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Hemp potential US Production and Processing

Potential U.S. Production and Processing

Potential yields and processing methods, along with farmer costs and returns, are important considerations when evaluating industrial hemp as a potential U.S. crop. Revenue is dependent on yields and market prices. Generally, the lower the market price, the greater the yield must be for producers to break even or make a profit. In addition, U.S. experience with kenaf and flax may lend insights into the processing hurdles hemp may face in the United States.

Possible Yields

The Oregon study summarizes hemp yields reported by researchers from various countries since the 1900’s (Ehrensing). Early in this century, U.S. dry-stem yields ranged from 2 to 12.5 tons per acre, but averaged 5 tons per acre under good conditions. Research trials in Europe during the last four decades had dry-matter yields that ranged from 3.6 to 8.7 tons per acre. In the Netherlands, research trials during the late 1980’s reported dry-stem yields of 4.2 to 6.1 tons per acre. Recent commercial production in England produced average dry-matter yields of 2.2 to 3 tons per acre on several thousand acres over several years. Experimental production in Canada during 1995 and 1996 yielded 2.5 to 3 tons of dry stems per acre. According to the study, some of the variation in yield

can be attributed to different measurement practices. For example, European authors generally report total above-ground dry matter, including stems, leaves, and seed, versus the dry-stem yields reported by other researchers.

Vantreese (1998) reports that hemp seed yields have increased dramatically in recent years. In 1997, world average yields reached 876 pounds per acre. Yields ranged significantly, from a high of 1,606 pounds per acre in China, where the seed is consumed, to 595 pounds per acre in France, where much of the produc- tion is certified planting seed. In Germany, current seed yields are about 1,000 pounds per acre (Thompson et al.), while those in Eastern Europe range from 350 to 450 pounds per acre (Mackie, 1998). In Canada, seed yields in 1999 averaged 800 pounds per acre (Hanks, Fall 1999).

Processing

In addition to the uncertainty about yields, there is some question as to whether hemp fibers can be prof- itably processed in the United States. As was outlined earlier, the technologies used to process hemp fiber have not changed much and they require capital investment and knowledgeable workers. Research is under way to streamline harvesting, retting, and fiber separation, but those technological breakthroughs have yet to occur. Traditional retting and fiber-separation

Table 7—Estimated enterprise costs for hemp production in Kentucky, 1994

Costs Fiber

1

Seed Certified seed

Dollars/acre

Variable costs: Seed (pounds) (40) 80.00 (10) 20.00 (10) 20.00 Fertilizer 33.58 33.58 33.58 Lime (tons) (1) 10.82 (1) 10.82 (1) 10.82 Fuel, oil (hours) (4.5) 16.02 (2.2) 12.22 (2.2) 12.22 Repairs 9.35 17.60 17.60 Interest 7.93 4.24 4.24 Total 184.12 98.46 98.46

Fixed costs

2

46.08 41.25 64.84

Operator labor

3

(hours) (8) 56.00 (8) 56.00 (10) 70.00

Total enterprise costs 286.20 195.71 233.30 1 2

Harvested Depreciation, and taxes, sold as insurance.

raw stalks.

3

At $7 per hour.

Source: McNulty.

Industrial Hemp in the United States USDA • 17

were processes—both labor and resource intensive—could

comparable to 1993 estimated expenses for pro- limit the ability of U.S. hemp producers to compete

ducing corn and double-crop wheat/soybeans in against major suppliers such as China, Hungary,

Kentucky (table 8). The analysis assumed that hemp Poland, and Romania.

grown for fiber would be harvested and sold as raw stalks on a dry-weight basis. Various sources priced Specialty oilseed crushing mills that could accommo-

raw, dry defoliated stalks at $60 to $125 per metric date hemp seed do exist in the United States.

ton. Yields were assumed to range from 7 to 15 metric According to the Soya & Oilseed Bluebook, companies

tons per hectare (2.8-6.1 metric tons per acre), based in North Dakota, Minnesota, Georgia, and North

largely on European studies. Thus, potential returns Carolina mechanically crush flaxseed, borage, saf-

for hemp fiber ranged from a low price/low yield esti- flower, canola, sunflowerseed, crambe, peanuts, and

mate of $170 per acre to a high price/high yield return cottonseed (Soyatech, 1999).

