Croptober.
Recent Analysis Shows Declining Prices as October Approaches
Harvest season AKA “Croptober” is drawing closer. This week we have an opportunity to look into the historical problems farmers faced across the US during the 2018 & 2019 Harvests.
We are going to start this week’s Analysis by revisiting some insights from some recent market analysis.
At the start of September, we explored Hemp Biomass and distillate pricing trends along with Bulk Hemp Flower and pre-packaged Hemp Flower pricing trends.
Here’s what we learned:
CBD Bulk Biomass prices dropped from $23 per pound, in May 2020, to $17.50 per pound in August 2020, an overall 23.9%.
The prices of hemp-derived extracts such as Crude, Distillate and isolate increased in average price over the past four months, with an overall increase of 23 % from May to August 2020. However, looking into September the price of extracts declined, and is likely to further decreasing through December 2020, potentially bottoming out in January and February 2021.
Last, we took a look at the price trends of Bulk Hemp Flower and Prepackaged (Branded) Hemp Flower,
In September, bulk Hemp Flower is going for an average of $165 per pound. This represents a 27 % price drop from May. In the same timeframe, prepackaged CBD Hemp flower dropped by 44% and is currently selling for an average of $214 per pound wholesale.
The primary reason for the pricing decline in these analyses is likely caused by the time of the year and the upcoming harvest that much of the industry refers to as Croptober because everyone harvested their crops in October.
Into this week’s analysis, let’s see if we can break down what is happening during Croptober and explore some possible solutions that your business or the industry could pursue to stabilize prices.
What is Happing During Croptober or the October Harvest Season?
Everyone in the industry knows the answer to this question… Farmers are harvesting their crops at the same time due to the nature of growing hemp or cannabis seasonally, outdoors. Unless farmers are growing indoors or utilizing light depravations greenhouses they are at the mercy of mother nature and plant genetics.
The Hemp/Cannabis plant starts to flower due to the changing light cycle that begins as fall approaches and the nights get longer. This same effect is controlled in indoor grows by simulating a 12 hours on and 12-hours off light cycle, causing the plant to trigger flowering to begin.
There are a ton of different growing technics that will trigger flowering along with a scientific explanation of what is chemically changing within the plant however that is not something we are going to cover in the analysis.
This week we are going to take a look at Croptober utilizing government reports and the CannTrade licensed database to understand the sheer number of farmers that will be harvesting.
According to the annual U.S. Hemp Crop Report of 2019, the US saw 511,442 acres of licensed Hemp in 2019, up from 78,176 acres in 2018, that’s a 554% increase in just a year. When hearing this number it is no surprise why the CBD/Hemp bulk markets saw prices tank during last year’s harvest season.
According to the CannTrade Database in which we gather state licensing information from every regulatory body in the country, there was a total of 3857 licensed hemp farms in 2019 which farmed over 500,000 according to the hemp crop report.
As of 2020, there are 10958 hemp cultivators in the US so it is safe to say that the number of hemp acres farmed in the US is going to dramatically surpass the volume seen in 2019. It is likely to see an increase of several hundred percent just like it did from 2018-2019.
Will the hemp market dip again this year?
Early hemp entrepreneurs have dealt with a fractured, immature marketplace, difficulties locking down supply, and a hard time reaching the right customers.
Brokers have capitalized on a lack of transparency, often leading to wasted time and resources.
Because of the new market’s instability, businesses have dealt with both surplus and scarcity of bulk raw material hemp products.
That said, people across the country are waking up to the potential of Hemp and CBD as an economic driver. We have seen business development across the spectrum. Farmers, Hemp-processors, distributors, brands, and other businesses have sprouted up all over, looking for an opportunity and angle to participate in this movement.
Unfortunately, the CBD consumer market remains limited as the U.S. The Food and Drug Administration continues to prohibit the extract in food, dietary supplements, and cosmetics.
