Although less than a month old, the political and economic fallout from Russia’s invasion of Ukraine is already having a dramatic impact on global agricultural markets. As a result, the war is expected to affect the hemp industry in the United States, possibly for some time.
Hemp Benchmarks spoke to industry stakeholders and researchers for their perspectives on how the conflict in eastern Europe might be felt in the U.S. hemp market and beyond. Our sources agreed that the crisis in Ukraine will have numerous downstream consequences for hemp production, but they acknowledged that they cannot predict with certainty the extent and duration of the war’s impact on the developing hemp market.
Back in January, before the fighting began, Successful Farming noted that Russia and Ukraine together account for about 30% of the world’s wheat exports and 20% of global corn exports. Both countries also export “significant amounts” of feed grain and sunflower oil. “The likely disruptions to agricultural activities of these two major exporters of staple commodities could seriously escalate food insecurity globally, when international food and input prices are already high and volatile,” Qu Dongyu, Director-General of the United Nations’ Food and Agriculture Organization, said in a statement released on March 11.
The fighting in Ukraine, along with international sanctions leveled against Russia, have since sent grain prices sharply higher, with wheat prices in the U.S. reaching a 14-year high in early March. Rising prices for staple commodities are prompting some farmers who may have considered planting hemp to instead grow more wheat and corn.
“U.S. farmers will soon be making planting decisions for spring wheat,” Dominique van der Mensbrugghe, research professor and Director of the Center for Global Trade Analysis at Purdue University, said in an email to Hemp Benchmarks soon after Russia invaded Ukraine. “Depending on how things evolve over the next few weeks, some may decide to plant more wheat than originally anticipated.”
As the price of CBD hemp biomass and extracted products plummeted in recent years, Hemp Benchmarks has reported that a concurrent rise in prices for traditional commodities – corn, soy, and wheat – played a role in contracting hemp production. Put simply, farmers saw opportunities to secure good prices for crops they know, rather than taking a chance on the new and volatile hemp-CBD market.
Now, the current spike in wheat prices has the potential to crimp U.S. acreage of grain hemp as well. Grain hemp has gained a foothold in the Upper Midwest and northern Mountain West, in states such as Montana, North Dakota, and Minnesota. Sources have previously told Hemp Benchmarks that farmers in those states who have added grain hemp to their rotations also frequently grow wheat. Consequently, if more acreage is devoted to wheat this year, that could mean less for grain hemp.
The repercussions of high prices for wheat and other staple crops are also being felt beyond the U.S. Alexander Heifitz, based in New York, has been talking with his colleagues at Emerald Farms, an Italian hemp company located in San Mariano, Perugia. Many of the cultivators the company works with are diversified farmers, growing hemp, tobacco, olives, and other crops. He told Hemp Benchmarks, “we will probably see a market fluctuation if farmers go back and grow wheat.” According to Heifitz’s partner in Italy, many local farmers have wasted no time and are now growing wheat and corn, actions that are expected to impact local hemp production and prices throughout Europe.
High prices for agricultural commodities on their own would be a boon for farmers. However, the cost of agricultural inputs has also been on the rise, leading to significantly increased production costs. For example, fertilizer prices have soared over the past year, due in part to weather issues, supply chain disruptions, and rising inflation rates.
On top of other factors pushing up fertilizer prices, Russia is one of the world’s largest producers and exporters of agricultural fertilizers. According to the Wall Street Journal, Moscow recently halted exports of some important fertilizers until at least April, “to guarantee supplies for farmers at home.” Furthermore, The Economist recently noted Russian ally Belarus – also a major supplier of fertilizer ingredients – has had sanctions placed on its economic activity as well. This has left some major agricultural nations – like Brazil, which reportedly imports about 20% of its fertilizer from Russia – scrambling to find alternative supplies in other countries.
Climbing fertilizer prices are due in part to rising fuel costs – a trend predating but exacerbated by the war in Ukraine – which themselves present another difficulty for farmers of all crops. “While we can’t make any specific predictions on how the rising conflict in Ukraine might impact U.S. or international hemp prices or production, the increasing cost of fuel and the amount needed to run certain equipment could pose a big problem for producers,” Jonathan Miller, General Counsel for the U.S. Hemp Roundtable, said in a statement to Hemp Benchmarks.
Rigoberto Lopez is a professor of Agricultural and Resource Economics at the University of Connecticut, as well as co-editor of Agribusiness: An International Journal. He believes that while the Ukraine conflict will not affect consumer demand for hemp, it will certainly affect overall hemp supplies and the industry’s supply chain. “There are going to be some new challenges for hemp, because the costs are going to increase,” he told Hemp Benchmarks. “There might be some redirection of resources, maybe, by some growers of hemp into other agricultural activities.”
Lopez believes that if the Ukraine conflict goes on for months or more, global markets will need to rebalance themselves to address shortages of wheat. The fighting, he said, is already creating high prices for a variety of essentials, while also leading to distribution disruptions. “I don’t think this is going to be short-lived,” he said, adding that the global economy had already softened due to the COVID-19 pandemic. Now, he noted that the Ukraine war, along with the persistence of COVID-related supply chain impacts, has created a “perfect storm” of economic disruptions.
“Even if the conflict was to stop in six months, I think [its economic impact] is going to be felt probably for a few years before it normalizes itself,” Lopez continued. “And we’re going to be in a new normal for prices and costs and inflation, unfortunately.” The hemp supply chain, he added, will also be forced to adapt to the new normal. “Like what happened with COVID, for example, when everything adapted,” he said. “[Hemp] will adapt to this shock from the Ukraine war.” Still, Lopez also expects any additional costs from the current disruptions will be passed on to the consumer, which could lead to “sticker shock” for customers of hemp and hemp products.
A reduction in hemp cultivation and production in North American and Europe, however, could create new opportunities elsewhere in the world. “I think South America is a natural,” Lopez said. “They were growing cannabis before [legalization]. They can make up for some [hemp] supplies.”