PanXchange® Hemp: Benchmarks & Analysis – Feb. 2020

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PanXchange® Hemp: Benchmarks & Analysis – Feb. 2020

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Spot Prices

PanXchange produces indices for physical commodities to bring price discovery and key market intelligence to thin and/or nascent sectors. As a service to the US hemp industry, PanXchange publishes nine monthly price assessments for Colorado, Oregon, and Kentucky on the last Wednesday of each month. We plan to expand the current crude, distillate, isolate, and regional reporting as the market evolves, and encourage readers to forward our PanXchange ® Hemp Benchmark Pricing and Analysis Report to any interested parties.

Important note to readers: 

The table below summarizes the difference between our free monthly reports (contained herein) and our more detailed full reports available by paid subscription.

Connect with us:

Will you be at the Emerald Scientific Conference in San Diego, California or the NoCo conference in Denver? We’d love to meet in person. Send us a note at hemp@panxchange.com.

Methodology:

Pricing information is collected via the PanXchange trading platform and surveys of thoroughly vetted market participants. The data is then analyzed using our proprietary methodology and follows the International Organization of Securities Commissions (IOSCO) guidelines. Please reach out to the PanXchange hemp team by email at hemp@panxchange.com or by phone at (877) 917-9658 for any questions or comments.

Price & Market Analysis

The biomass average price index for February was $0.71 (per % CBD Content/lb). Spot biomass prices have indicated a slowing of the price deprecation on a month-over-month basis as the total volume of transactions has waned. The Northeast region is continuing to see the highest value for their biomass. An increasing number of producers are holding biomass with hopes that prices will rebound before this season’s harvest.

Midpoint Biomass Spot Price (per % CBD Content/lb) PanXchange Average Price Index (CO,KY,OR)

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Tolling splits remain a common decision for producers who still have biomass and desire to better preserve cannabinoids profiles and decrease necessary storage space.

Though the decline in prices of biomass has slowed, the abundance of refined product in the market remains.

The PanXchange CBD Refined Product Index shows an aggregation of the downstream CBD market to depict greater market movements. Functioning as a true index, weights have been assigned to winterized crude oil, full spectrum distillate, broad spectrum distillate, and isolate. Throughout February, the PanXchange RPI demonstrated the continued trend of downward pressure with a 14% decrease month over month. Winterized crude oil saw the largest change.

Full market analysis and details on the above information is available in our premium report.

Legislation

Throughout February, eight states have declared that they will revert back to their pilot programs. This is continuing a trend as 20 states will operate under the same cultivation rules as last year.

The commenting period for the Interim Final Rule has ended with over 3,000 submissions. The majority of the comments surround issues with the testing requirements.

The DEA certified labs are still being updated on the USDA website, with three more approved since our January report.

The 2021 proposed federal budget included additional funding towards the regulation of cannabis and its derivatives, which includes CBD. Additional funds were allocated towards regulating licensed hemp farmers under the USDA proposals for state and tribal production plans.

Recently, four congressmen introduced a bill that would treat CBD as a dietary supplement. The bill would also devote resources for studying industrial hemp throughout the supply chain.

Crop Insurance

In early February three different types of crop insurance were expanded to include industrial hemp. They include Multi-Peril Crop Insurance (MPCI), Noninsured Crop Disaster Assistance Program (NAP), and Whole-Farm Revenue Protection (WFRP). MPCI is only available in select counties in 21 total states.

These insurance offerings are a positive step for the industry as farmers experienced devastating impacts from hail and early frost, among other issues. However, the program is not without challenges, the first of which is the short deadline to apply. Specifically, the biggest challenge is proving that the crops are pre-sold as stated above. Forward selling one’s crop is tremendously challenging, especially as we’re heading into the crop year with an oversupply from the 2019 crop. Growers will find it difficult to find credible buyers willing to fix a price in the future that they find acceptable. The USDA, however, explained to PanXchange they expect that producers will have until August 15, 2020, to finalize contracts. It has also stated that formula for how price is derived is sufficient, which alleviates the challenge of finding buyers willing to fix prices for future delivery. In mature markets, forward prices are rarely fixed and usually are quoted as a premium or discount to a benchmark or futures contract (basis trading). An example of how to forward sell hemp without fixing the price can be found here.

