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Demand for Oklahoma-grown hemp still uncertain

By Brian Brus

The Journal Record

OKLAHOMA CITY – In just a year, 53 licenses have been granted by the Oklahoma Department of Agriculture, Food and Forestry to grow industrial-use hemp, officials said Friday.

About 1,000 more acres have been legally committed to hemp than any other time in the state’s history. Gov. Mary Fallin signed House Bill 2913 last April to permit hemp farming operations under the watchful eye of the Agriculture Department’s Consumer Protection Services nursery division and state college partners, and entrepreneurs jumped to stake a claim in the niche.

So it’s no surprise that in such a quickly growing industry, producers have no idea what to expect for their efforts, said Amy Hagerman, Oklahoma State University agricultural economics professor. The entire field is full of risk.

That’s largely what Bourcard Nesin at Rabobank said as well. Nesin, an analyst at the global food and agribusiness bank, recently wrote in his industry overview, “The market is highly fragmented, and there is no reliable source for pricing and production data. The road ahead is rocky, risky and untraveled.”

Nesin concluded his study with a warning: “If hemp really is a good long-term opportunity, there’s no harm in being methodical.”

The Rabobank report, “Hemp is Hot Right Now: Is it Worth the Risk?” notes that the federal government’s 2018 omnibus farm bill is also trying to overhaul hemp industry regulations, including the legalization of hemp-derived products. Even though the U.S. Department of Agriculture plans to release new rules soon, those regulations likely won’t take effect until 2020.

Hagerman said that legislation – state and federal – makes it even more difficult to estimate where the market is heading for hemp. Hemp production is still not legal in all 50 states, which means that at any time another state could jump into competition and throw off nascent pricing structures.

And CBD, or cannabidiol, is the most lucrative aspect of the hemp industry. If the Food and Drug Administration decides to allow CBD to enter the food supply as an additive or dietary supplement, the approval process could take several years as well.

Kenny M. Naylor, director of ODAFF’s Consumer Protection Services Division, said some of the parties that were granted licenses are working for the same companies. Nine colleges have agreed to serve as research partners.

Hagerman said some of those farms might not even make it, or operators could decide product quality and profit margins just aren’t worth inputs. Oklahoma’s environmental conditions might grow decent hemp but another state could be even better. There are just too many factors to estimate, she said.

Pare down the equation, and it still comes to supply and demand.

“It’s a young market,” Hagerman said. “You have startup businesses coming in and going out, which will affect contracts and stability. And that’s happening while the size of demand is still being determined.

“At whatever point you meet demand, prices will start to decline. We have to find that point of saturation,” she said.

Hagerman said the situation has no real historical parallel for comparative outcomes. At different points in the state’s history, sesame, switch grass and cotton ginning were brand-new ventures that took time to find balance.

“It’s all just too early to say,” she said. “We have no way of knowing what the industrial hemp market will look like.”

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