Hempseed oversupply pulls down prices

Not long ago, Canada owned the hempseed industry in North America.

As recently as 2013, Canadian farmers grew all of the hempseed and Canadian processors sold hemp oil, protein and seed to customers across the United States.

Not anymore.

U.S. farmers now grow hemp and China is exporting hempseed to America.

As well, western Canadian farmers grew too large of a crop 2017 and tonnes of hempseed are sitting in bins.

That’s why conventional hemp prices have dropped 20 to 25 cents per pound to 50 to 55 cents per lb. this spring.

Overproduction in Canada is the most significant factor weighing on prices.

Statistics from Health Canada, which regulates production of industrial hemp, shows that farmers planted 138,000 acres in 2017. That’s up from 70,000 to 100,000 in 2015 and 2016.

“Markets have been depressed. There is a large supply in the Canadian market,” said Clarence Shwaluk, director of farm operations with Manitoba Harvest, a hempseed processor based in Winnipeg.

The overproduction has cut into hemp acres in Western Canada this spring because processors contracted less production for 2018.

The production boom of 2017 can be explained by one country: South Korea.

In 2015 and 2016, South Korea became a major buyer of Canadian hempseed, seemingly overnight. Hempseed and hemp food were suddenly hot commodities in the country as Koreans started eating hemp as a replacement for fish oil.

Hempseed exports to Korean went from almost nothing to about $45 million annually.

However, South Korean demand for Canadian hemp collapsed as quickly as it exploded. In late 2016 and in 2017, Chinese hemp sellers moved into the Korean market, undercutting Canadians on price.

“The Korean market is not consuming nearly the (same) amount of Canadian product,” Shwaluk said.

Consequently, Canadian producers now have an excess of hempseed to sell into the U.S., a market with its own domestic supply.

In 2017, American farmers grew about 35,000 acres of industrial hemp. The crop isn’t fully legal but a number of states have pilot projects, where hemp can be grown for research purposes.

That hempseed is entering the market and is likely weighing on prices.

Ken Anderson, owner of a Wisconsin company that sells hempseed, said hemp production and the market in the U.S. is chaotic because many farmers are growing hemp based on hype rather than market realties.

Growers hear rumours about a certain price per pound of hemp and assume their crop is worth that amount, Anderson said.

“It’s not (worth it) if you don’t have a buyer. And if those buyers have all of their acreage contracted that they need, they’re not really buyers.”

There are few hempseed processors in the U.S., and in certain states, like North Dakota, it’s illegal to transport hempseed across a state border. So, who is going to buy the hempseed if there is no processor in the state and if you can’t truck it out of the state, Anderson asked.

Another complicating factor in the U.S. market is Chinese imports, creating more competition for Canadian hempseed.

Given the oversupply in Canada, the growth in U.S. production and China moving into the North American market, the hemp industry will need to find new buyers to eat through the stockpiles of seed.

Manitoba Harvest has been working on that issue, but it’s unlikely that new demand for hempseed, oil and protein will appear overnight.

“We’ve got an innovations group that’s looking at developing food formulations with hemp in it,” Shwaluk said, hoping to expand the mainstream market for hempseed.

Despite the supply issues of 2018, Shwaluk remains confident that hemp has a bright future in North America.

Industry data indicates that one U.S. household in 100 has a hemp food product in the pantry, such as hempseed oil or protein. In Canada, the number is three in 100 households.

“There is still tremendous untapped potential of hemp in North America,” Shwaluk said. “Acres might correct … this year, but in the future I’d say (we’ll) continue on a growth trajectory.”

  1. Colorado: 12,000 acres
  2. Kentucky: 12,800
  3. Oregon: 3,500
  4. North Dakota: 3,100
  5. Minnesota: 2,000
  6. New York: 2,000
  7. North Carolina: 1,900
  8. Tennessee: 700
  9. Vermont: 500

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