of $759 per acre (table 8). With estimated production expenses of $286, net returns for hemp for fiber Estimated Costs and Returns

ranged from -$116 to $473 per acre. Returns for hemp seed were estimated to range from $60 to $800 per Both the 1995 Kentucky Task Force report (McNulty)

acre. Given costs of production at $196 per acre, net and the 1998 Kentucky impact analysis (Thompson et

returns ranged from -$136 to $604 per acre (McNulty). al.), as well as the Oregon and North Dakota studies (Ehrensing, Kraenzel et al.), present estimated costs

The Oregon report also estimated costs and returns for and returns for hemp production. All include esti-

hemp grown for fiber, using typical costs associated mates for fiber (stalk) production. The 1995

with irrigated field corn in the Pacific Northwest (table Kentucky, 1998 Kentucky, and North Dakota reports

9). Variable and fixed costs for hemp were estimated also present estimates on seed production. In addition,

at $371 and $245 per acre, respectively. The dry-mat- most of the studies compare the estimated hemp costs

ter yield was assumed to be 5 tons per acre, which is and returns to those for other crops.

consistent with the higher average yields reported in Western Europe using well-adapted cultivars. A price The Kentucky Task Force estimated total costs—

of $75 per dry ton was based on the price of wood which include variable costs, fixed costs, and operator

chips in the Pacific Northwest, as it was anticipated labor—to be $286 per acre for hemp fiber, $196 for

that the fiber could be used by local composite and seed, and $233 for certified seed (table 7). These costs

paper companies. Given this yield and price, gross

Table 8—Estimated costs of production and returns for various crops in Kentucky, 1993 or 1994

Estimated cost per acre

Crop

1

Return Net return Yield per acre per acre Variable Fixed Labor Total per acre

Dollars

Fiber hemp

2

2.8-6.1 metric 170-759 184 46 56 286 -116 to 473

tons

Hemp seed

3

na 60-800 98 41 56 196 -136 to 604

Corn grain 110 bushels 231 155 46 32 233 -2

Wheat/soybeans

(double crop) 45/28 bushels 300 149 44 37 230 70

Tomatoes

(for processing) 27 tons 2,430 1,278 154 231 1,663 767

Burley tobacco 2,500 pounds 4,375 1,905 626 700 3,231 1,144

na 1 2 3

Various For One = Not all source crops available. sources estimated except priced hemp, returns dry, 18 • USDA Industrial Hemp in the United States

source is University of Kentucky, Department defoliated stalks at $60 to $125 per metric at $60 to $171 per acre for seed (for oil of Agricultural ton.

and feed), while Economics crop budgets for 1993.

another estimated seed returns at $800 per acre (2,000 pounds per acre at 40 cents per pound). Source: McNulty.

revenue Table 9—Estimated production budget for hemp in

would be $375 per acre and net returns would the Pacific Northwest1

be -$241 per acre (Ehrensing).

Item Dollars/ton Dollars/acre (dry weight)

The Oregon report presents a sensitivity analysis of net

Variable costs: Cultural

Tillage and planting 40.00 returns based on various yields and potential market

prices (table 10). Most of the net returns remain nega- 8.00

tive except under the highest yield/price combinations. Hemp Fertilizer seed and application

3

34.00 85.00 6.80

The analysis was further refined to see if dual produc-

Irrigation 62.00 Total 221.00 Harvest

4 Forage chopper ($3/ton) 15.00 Raking ($1.50/ton) 7.50 Baling, large square

17.00 12.40 44.20

tion was any more profitable. The cost of combine seed harvest, $20 per acre, was added to variable costs, and stalk yields were lowered to 2.5 tons per

3.00 1.50

acre with a price of $75 per ton. Again, most of the net returns are negative except for the highest yield/price combinations (table 11) (Ehrensing). bales ($9.80/ton) 49.00 9.80 Loading and trucking

The 1998 Kentucky report estimates costs and returns ($3.00/ton) Total 15.00 86.50 3.00 12.80

for hemp grown for fiber (straw), seed (grain), certified seed, and both fiber and seed (table 12). The cost esti- Miscellaneous

Operating capital interest 29.78 Pickup 7.68 Farm truck 6.34 General overhead 20.00 5.96 1.54 1.27 4.00

Table 10—Estimated net return per acre from hemp production in the Pacific Northwest at various price and yield levels

Total 63.80 12.76

Yield (tons

Price (dollars/ton) Total variable costs 371.30 69.76

per acre) 50 75 100 125 Fixed costs:

Dollars/acre Land rent 150.00 30.00

Insurance, machinery

and equipment 3.00 0.60 Irrigation system, depre-

ciation and interest 44.00 8.80 Machinery and equipment,

3 -431.70 -356.70 -281.70 -206.70 4 -399.00 -299.00 -199.00 -99.00 5 -366.30 -241.30 -116.30 8.70 6 -333.60 -183.60 -33.60 116.40 7 -300.90 -125.90 49.10 224.10 depreciation and interest 48.00 9.60 Total 245.00 49.00

Source: Ehrensing.

