S1084: Industrial Hemp Production, Processing, and Marketing in the U.S.

(Multistate Research Project)

Status: Active


Industrial hemp (Cannabis sativa L.) was at one time a major agronomic crop in the U.S.  An excellent history of the scope and legality of industrial hemp production can be found in the UK extension publication Economic Considerations for Growing Industrial Hemp: Implications for Kentucky’s Farmers and Agricultural Economy (https://www.uky.edu/Ag/AgEcon/pubs/reshempimpfarmer28.pdf).  Since that publication was released in 2013, Section 7606 of the 2014 Farm Bill has provided for pilot research projects in states where supporting legislation has been established.

Hemp is broadly adapted, having essentially a global distribution (Johnson, 1999), but historically production has been concentrated in more northern temperate regions of the globe.  The plant grows best at temperatures between about 60 and 80°F, but its tolerance to quite low temperatures makes it suitable to plant before corn (Ehrensing, 1998).  This tolerance to low temperatures allows early plantings to reach a closed canopy early in the season, supporting rapid growth and minimizing weed competition. Hemp is sensitive to day length, setting seeds as day length shortens in the fall (USDA, 2000). 

Industrial hemp is produced for one or both of two, main harvestable components: 1) Stalks, 2) Seed/grain.

The stalk is largely used for fiber, although the core or hurd of the stalk also has commercial uses including bedding, insulation and building materials. Fiber from the plant can be utilized in numerous ways ranging from yarn and fabric to electrical super-capacitors manufactured from carbon nanosheets. Hemp hurds and fibers also can be used as an alternative to wood in construction materials (chip board and particle board), for batts or blown-in insulation, as insulative fill in lightweight concrete applications (hempcrete), and for structural reinforcement in molded plastic composites (replacing synthetic fibers).  Today, applications using hemp fibers are different and much broader than when industrial hemp was last grown extensively in the U.S. in the 1940s.  Although the historic uses for hemp (e.g., in rope and canvas for ship sails) have declined, new opportunities for the crop are growing with the realization that hemp fibers possess several very positive attributes that make them useful in modern industrial applications.

The seed is sold as hemp grain and also has several valuable markets.  Hemp grain is relatively high in oil content; generally containing 30% or more by weight. This oil is very healthful as a dietary constituent or supplement for humans. It is rich in omega-3 fatty acids and has a very favorable omega 3 to omega 6 ratio of about 3:1. This is much higher than that found in many other oil seeds. The grain is also high in protein and contains all 20 amino acids (Russo and Reggiani 2015).

Hemp grain processors in Canada produce a wide array of consumer products including toasted hemp seed, hemp seed oil, hemp flour, and even hemp coffee.  The same is occurring in the U.S in states with pilot research programs (e.g., Kentucky, Vermont).  It is also used as bird feed and livestock feed, either whole or in part (as a high protein hemp seed meal and hulls), much the same as soybean meal and hulls are used today.  Hemp grain is an important commodity crop in Europe, where approximately 80% of the grain is used as animal feed.  It is not uncommon for producers to harvest hemp grain with conventional grain combines and subsequently harvest the remaining stems for fiber.  This is the most common example of a dual-purpose industrial hemp crop.

Despite existing utilizations of industrial hemp for fiber and oil products, hemp-based biofuels and bioproducts represent a new potential application area. As a versatile biomass feedstock, industrial hemp is well suited for developing coproduction strategies under a biorefinery concept for fuels and high-value products. However, the technical and economic feasibility of using industrial hemp as a bioenergy crop remains unclear (Johnson, 2017). In order to maximize profit from industrial hemp, different production, harvesting, processing, and product scenarios must be explored. There are trade-offs between fuels, materials and essential oils, and other applications from hemp; achieving all potential product streams simultaneously from hemp plants is unlikely. Therefore, an optimized feedstock processing strategy should be determined that would improve the economics of hemp-based fuels and bioproducts.

While many unknowns are surrounding the economics of hemp, two definitive statements can be made about the evolving hemp industry. First, hemp can be used as an input for thousands of products. Second, sales of hemp products in the United States and worldwide currently represent a relatively small market share of overall food, textile, personal care products, and sales from other sectors, but have been growing at a relatively brisk pace in recent years. According to the Hemp Industries Association (HIA), they expect hemp sales to pass $1.8 billion by 2020.

The current policy and commodity environment have created much enthusiasm for the production of hemp. On April 16, 2018, the Hemp Farming Act of 2018 was introduced, and it would remove hemp from the schedule 1 narcotic list (McConnell et al., 2018). Passage of this act would remove some of the uncertainties surrounding this crop. Beyond the policy uncertainty, one of the key hurdles hemp will have to overcome is that it will have to provide expected returns that are equivalent to or exceeds expected returns for competing crops. The expected returns above variable costs (RAVC) attached (Table 1) represent what producers expect under current market conditions and yield expectations.

For both of grain and fiber crops, conventional production practices (i.e., tillage is utilized to form the seedbed) are followed. There is the potential to utilize a no-till production system.  It should also be noted that there are no herbicide, insecticide, or fungicide costs included because they are currently not labeled for use in hemp crops and are not allowable.  This is an additional production risk for potential producers to manage. All input costs utilized in these budgets are derived from budgets produced at the University of Kentucky or from the custom harvest survey (Halich 2018a and Halich 2018b). Hemp grain and fiber prices are representative of 2018 pricing in the Kentucky market. Yields for industrial hemp vary widely for some different reasons.

Two key crops that hemp will be competing with are corn and soybeans. In the figure attached (Figure 1.) is the cumulative density function of the RAVC for hemp fiber and grain compared to corn and soybeans for Kentucky. Currently, hemp fiber is not competitive with corn and soybeans. However, the simulation utilized to develop this graph assumes a corn price of $4.00 and $10.00 soybeans. Current market conditions for these crops are below these levels and are expected to remain below these levels over the next several years. Furthermore, it is expected that hemp yields will continue to increase and with the legalization of hemp, chemical companies will begin to label chemicals for hemp production. Both of these factors will result in hemp being more competitive with alternative grain crops.

Additional barriers to entry that need to be addressed are risk management, operating capital, contract development, proper storage, and access to certified seed. Currently, minimal risk management strategies exist for producers to utilize compared to the access to crop insurance, farm programs, and futures markets that potential producers are using. A second barrier is access to operating capital through traditional credit markets. Lending institutions have yet to begin loaning money for the production of industrial hemp. Third, most of the hemp being produced is done on a contract basis. These contracts are not standardized and vary widely by the processor. One key issue with these contracts is that many of them do not pay out to the producer until the processor has sold its final product or it is paid out on a graduated schedule. This is not what producers are used to, and it puts additional stress on their cash flow. Forth, hemp grain and fiber need to be stored until it is time for them to be used. Proper storage is especially important for grain because it will be going into the food system and improper storage can lead to off flavors. Lastly, access to certified seed is still a problem for producers. However, over the next several years this should not be as big of an issue as more certified seed is produced. These are several of the most pressing barriers to entry currently, but as more hemp production takes place, then additional barriers will surface.

Due to the gap in U.S.-based trials and other research of nearly 80 years, a multistate activity that coordinates and pools resources will provide maximum impact for the greatest number of stakeholders. This re-emerging industry has seen much stakeholder interest and some private investment, but does not yet enjoy broader financial support by grower organizations or federal competitive granting programs.  As with other regional crop projects, a multistate approach allows for evaluation of varieties, management practices, and costs across a wider range of soils and microclimates than would be possible by a single state’s program.


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