 Hi everyone, my name is Jessica Kelton. I'm the REA on the farm and agribusiness management team today I just want to cover a little bit about industrial hemp the risk management and some of the economics behind What's driving our market right now? Okay, so most of you are aware that in 2014 That's when we had the Farm Bill pass that allowed for states to legalize some Pilot programs or industrial hemp. That's kind of where we started our research As you know Alabama was not one of those states participated in that but we had several surrounding states that did participate Kentucky, Tennessee, North Carolina and South Carolina are all states that ran these pilot programs now in 2018 when the farm bill was passed that allowed for commercial production of industrial hemp then This allowed for most of our states to start producing, you know, Alabama started producing our first crop was in 2019 under the 2018 Farm Bill, but we're still operating under the pilot program until the 2018 Bill is passed for our state program Some of the things that are different for the 2018 Farm Bill is that one of the issues We had originally was interstate travel restrictions between state to state. They had different testing methods plant material could be Under the point three level in the state they were leaving but then go into another state and have issues and get Confiscated it also allows for hemp to have banking options at this point I don't know of any private lenders that are working with hemp growers But FSA has stated that they will allow operating loans to be secured for growers for You know in 2020 and also establishes some crop insurance Some of the the that's available for the crop insurance is there it will have nap coverage and that's through FSA I don't know the specifics on that you could visit the individual FSA office But they were also working with a multi Multi-parallel crop insurance program that is a pilot program and it will be available in almost all of the states in Alabama and all of the counties in Alabama One of the issues is that right now I understand that you'll have to have crop insurance and you'll or you will have to have a Contract to sale or to have it part your hemp purchased before you can qualify for that insurance But those will be options for 2020 production The one of the issues was we had some Tied to have clarification on how these rules were going to be implemented now. That wasn't published until the end of Roughly october of 2019 those rules came out So there's still a lot in the 2018 farm bill that's not well understood and we'll probably continue to have updates as we move forward with industrial hemp So I'm just kind of give you an idea of what our hemp production looks like throughout the US You can kind of see here on the map that the states in blue are the ones that were initially growing and then those kind of in the Yellow are the ones who now have Hemp in there the state as of 2019 The main thing to take away from this is the number of acres. We've had if you look at your total for 2017 We had 25,000 acres that were certified and had a license to produce on now If you look at 2018 that number goes up to 78,000 again, remember these are just licensed acres And we all know that there were a lot of issues depending on what year we're looking at it whether related or Cost prohibitive that people weren't able to plant all of those acres That were licensed and so now that we have where you have to certify your acres through if I say I think we'll have a better understanding actually how many acres are planted But then if you look for 2019 here are the estimates of the acres we had in the u.s And that's 511,000 acres that we have planted are licensed to grow So you can see there's a tremendous jump in the number of acres across the us that we had And that really kind of drives that supply and demand with that number of acres going from 78,000 to 511,000 Just in one year we have increased the tremendously increased the amount of hemp we have available Particularly most of this is going into CBD production. So that if you've watched the markets and watched the price of hemp you can really see why that Price has dropped so fast Because of just the the supply we have now again that is just licensed acres and the numbers I've seen Roughly as made about 350 of those were actually planted or 350,000 of those were actually planted Not sure exactly how many of those were actually harvested, but again Tremendous increase which pushes those prices down So like I said, most of that was for CBD production. There are Several types of production for industrial hemp Again by and large for Alabama we had all of it planted to CBD But there's also the fiber and the seed side and all of those have different production methods If you're growing for CBD majority of people are planting seedlings or transplants But if you're growing for seed or for fiber, then you're planting A lot higher seeding rate a lot closer together on the plants But again these that your seeds are going to be a lot less expensive for the fiber and seed market So one of the main things I want you to remember too is that the demand for CBD has Really been what's pushed the hemp production for the that type of production, but as we move forward with the industrial hemp market If we continue to have Infrastructure put in place so that we can use fiber products I think that we'll see An increase in interest in growing for the fiber and for the seed Most of those returns are not going to be as high as what we were seeing two years ago for CBD production But they could still be another option for people who are wanting to grow hemp But when we talk about risk management, one of the main things we have to think about are Well, everything in ag is kind of a risk But what do you want to do to kind of head your bets and mitigate those risks that you're going to face? And there's all kinds of risk whether it's production risk financial risk Just how the human risk of this So things you have to think about before you even plant are some of the decisions you have to make that kind of Gives you a little bit of Risk management for some of the things you're going to do. So we'll talk about that for production risk How am I going to manage my production strategy so that I'm not counting on one specific production practice to make all of my money So essentially not putting all your eggs in one basket So things you have to think about on production decisions I'm not going to go too in depth on this because I know there are some other Webinars that are going to be out there that kind of cover a lot on the production side Things you have to think about your