Industrial Hemp: Standardization of Specifications and A Brief Look into Hemp Paper

The PanXchange Hemp team was in Danville, Virginia this week for the 3rd Annual Industrial Hemp Summit. The conference was a good opportunity to meet with those who are leading the charge in modernizing a commodity that was once the most traded in the world in the 1800s.

Key highlights from the summit:

  • Growing hemp for fiber is more akin to traditional agricultural, as traditional practices and equipment can be utilized; growing hemp for CBD requires a more horticultural approach
  • This side of the industry will continue to see increased volumes & acres planted and a decrease in prices. However, the returns per acre, if executed correctly, should still continue to beat corn, soy, wheat, hay, and tobacco for years to come, even with further weakening in hemp prices overall.
  • Standardization of specifications is the only way forward. These specifications and grades will not only differ by end-use application but also by grades within the same end-use industries.
  • For example, the applicable specs for hemp that will be processed into the textile industry will need to be of a certain bast fiber length for fine “silk-like” garments and of a differing bast fiber length for an application into a more durable and rugged use. In both cases, fiber will need to enter the same decortication process, where it is cleaned and separated into different “spinnable grades”.

Current State of Industrial Hemp

  • Very few farmers grew for fiber in the 2019 season, with most of the acres grown on an experimental basis. Farmers for fiber are still determining best practices to suit the needs of their buyers and prospective buyers.
  • Current retting processes (for fiber retting in the field) are antiquated and in need of some farmer, ingenuity to improve this process and scale it to commercial levels.
  • The majority of the hemp that was grown for grain use was in North Dakota and Montana, where Canadian genetics and growing practices were applied. These genetics and practices have already been tested and proven in a similar geographical region, only separated by borders and legislative differences.
  • Traditional agricultural equipment companies have begun to offer decorticator machines and hemp-specific farm equipment, with their intention to monetize the shift from horticulturally grown CBD to commoditized industrial hemp grown for uses outside of the therapeutic space.
  • Prospective fiber and grain should look to Canada and Europe as resources for information, as both areas are much further along in their research and legislative landscapes.
  • Panelists at the conference spoke with a cautious sense of optimism, urging prospective fiber and grain growers to focus on the feedback loop from prospective buyers, and seek to replicate their required specifications on a consistent basis.

 

Paper Pulping

With increasing public awareness towards deforestation and sustainability, the University of Southern Indiana has published a factbook regarding paper consumption in the US. The facts are striking, and a serious look into the history of papermaking is the key to reviving the hemp for the paper industry. The earliest paper mills were created in China in the 700’s and the techniques were then spread to the Middle East and Europe via trade routes. The Gutenberg Bible, Thomas Paine’s pamphlets, and other legendary works were all printed on hemp paper. Successful lobbying for the tree paper and nylon industries led to the passing of the 1937 Marihuana Stamp Act. This put a hard stop on the hemp fiber and grain production in the US, majorly changing the course that modern papermaking would traverse.

Between 1993 and 1996, most member nations of the European Union legalized industrial hemp, with the Netherlands and France leading the rediscovery charge. Canada granted its first 12 industrial hemp permits in 1995 and also began the rediscovery of industrial hemp applications. There are a few different methods of paper pulping that have been employed in the past, but there is not one specific example of pulping that is better than the rest.

The table below is a step-by-step processing guide for paper pulping, written for the Journal of the International Hemp Association

Reference for Chart: Van Roekel, G J, 1994. Hemp pulp and paper production. Journal of the International Hemp Association 1: 12-14.

January Survey Results

February Hemp Market Survey