Total production costs 616.30 118.76

Gross (yield = income

5 tons/acre)

5

375.00 75.00

Net projected returns -241.30 -43.76

Table 11—Estimated net return per acre from dual- purpose hemp production in the Pacific Northwest at various seed prices and yield levels1 1

Budget was developed using typical costs associated with irrigat- ed field corn in the Pacific Northwest. Production practices were chosen to maximize stem dry-weight yield for possible production of composite wood products or paper.

Seed price (dollars/pound) Seed yield (pounds/acre) 2

25 pounds/acre at

500 750 1000 $1.36/pound. The assumed cost of hemp seed is the average of prices Cost 16-16-16 of reported shipping at $250/ton.

for from commercially Europe 4

Based was on available not cost included.

of operating European 3

600 silage hemp pounds/acre corn varieties. har-

0.30 0.35 Dollars/acre

-255 -181 -106 -231 -143 -56 vesters and local cost of raking and baling hay and grass seed

0.40 -206 -106 -6 straw. are included.

No costs 5

The associated dry matter with yield retting, is assumed such as additional to be 5 tons/acre,

irrigation,

which is consistent with the higher average yields reported in Western Europe using well-adapted hemp cultivars. An assumed price of $75 per dry ton was used in the analysis since prices for

0.45 -181 -68 45 0.50 -156 -31 94 0.55 -131 7 144 1

The cost of combine seed harvest, $20 per acre, was added to wood chips in the Pacific Northwest have risen over the past decade

variable costs. Hemp stem yield was assumed to be 2.5 tons per and this trend is expected to continue.

acre with a price of $75 per ton. Other assumptions are the same

Source: Ehrensing.

as those used for table 9.

Source: Ehrensing.

Industrial Hemp in the United States USDA • 19

admit mates are based on the 1995 Kentucky report and

that the very high returns calculated in these updated to 1997 with some modifications. The yields

estimates cannot be sustained. While most of their used in the analysis are from Germany. The prices,

discussion focuses on why the price of certified seed based on import prices and/or prices paid in Canada,

will decrease, little attention is given to stalk prices. were estimated to be 39 cents per pound for seed, $1.20

The price they used for stalks is the first-year (1998) per pound for certified seed for planting, and $200 per

price offered by Kenex Ltd., the Ontario firm contract- ton for hemp stalks. The residual stalks from seed pro-

ing for hemp acreage, which is not representative of duction were estimated to fetch $120 per ton. Total

long-term stalk prices. With new crops, firms often costs ranged from $257 to $403 per acre. According to

have to offer farmers an initial premium to induce the report, these cost estimates are consistent with

them to experiment with a new crop and to compen- those made by Reichert (1994), by Kenex Ltd., and

sate them for lower initial yields and the forgone from German cultivation data (Thompson et al.).

returns of a conventional crop. Thus, many of the rev- enue estimates likely overstate average annual returns. Estimated revenue ranges from $477 per acre for seed

Given the high estimates, it is not surprising that when to $900 per acre for certified seed. Thompson et al.

compared with conventional field crops, hemp net

20 • USDA Industrial Hemp in the United States

Table 12—Estimated growing costs and returns for industrial hemp in Kentucky using 1997 technology, yields, and, prices1

Item Fiber

2

Seed

2

Certified seed Fiber and seed

2

Dollars/acre

Variable costs: Seed (pounds) (50) 125.00 (10) 25.00 (10) 25.00 (50) 125.00 Fertilizer 45.01 45.01 45.01 45.01 Herbicides 0.00 10.95 10.95 0.00 Lime (tons) (1) 12.12 (1) 12.12 (1) 12.12 (1) 12.12 Fuel, oil (hours) (4.5) 18.43 (2.2) 14.06 (2.2) 14.06 (2.2) 22.25 Repair 16.14 30.38 30.38 23.12 Interest 8.38 5.24 5.24 8.94 Storage 5.00 5.00 5.00 5.00 Transport to processor 27.20 8.00 5.60 24.00 Total 257.28 155.76 153.36 265.44