bare ground or plastic What strain or strains are you going to to grow? Am I going to use seed or seedlings or am I going to use clumps? The main thing you have to think about if you're a large enough operation If you can kind of diversify if you have some bare ground versus plastic Particularly in your first year of what works best for you That way you're not just relying solely on one production strategy to make it because again, we're we're new at this And we don't know exactly what is going to be the best We don't know on strains which ones are going to work best particularly across the state South albama versus north albama may have a different outcome depending on what strain we plant You also need to be careful too when you're listening to advice from other Other states if their climates are different and they've had great If they've had some success with a particular strain it may or may not yield the same here But then also too some of your management decisions may be decided by who you're using as your processor right now albama doesn't mandate that a hemp grower have a You know heavy metal soil test or a test for herbicides or pesticides in the soil But if your processor Wants that it's going to be difficult to go back after the fact And have those tests run if they come up where your processor doesn't want to work with you Then that can be an issue so you and and too we have a lot of They're working to approve some pesticides to be used in hemp if your processor doesn't want to accept hemp with those Pesticides being sprayed and that really kind of limits you if that's who you decided It's going to be your processor and you don't have a backup plan So things to think about going into production of what kind of practices am I going to do and can I diversify those practices? So that I'm not just counting on one production practice There's a lot of risk too on the on production side And I know one of the main things we see are wheat issues Definitely want to stay on top of that Insects and disease pressure as well the other things THC spikes. We're not sure exactly what the weather will do or drought or extreme rain if those will cause any kind of THC spikes But it's something to think about but water use requirements for most of our Established commodities we have kind of an idea of what our our water use requirements are going to be But for hemp we're not sure yet. Again, that comes with years of research. We just don't have that Also on the fertility requirements, you may be working with a processor or working with Like a co-op of growers and you may have fertility management practices that are established But things you have to think about what am I going to do? How am I going to handle these requirements? Because we don't have a just a specific set of instructions for growing hemp in Alabama Then if you can get through the production side of that, how am I going to harvest? There's a lot of decisions you have to make with that and there's some risks that come along with both of them Our hand harvest versus mechanical. We've seen some growers who had the implements to harvest mechanically We had issues with uniformity across the field which made mechanical harvest very difficult if you're going to hand harvest do I have access to the number of People to actually go out there and hand harvest and then drying there's so many different options out there We don't have a set way of working with the drying So people have come up with some innovative ways to handle that Again thinking about across the the country there are places where they're able to Are they're cutting and leaving in the field to dry? Definitely not something we can do in alabama But there are a lot of different options out there and people are just having to try to figure out Which one's going to work best? Some of our surrounding states have been able to kind of adapt to that fairly quickly because they're They were used to growing tobacco and they had the tobacco drying barns. We don't have that So you have to have a plan in place going into this. What am I going to do? How am I going to handle when we get to harvest and drying? So After we've gotten it out of the field, what do we need to think about? Well, we need to think about it before we we actually even plan but once we get to the point where we have a crop to heart To market It's very difficult. There's no standardized market. There's no readily available information if you look on USDA NAS where we get our a lot of our statistics and we can see some of our prices There's just not a lot out there because it is a new market So it's very difficult to know exactly what those prices are going to run for retail versus wholesale and then Not just on the pricing of where where am I where am I getting my information from on the market? But then processors We have very few processors in the state. There are several that are supposed to be online for this year I don't know the capacity of all of these markets. I don't know any kind of restrictions They'll have for any of the growers that they're going to work with And and as the prices continue to fluctuate, it's very difficult to know You know at what point do I need to sign a contract? If you can sign a contract and a lot of processors are not going to do contracts going into 2020 Just because of the issues they had for 2019 And then competition remember we are competing against a lot of other states that have had Production for several years since 2014. They've had the trial and error years We're competing against those growers and then if you're small acreage It's going to be even more difficult to contract with processors who may have Limits on how small of a of a grower they'll work with because if they can Um get a large majority from of what they need a lot of their supply from Several larger operations than it may be in their best interest to go with those larger Operations as opposed to a number of smaller growers So finding who you're going to market through what your marketing plan for you know If you have that in place before you ever plant Um, it's going to be important going into harvest that you have a marketing strategy figured out I think every time we have a meeting we talk about financial risk and this is something that all of us say Um, just because it is such a high risk and there are a lot of unknowns in industrial hemp We don't want to discourage anyone from growing, but we also want you to understand What kind of financial risk this is is it? um Quite expensive for each acre you establish so we always encourage anybody who is thinking about growing hemp to Not invest more than they're willing to walk away from if it's