A funny thing happened on the race to the bottom recently with respect to hemp biomass and processed material pricing, pricing has stabilized, at least for now. This is an important development for both farmers and processors who have spent the last two years scrambling to make ends meet.
The stable prices, first reported by PanXchange (https://panxchange.com/panxchange-hemp-benchmarks-analysis-april-2021/) , came as a surprise as the hemp industry entered the 2021 planting season with an estimated 201 million pounds of excess biomass and inventories of distillate and isolate bloated. Given that prices had fallen heading in to January, seeing prices stabilize in April and May seem counterintuitive, yet promising.
What is driving this leveling? Some analysts attribute this to the increased demand for smokable flower, while others are suggesting that demand for biomass and processed materials to support delta-8 demand may be the culprit. Regardless, the question now is whether this is finally the floor in pricing or is it just a bubble that will soon burst with further price declines in tow.
Stable prices, if it continues, are good for the industry as it makes operations and sales more predictable. It also gives cultivators and processors more security, especially heading into this planting season. For those cultivating and processing that have buyers, it would be best to lock in prices via a contract. Based on the PanXchange report, “Looking ahead, expect to see premiums inch up for higher quality products.” The key word here is quality. For those trying to unload lower quality products on a fire sale, there will still need to be a street fighter mentality when it comes to pricing and competitiveness.
On the other hand, if this is a bubble, and prices start falling again, then it will continue to reap havoc throughout the supply chain. Investors will be hesitant to invest citing increased risk and difficulty in modelling the business, product manufacturers and processors will hold off placing orders waiting for lower prices and cultivators will continue to end up holding the bag. The market will seize up.
Regardless, there is a window of opportunity here for those operators who have struggled for the past three years. Our advice, get while the getting is good. For those entrepreneurs who have remained steadfast in the industry, this may be the light at the end of the tunnel.
Enjoy this respite, there is more work ahead heading into year 3.