Fixed costs

3

50.27 45.00 70.73 75.05

Operator labor

4 (hours) (8) 56.00 (8) 56.00 (10) 70.00 (9) 63.00

Total enterprise costs 363.55 256.76 294.09 403.49

Stalk revenue 680.00 60.00 60.00 450.00 Stalk yield 3.4 tons/acre 0.5 tons/acre 0.5 tons/acre 2.25 tons/acre Price per ton 200/ton 120/ton 120/ton 200/ton

Seed revenue na 416.91 840.00 273.00 Seed yield na 1,069 lbs/acre 700 lbs/acre 700 lbs/acre Price per pound na 0.39/pound 1.20/pound 0.39/pound

Total revenue 680.00 476.91 900.00 723.00

Profit 316.45 220.15 605.91 319.51

na 1

Figures = Not applicable.

are based on estimates in McNulty (1995) and updated to 1997 based on the increased costs of growing corn. Also, herbicide, stor- age, and transport-to-processor costs were added; estimates for repair were increased by 50 percent; 50 pounds of hemp seed per acre were assumed 2 3 4

for cultivating hemp for fiber rather than 40 pounds. Referred to in the report as straw and grain. Fixed costs include depreciation, taxes, and insurance. At $7 per hour.

Source: Thompson et al.

basis Table 13—Estimated returns to land, capital, and

for the three price/yield scenarios. Prices ranged management per acre for industrial hemp and

from $5.51 to $6.80 per bushel for seed and from common Kentucky crops, 1997

$40.44 to $51.45 per ton for fiber (table 14). Yield

Crop Estimated return to land,

estimates ranged from 14.3 to 23.8 bushels of seed per capital, and management

acre and 2.5 to 3 tons of fiber per acre. Total costs

Hemp, seed only Hemp, fiber only Hemp, seed and fiber Hemp, certified seed only Dollars/acre 220.15 316.45 319.51 605.91

were estimated at $175 per acre, while potential rev- enue ranged from $180 to $316 per acre, resulting in net returns of $5 to $142 per acre. The return for the low-price/low-yield hemp scenario was comparable to those for most of the comparison crops in the study.

Grain sorghum, conventional tillage Wheat, reduced tillage 10.51 14.24

Only irrigated potatoes had higher net returns than any of the three hemp scenarios (Kraenzel et al.). Continuous corn 75.71 Popcorn, reduced tillage 78.25

Among the studies, total costs ranged from $175 for Soybeans, no-till, rotation following crop No-till corn, rotation following soybeans White corn, rotation following soybeans, reduced tillage Alfalfa hay 102.20 106.48

North Dakota to $616 in Oregon (table 15). A lot of the variation can be attributed to differences in fixed

135.84 141.34

costs. For example, fixed costs in the Kentucky stud- ies, which do not include land rent, are estimated at Barley/no-till soybeans, double-crop

$75 per acre or below. In the Oregon report, fixed following corn Wheat/no-till soybeans, double-crop following corn Grass legume hay, round bales Dark air-cured tobacco 158.09

costs are $245 per acre, including land rent and irriga-

158.43 161.56 182.48

tion-system depreciation. When land and irrigation costs are removed, fixed costs drop to $51. Also, when land rents, estimated at $65 to $75 (Vantreese, person- Dark fire-cured tobacco 1,104.87

al communication), are added to the Kentucky esti- Burley tobacco, baled, nonirrigated 1,563.48

mates, fixed costs range from $106 to $150. The esti-

Source: Thompson et al.

mates also may differ due to varying assumptions

returns were higher than those for all the selected crops except tobacco (table 13).

about production practices and may reflect different cost structures among the States. The Oregon study did cite high land costs as one reason hemp production

The costs and returns in the North Dakota report are based on a dual-purpose crop in Ontario, Canada.

may not be viable in the Pacific Northwest (Ehrensing).

Information from Vantreese (1997) was used as the

Table 14—Estimated costs and returns for hemp and other crops in North Dakota, 1998

Crop Average yield Average price Total revenue Total costs Net returns

Per acre Dollars/unit ------------------Dollars/acre-------------------

Low-price/low-yield hemp

1

14.3 bushels; $5.51/bushel; 179.96 174.63 5.33

Average hemp

1

2.5 tons $40.44/ton 19 bushels; $6.16/bushel; 248.13 174.63 73.49

High-price/high-yield hemp

1

2.75 tons $45.96/ton 23.8 bushels; $6.80/bushel; 316.29 174.63 141.65

3 tons $51.47/ton

Corn grain

2 Spring wheat

2

54 bushels 2.25 121.50 159.70 -38.20

Confectionery Malting Irrigated barley

potatoes

2 sunflowers

2

Industrial Hemp in the United States USDA • 21

2

31 bushels 3.71 115.01 117.32 -2.31 1,080 pounds 0.131 141.48 140.62 0.86 50 bushels 2.41 120.50 115.02 5.48 32,500 pounds 0.045 1,462.50 1,017.59 444.91

1 2

Estimates From projected are for 1998 a dual-purpose crop budgets crop for in Ontario, Canada.