going to cost you $13,000 an acre to establish this Yes, there's a risk that you could walk away having lost $13,000 So we don't want anyone taking everything they have and investing in this and um losing out because the market Is not stable or for whatever reason you're not able to recoup your money Just want everyone to be aware that there are a lot of financial risk in this And it is an investment cost a huge investment cost Again, you know 2018 farm bill address this opening up lines of credit through banks, but private banks have to be willing to give those Lines of credit Hopefully we'll see that uh, who knows if we will see that anytime soon Again, some of the insurance is in place, but it's not a complete protection. Most of the insurance Um That's going to be available will not cover if you test hot if you go above that point three level You probably not have any payments from any of your crop insurances. They're available Um, so there are some some restrictions on the insurance It does get give you some level of protection, but it's not going to completely protect everything that you've invested in this Then you have to think about the legal side of this. I read something this morning that said there were a lot of issues with theft out of fields um so you have you know having some kind of There's going to be a lot of legal and human risk along with this Crop it's just not like any other commodity. We've planted before We do advise people if you enter into a contract Which they may be very difficult to get but if you do make sure you have legal Counsel on how those contracts are are set up so that you're protecting your yourself There's some issues with regulatory changes. What are those going to look like if the FDA regulates CBD? Right now, there's not a regulation on it, but we know that there are There is one prescription drug that contains CBD. Does that mean that FDA the FDA will get involved and regulate this to any degree? We're not sure, but it's a potential there Like I said on the the human side of this theft is that could be a potential Um major issue depending on where you are how close you are to roads um and so yes Dealing with working with other people coming into your field could be a major problem Not only is that going to be an issue, but if you have to invest in some kind of security It's just going to increase your investment costs into this crop So the main thing what's our economic? Payoff from growing industrial hemp now This is a very difficult topic to get into just because month over month that CBD price continues to drop now It's very difficult to predict when that price is going to kind of Slow down on the decline or you know kind of level out Will it level out if we get processors in place? Will there be a continued demand for CBD? on the from consumers so The main thing when you are looking at a budget the budget is just there is kind of an estimate It's kind of a guideline. It's going to be something that you need to adjust for your individual operation So the numbers I show are going to be just estimates and you will need to go in and adjust those for your operation So when we talk about a budget we look at variable costs and you can see at the top of this Variable costs are like 13 thousand dollars Um, we kind of separate for a budget. We look at variable costs versus fixed costs Your variable costs are all the costs that you actually spend money to establish that crop. So your seedlings your fertilizer the Anything you pay to have that Planted and harvested as far as labor those are all your variable costs And then your fixed costs are those costs that you're going to have to pay Regardless if you plan or not so kind of if you if you've already bought a tractor And then you decide not to plant then you still have those tractor payments those kinds of costs are your fixed costs So you can see the majority of the costs for this are going to fall under variable cost Um, but then just to think about those fixed costs. Um, I will say this now There are the um budgets are available on our website at acis.edu You can go there and go into farming and you should be able to find those budgets for hemp is available as a pdf as well as a Spreadsheet then that spreadsheet is adjustable so that you can change those numbers to reflect your operation But so what are our returns and when we look at our returns? We typically look at returns above variable costs because the majority of your costs are associated with your variable costs The last time I looked at these budgets and and adjusted numbers kind of our average number was $1.75 per pound and on the If you look at this table, you can kind of see where those Returns are if you're aiming for average of $1.75 with 1350 this should be pounds per acre Then you're clearing about five thousand dollars. Now. This was in december when I Adjusted the budgets, but now we already have already seen that price your average price the last time I looked at the price that had a drop adjusted to about a dollar per pound. So that's based on percent of cbd content So you can kind of see where? Yes, there's money to be made but as those prices continue to drop then your returns above what you're spending get less and less Um, there's a lot of expenses associated with this your major ones are going to be your transplants Are your seedling cost and then your labor it is a truly labor-intensive and so you have to have Make sure that you have labor available to you to get this through planting through the production time and through harvest and then Irrigation cost drying cost which are going to depend on how you have that system set up And then licensing fees and and all that are going to add up to to what cost you're going to incur like I said before we have limited research that and 2020 will have more research within the state specific But until then I do urge you to visit some of the extension websites from surrounding states Kentucky is a very good resource as is Clemson don't have NC States website up here, but it is also a good resource again. Remember though these are going to be state specific And so not all this information is going to really translate to the same performance as it would for those states So, you know strain advice and and yields are probably not going to work exactly the same For alabama, but those are good resources to start with So that's what I've got feel free to email me call me if you have any information or any questions I'll be happy to help Again, do a lot of research do a lot of homework It is a huge investment and we want to make sure that everybody who's planning gets into this And they're successful with it. So thank you