Bare Knuckles Ag ™

Missouri Realtors Land Institute hosts “Industrial Impacts to Real Estate”

As I travel the country making presentations to farm groups on a variety of topics, a series of three questions in one form or another inevitably come up in the Q&A that follows: What’s the potential for industrial hemp as a higher profit alternative to conventional crops? Is it just an illusionary fad that will inevitably go from boom to bust like Jerusalem artichokes in the 80s? How profitable is it, really?

It’s not an exaggeration to describe what’s going on with hemp a budding “boom”. Figure 1 shows phenomenal rise in acreage since 2016 and Figure 2 shows that among U.S. crops totaling less than 1 million acres, hemp acreage surpassed acreage for six other crops USDA routinely reports in its annual March Prospective Plantings reports and/or its June Acreage reports: proso millet, flaxseed, rye, pima cotton, tobacco and safflower in 2019. Oddly, however, when I called USDA to learn if they intended to include industrial hemp in 2020 March Prospective Plantings or 2020 June Acreage reports, I was told “Not at this time” and directed to other sources for acreage data such as https://www.votehemp.com

Data like this prompted the Missouri REALTORS Land Institute (RLI) to host a 4-hour meeting for farmland appraisers, brokers and realtors in Springfield MO on Sept. 24 entitled “Industrial Hemp Impacts to Real Estate.” The presenter was Kirk Goble, a Senior Instructor with RLI who operates his own land company, serves as an adjunct instructor in crops and soils and developed a curriculum in Industrial Hemp for Aims Community College in Greeley CO.  Over 4-hours he covered the whole gamut of hemp history, government regulation and the current boom in U.S. hemp acreage from the lure of high profits despite high production and labor costs and special management expertise required.

What got the farm realtors’ attention was noting that in Colorado, landowners who manage to get a state license for a specific acreage of industrial hemp are seeing the “rent value” of those acres quintuple from about $200/acre for corn or soybeans to $1,000 per acre for industrial hemp under contract with a reputable buyer!

In my view, the boom in industrial hemp seems more akin to the history of soybeans than passing fads like Jerusalem artichokes in the 80s. Like soybeans, hemp is actually an ancient crop that became a strategic necessity during the WW II war effort. Consider the similarities:

The soybean, known as a “miracle crop” for its versatility in different climates and the flexibility of its use in by-products, traces back to China in the 11th century B.C. Introduced to the U.S. in 1765, soybean cultivation went through a long history of fits and starts before becoming a truly “major” U.S. crop and a major export in the 1950s

Industrial hemp is similar; an ancient crop; adaptable to different climates with fertility and water requirement similar to high-yielding wheat. Further, industrial hemp has an even wider array of products and uses than soybeans that go beyond the key driver of the current boom: CBD oil as a near “magic elixir” ingredient in everything health-related. Attendees at the Missouri REALTORS event saw slides like this one below from www.hemptechglobal.com, a picture worth a thousand words:

As an ag economist, I must finish with warning: Those very high costs of production, high labor requirements and special management required are not exaggerated. The most detailed crop budget I’ve seen among those put out by a host of land grant colleges in states where hemp production is now legal was put out in May of 2019 by the University of Tennessee. While the sample projected returns in that UT budget were in excess of $6,500 per acre on gross revenue of more than $21,000 per acre, that left costs at just under $15,000 per acre. YIKES! In economics, that’s what is a called a “significant barrier to entry” into the business that lessen the risk hemp farming will be something “everybody gets into” and a quick boom-to-bust fiasco like Jerusalem artichokes in the 80s.

High barrier-to-entry notwithstanding, skilled and gutsy “early adopter” farmers still need to be keenly aware of 1) regulatory, licensing and permitting requirements for their state, 2) competent agronomists in hemp management guidance at their state land grant colleges, 3) reputable buyers offering acceptable contracts before they plant and 4) federal crop insurance now available for industrial hemp. That’s the farmer’s best hope of being on the “leading edge” of the unfolding hemp boom, not the red-ink “bleeding edge” of those who get buried by a big new wave instead of riding it profitably.

Dan Manternach, President

Perfect Fit Presentations, LLC

http://perfectfitpresentations.com

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