A few weeks ago we covered the fact that 8 states have completely banned the sale of smokable hemp flowers.
These types of regulations act to slow down retail market outlets, further adding to the surplus at the base of the supply chain.
If these types of regulations are lifted, demand for hemp-derived cannabinoid raw materials should see a significant boost.
It is likely to take several more years before the retail environment provides enough outlet to fully consume the volume of hemp goods getting produced.
Final Insights:
So what our takeaway from today’s analysis in our final insights
Currently, the Hemp Industry is not quite mature enough to immediately solve its problems, as most of these problems seem to revolve around instability and a lack of infrastructure
As the hemp industry matures the impact of Croptober flooding the market and tanking prices will start to become a thing of the past. However, it will be very real in 2020 and 2021. It will be several years before the hemp industry starts to mirror some of the solutions in other agricultural industries.
Support is present in industries such as Corn or wheat crops, for instance… farmers get subsidized by the government, minimizing loss and providing stable prices.
On top of Croptober, the industry is also facing the combined challenge of the COVID-19 crisis, which hit farmers and startups hard, with labor shortages, and supply chain disruptions. Not to mention the extreme wildfire season that is hitting California, Colorado & Oregon. Almost wholly halting operations when most retail outlets across the States were closed, further constricting the demand for Hemp products.
So what can be done?
Since Hemp is federally legal, there is currently financial support and relief for traditional hemp businesses in the industry.
These businesses are eligible for:
–Small Business Administration loans,
-Federal and State Agricultural Grant programs
And Tax relief
There was also the “CARES Act”
Or the Coronavirus Aid, Relief, and Economic Security Act, if your business applied for that earlier in the year.
There is uncertainty about the eligibility of hemp businesses for these relief funds. There is still much work to do to ensure that legal hemp businesses benefit from these programs.
Federal, state, and local grant programs are available to hemp farmers outside of the emergency relief funds.
Non-emergency Farm Service Agency loans that may be available to Hemp businesses include (but are not limited to):
- Direct operating loans.
- Microloans.
- Direct farm ownership loans.
- USDA Organic Certification Cost Share Programs.
- Farm storage facility loans.
- Specialty loans for minority and women farmers, beginning farms, Native American tribes, and others.
A USDA press release from last week announced the aid package classifying Hemp as a flat-rate crop.
According to the USDA, Hemp growers could apply for CFAP based on the 2020 crop acreage— for a crop just under harvest right now, and it appears farmers would receive a flat payment of $15 per acre.
Hemp farmers can apply for assistance under CFAP2 through December 11, 2020.
One of the business practices that we have seen help businesses insulate them selves front he effect of Croptober is vertical integration
Vertically integrated businesses alleviate risk from plant to sale while ensuring increased consistency, quality, and product availability. The primary reason that vertical integrations can insulate businesses from market price fluctuation is the establishment of the brand and customer loyalty. As the cost of the raw materials going into a product declines the price of that product at retail stays the same. Established brands selling finished goods can increase their profit margins during this time of the year Ultimately increasing their bottom line due to Croptober.
Related Articles:
It is time to highlight some articles that will help you take a deeper dive into this weeks analysis
Starting with an article Hemp Industry Daily titled…
Hemp acreage jumped 500% in 2019, a sign of legalization’s impact.
In this article, Hemp Industry Daily analyses the expansion of registered hemp farm acreage about federal legalization. They deliver a brief industry comparison with some exciting insights.
Next Up is an article by Hemp Benchmarks titled
August 2020 Hemp Spot Price Index Report:
This article delivers an accurate benchmark price commentary sided with interesting facts and insights gathered over the past five years.
Last is an article by AGweb.com
Hemp Prices For CBD Tank, But New Opportunities Are On The Horizon:
This article reiterates the trending dialogue of tanking Hemp Prices and insights and the silver linings stemming from these struggles.
THE VAPING CRISIS ONE YEAR LATER