Northeast North Dakota.

Source: Kraenzel et al.

Table 15—Comparison of estimated costs and returns for hemp from the various State studies

Report Variable Fixed costs

1

Operator Total costs Revenue Net returns costs labor

Dollars/acre

1995 Kentucky:

Fiber 184 46 56 286 170 to 759 -116 to 473 Seed 98 41 56 196 60 to 800 -136 to 604 Certified seed 98 65 70 233 na na

Oregon:

Fiber 371 245 na 616 375 -241

1998 Kentucky:

Fiber 257 50 56 364 680 316 Seed 156 45 56 257 477 220 Certified seed 153 71 70 294 900 606 Fiber and seed 265 75 63 403 723 320

North Dakota:

Fiber and seed na na na 175 180 to 316 5 to 142

na 1

In = the not two available.

Kentucky studies, fixed costs include depreciation, taxes, and insurance. In the Oregon study, fixed costs include land rent ($150), irrigation-system depreciation and interest ($44), machinery depreciation and interest, and insurance.

None of the cost estimates include costs for monitor- ing, licensing, or regulating hemp production. These external expenses would be part of the cost of produc- ing industrial hemp and could be borne by taxpayers or passed on to growers and/or processors. According to Thompson et al. (1998), Kenex Ltd. estimates that Canadian farmers will pay US$50 annually for a back- ground check and to obtain the satellite coordinates for their hemp fields (fields are monitored via satellite as part of the Canadian program).

The studies also present a range of revenue estimates, which is not surprising given the uncertainty about demand and expected market prices. Overall, it seems questionable that U.S. producers could remain prof- itable at the low end of the estimated net returns. In addition, given the thinness of the current U.S. hemp fiber market, any overproduction could lead to lower prices and lost profitability.

U.S. Experience With Kenaf and Flax

Both kenaf and flax can be legally grown in the United States. Their recent production history may lend addi- tional insights into the potential for hemp in the United States.

Kenaf is a relatively new crop. It can be grown in many parts of the United States, but it generally needs a long growing season to produce the necessary yield to make it a profitable crop. With a long growing sea-

son, like that found in the southern United States, kenaf can reach a height of 12 to 18 feet and produce 5 to 10 tons of dry fiber per acre annually. An esti- mated 8,000 acres of kenaf was grown in the United States in 1997, up from 4,000 acres in 1992 and 1993. Primary production areas are Texas, Mississippi, Georgia, Delaware, and Louisiana (Glaser and Van Dyne). Processing and product technology for kenaf- based pulp and for about six other markets have been developed, but markets must be established in each geographic area since the core fraction is very low density and expensive to ship.

Flax is grown in the United States in small quantities. Production is almost totally oilseed varieties (for lin- seed oil). Textile or linen flax has not been grown commercially in North America for 40 years (Domier). The United States does not produce textile flax for several reasons. First, the market for linen is very small compared with other natural fibers like cotton, which accounts for nearly one-third of U.S. fiber mill use. Linen textile imports have accounted for an annu- al average of 2 to 3 percent of the quantity of all fibers consumed in the United States (mill use plus net tex- tile trade). Additionally, since 1989, linen textile imports as a percentage of total textile imports have consistently fallen from 12 percent to 4 percent in 1998 and 1999. The market remains small because the economics of producing textile flax is not very price/cost competitive. As noted earlier, many ineffi- ciencies continue to exist in this industry, particularly

22 • USDA Industrial Hemp in the United States

fiber the methods of harvesting and processing. Because of

mill reopened in Quebec in December 1997, and the length of the fiber and the variation in quality, U.S.

research and development activities are occurring in mills are reluctant to use textile flax. Some recent

Alberta, Connecticut, Maine, Oregon, and developments, however, have allowed the use of tex-

Saskatchewan (Domier; Hanks, Fall 1999). tile flax waste on cotton-spinning systems. Also, a flax

Industrial Hemp in the United States USDA • 23

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