue to increase greatly. Solutions are scarce. In the coming years, states will need to make tough decisions as water cutbacks loom, and prioritization of some sectors will almost inexorably condemn others.
The United States Drought Monitor is closely tracking the severity of the drought. The latest data indicates that 90% of the American West is experiencing “severe” drought conditions (i.e., California, Nevada, Arizona, New Mexico, Utah, Oregon, Washington, Idaho, and Montana). Other states affected include Colorado, South Dakota, Wyoming, Texas, and North Dakota.
Source: United States Drought Monitor
The drought comes as global supply chains are closely watching crop performance in the U.S. Beginning in 2018, American farmers found themselves at the center of a harsh trade war characterized at its lowest point by agricultural trade with China that year faltering to $13.2 billion.
Yet, the tide had finally turned. Last year, the nations agreed on a Phase One trade deal. The agreement stipulates that China will make substantial additional purchases of U.S. goods and services in the coming years, a practical cease-fire which once again positions China as the U.S.’s main customer for agricultural goods.
According to the USDA, the value of U.S. agricultural exports to China rose 108.7% to $28.8 billion between 2019-2020. That accounted for one-quarter of all farm shipments, or 55.5 million tons. In 2018, China purchased 302 million bushels of soybeans; last year, China increased those to 1.27 billion bushels. In 2012, China’s purchase of U.S. corn peaked at 171 million bushels; last year, China bought a record 272 million bushels. The People’s Republic is now buying more American-grown farm goods than it did before the trade war, and U.S. agricultural officials expect the demand to continue growing. New Frontier Data estimates that the value of U.S. agricultural exports to China will rise to $31.5 billion in 2022.
As of March 1, agricultural exports to China had reached $6.1 billion, the second-fastest purchase pace since 2014. Subsequently, meat and crops exports are approaching record volumes to China. While surging agricultural exports to China have invigorated the U.S. farm economy, some lawmakers view China’s influence on America’s food supply as a national security risk, leading to the introduction of policy aimed at curbing the volume of agricultural commodities crossing the Pacific.
The trade deal has caused U.S. agricultural commodity prices to soar, and encouraged renewed hope that farming may turn a profit following a few dismal years. The prospect of high commodity prices has fueled an increase in acreage for traditional row crops. This summer, the USDA’s National Agricultural Statistics Service estimates each a 2% increase from 2020 in planted corn acreage (92.7 million), a 5% increase in planted soybean acreage (87.6 million), and a 5% increase in planted wheat acreage (46.7 million). Ultimately, the total acreage harvested will likely be far less, as this year’s severe drought will ultimately lead to massive crop failure. Those results will ripple out across international supply chains, and any supply limited by low yields and acreage lost to fire and drought will keep prices and demand for staple grain and oilseed commodities – i.e., corn, cotton, wheat, and soy – high throughout 2022 and beyond.
With drought keeping the price of other agricultural commodities high in the coming years, American farmer’s widespread adoption of hemp as a row crop remains uncertain. In 2020, the price of hemp grain fetched a few hundred dollars an acre more compared to corn or soybeans. In 2021, the price of hemp grain is far less competitive by comparison.
Low grain prices during the trade war years, coupled with industrial hemp’s legalization as part of the 2018 Farm Bill’s passage, encouraged farmers to take their chances with a new crop. In 2018, the price of CBD biomass had yet to crash, and producing cannabinoid-rich hemp seemed to be a gold-rush opportunity for farmers left reeling from the trade war. Then, the price of CBD crashed. Amid the combination of each the decade-high price of staple grain and oilseed commodities, a steep learning curve for hemp farming practices, fear of genetics going hot, and a lack of contracts and processing, farmers are not keen to take on the risk of adding hemp to their crop rotations.
The Phase One trade deal raised hopes for American-grown hemp. For years, imports of hemp textiles have flowed from China to the U.S. Now, China is required to buy “true hemp” from American farms, though amounts have not been specified. Another hope for industrial hemp has been its touted drought-resistant qualities. A long-held belief has been that hemp requires far less water compared to staple grain and oilseed crops, which if true offered a beacon of hope for dryland farmers.
Unfortunately, results have not borne that out: A healthy, high-yielding crop needs a consistent drink of water. Thirsty, stressed plants are showing stunted growth, leading to low yields. While different end-uses for a hemp crop have different water requirements, production of grain, fiber, and cannabinoid all benefit from consistent water supplies. Purdue University’s Industrial Hemp Project reports that most varieties of fiber and grain hemp need about 25-30 inches of rain a year, especially in the early weeks of life. That noted, there are many farmers in states like Montana and Texas who have attempted to produce grain and fiber crops on non-irrigated land. Hemp produced for cannabinoid extraction is even more water intensive.
In Montana (the nation’s leader in hemp acreage), the entire state is experiencing drought conditions. Last month, Governor Greg Gianforte declared a statewide emergency. Farmers have lost thousands of acres, and as seen last year, those areas which weathered the drought have seen grasshoppers invading, eating kernels right out of grain heads.
The state is home to IND Hemp, a hemp fiber and grain processor well-positioned to lead the domestic industrial hemp supply chain. Seven years after passage of the 2014 Farm Bill, the infrastructure for large-scale processing in the U.S. is closer than ever to being realized, which promises contracts for hemp growers to fill a supply chain capable of feeding the demand for hemp food and nonwoven fibers.
Now that hope is being challenged by the megadrought. As agricultural trade with China reaches record highs, this year’s drought will strangle the supply of U.S. crops and livestock. Demand (and in turn, agriculture commodity prices) will stay high. Farmers have always been on the front lines, and without those farmers there is no hemp industry.
Between market forces and the force of nature, the promise of hemp as today’s hope for the American farmer feels gravely out of reach.
